Erlanger bonuses anger Tennessee lawmakers, local officials

photo Erlanger Health System's president and CEO, Kevin M. Spiegel, will get a 10 percent raise and a six-figure bonus this year.

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photo Jim Coppinger

State and Hamilton County officials used the words "disappointed," "stunned" and "troubled" to describe their reactions to the Erlanger Health System board's decision to give $1.7 million in bonuses to executives and management months after the hospital was in danger of ending the year in the red.

"I felt betrayed. I felt embarrassed " said state Sen. Todd Gardenhire, R-Chattanooga. He said the decision flies in the face of the work local, state and federal lawmakers did to help procure $19 million in federal funding, money that contributed directly to the hospital ending the year in the black.

"It will be difficult for [Erlanger] to come back and ask anything of us going forward," Gardenhire said.

Erlanger trustees approved a series of last-minute resolutions Thursday to pay out the incentives to 99 managers. They include a $234,669 performance incentive for Spiegel, bringing his total compensation this year to $914,669. Trustees also voted to give Spiegel a 10 percent raise next year, and approved a 2 percent nonbudgeted pay raise for hospital employees.

The payouts were tied to a series of financial benchmarks set up more than a year ago. Still, state Sen. Bo Watson, R-Hixson, said he was "stunned" by the move, given the hospital's recent financial history.

"A year ago, this administration, this board was before us, hat in hand," Watson said. "This delegation went to bat for this hospital system. And now this."

Members of Hamilton County's legislative delegation said they plan to discuss the Erlanger payouts today when they meet with county officials to discuss the upcoming legislative session. Several members said they plan to take "some kind of action" in response to the incentive payouts, though they were not specific.

"Tennessee has a hospital assessment fee. Erlanger's exempt from it. Are we just providing bonuses for people? What do we do with that?" Watson said.

The delegation has been involved in several recent Erlanger-related measures, including the hospital's recent efforts to gain 501(c)(3)-like nonprofit status. Rep. JoAnne Favors, D-Chattanooga, pulled support last year from a proposed bill that would grant the hospital that status, saying she was worried about management decisions that involved freezing vacation time for Erlanger's 4,000 employees.

Favors said Monday that the board's decision reinforces her position not to support any bill that grants the hospital more independence. She said she took several "deeply troubling" calls throughout the weekend from upset Erlanger employees and retirees, who have had their health and retirement benefits slashed this year amidst cost-saving efforts and who were frustrated by the bonuses.

"This is a community hospital. You have to make decisions that will consider how it will impact the community," Favors said. "I was talking with other government entities to get more funds from a local government level. I feel like I have mud on my face now."

photo Todd Gardenhire

Hamilton County Mayor Jim Coppinger also said he was "very disappointed" with the board's decision.

"We know that Erlanger has been successful over the last 12 months, and we know that the federal dollars were big this year. But that is not going to be a steady revenue source," he said. "I am just disappointed we did not give it more time."

Hospital trustee Jennifer Stanley said she and the other trustees were obligated to deliver on a promise they made more than a year ago. Every year the board sets up the performance incentives and ties them to specific financial, operational and quality goals "to guide the focus of management's attention on any given year."

"In fact, we set fiscal year 2014 targets long before anyone had any idea that access to the [federal] supplemental pool would become a reality," said Stanley. "We owe management the incentives we promised over a year ago. Not to pay would be an egregious moral and ethical violation, in addition to destroying trust between the board and management."

Stanley also said that the $19 million in federal money should count like any revenue Erlanger received for services rendered, and that Erlanger does not set aside specific sources of revenue to pay incentives.

Stanley said those asking the board not to pay the incentives would be "asking the board to go back on its word, which I do not believe is their intent, but is what would occur if we refused to pay incentives."

Board chairman Donnie Hutcherson said turning around Erlanger's finances took "extraordinary performance" by the hospital's management team.

"Based on information from our independent compensation consultant, the average pay -- including incentive payments -- for Erlanger's managers [is] well below the median amount for their peer group, around 35th percentile," Hutcherson said.

photo Tennessee Senator Bo Watson

Lawmakers said they were troubled by the manner in which the bonuses were approved. The resolutions approving the incentives were added to the board's agenda a few hours before the meeting, and conversation about the incentives took place in a closed dinner meeting before the public vote, several trustees have acknowledged.

Certain closed meetings are permitted by 2008 legislation that allows any public hospital subject to open meeting laws or public record laws to discuss strategic plans in closed meetings. Erlanger trustees said the discussions about incentives involved patient care and strategy and so were "appropriately closed."

But Gardenhire said closed discussions about the bonuses "violates the spirit" of what state law has allowed for closed sessions.

"I'm going to do whatever I can do so that a public institution like that is more answerable to the public, and not just a few individuals," Gardenhire said.

Contact staff writer Kate Harrison Belz at [email protected] or 423-757-6673.