Charity begins at home: non-profit's officials get mortgage aid.

Catholic Healthcare West, criticized for its chief executive's million-dollar salary and lavish mortgage assistance, also offers two other executives similar pay packages, according to a Business Journal review of its financial filings.

The San Francisco-based operator of five Los Angeles County hospitals, whose charity care policies have been targeted by health care advocates, paid its chief administrative officer and chief strategy officer more than $1 million each in 2003 in total compensation, while Chief Executive Lloyd Dean earned $1.45 million.

The figures include the annualized value of $2.75 million in forgivable mortgage assistance given to the two executives and three other high-ranking CHW officials, and the annualized value of a $2 million, largely forgivable loan that was given to Dean in 2000 to lure him to CHW.

Hospital officials say the pay was required because of the chain's dire straits when Dean and his team took over. But others say there are limits.

"Non-profits need to be as well managed as they possibly can. I would argue they even need to be better managed," said Pete Manzo, executive director for the Center for Nonprofit Management, a Los Angeles consulting firm. "(But) it's debatable whether these people are worth that."

While Dean is not the highest paid chief executive in non-profit health care, he has become the poster boy for excessive pay by being highlighted in a compensation study by the Chronicle of Philanthropy.

Moreover, the hospital industry and tax-exempt institutions in general are coming under increasing scrutiny for the perks they lavish on executives.

Activists have alleged that CHW provides too little charity care and overcharges uninsured patients--while other non-profit hospital systems nationwide are being sued over their billing practices toward the uninsured.

Meanwhile, the Internal Revenue Service announced last week that it would examine compensation arrangements at 2,000 tax-exempt organizations nationwide, a move widely perceived to be in response to a Senate Finance Committee probe into excessive compensation and other questionable financial practices at non-profits.

Officials at CHW maintain that their compensation packages were warranted by the unusual circumstances of the hospital system, which was coming off three straight years of losses that totaled more than $900 million.

"It's fair to understand we were a step away from junk bond status when this management team came on," said spokesman Mark Klein. "They have led one of the most historic turnarounds in health care."

Klein noted that in the 2003 fiscal year CHW reported a surplus of $54 million, its first in six years.

Dean has been getting the most attention. He earned $1.45 million total compensation in the fiscal year ended June 30, 2003, according to Form 990 that CHW filed with the IRS.

That figure includes his salary, any bonus and the value of mortgage assistance received during the year. According to the filing, Dean received a $1.75 million loan forgivable over five years, and a $250,000 loan at an undisclosed interest rate.

It also indicates that a balance of $1,050,000 was due on the forgivable loan, indicating that CHW was forgiving it at a rate of $350,000 annually.

Second-highest paid on the new management team was Elizabeth Shih, the system's chief administrative officer, who earned $1.39 million in 2003 total compensation. She was issued a $600,000 mortgage loan in September 2001, forgivable over three years. She now owes $200,000 on that loan.

Third-highest paid is Charles Francis, the system's chief strategy officer, who was paid $1.02 million in 2003 total compensation, and also was issued a $600,000 mortgage loan in February 2001 forgivable over three years. He also still owes $200,000 on the loan.

Earning less than $1 million but still qualifying for mortgage assistance are the system's chief financial officer, who owes $250,000 on a $750,000 loan issued in January 2001, and its chief human resources officer, who owes $333,333 on a $500,000 loan issued in February 2002--both forgivable over three years.

Klein said the system decided to offer the loans partly as a retention tool--CHW forgives them over time--but also because of housing prices. "They were included to enable the executives to purchase a house in the San Francisco Bay area roughly equivalent to the home they had before," he said.

CHW, with 37 hospitals in California, Arizona and Nevada, operates California Hospital Medical Center in downtown Los Angeles, Northridge Hospital Medical Center, San Gabriel Valley Medical Center and St. Mary Medical Center in Long Beach.

Kaiser Foundation Health Plan Inc., with more than twice the assets of CHW, also provides mortgage assistance. However, the assistance is more spread out and smaller.

Some 26 employees at the vast health system received mortgage assistance as part of employee relocation packages, according to Kaiser's 2002 Form 990. The assistance totals $100,000 or less with the exception of two loans: one for $150,000 and the other $300,000. Moreover, the loans must be paid back, with interest.

Jim Anderson, a Kaiser spokesman, said the system offers mortgage assistance on these terms as a way of helping managers buy homes they can afford.

In some states non-profits are barred from offering mortgage assistance to employees as part of relocation packages. But the practice has its defenders, and is legal in California.

Jose Pagoaga, a health care compensation specialist with Mercer Human Resources Consulting, said it can be hard to bring in top outside executives without such perks and top salaries. But Manzo said there are better ways to put the packages together, such as having executives and organizations share the mortgage loan and future equity.

K.B. Forbes, a health care activist who last year led a successful effort that caused Tenet Healthcare Corp. to sharply reduce its charges to uninsured patients, said that the compensation policies were another example of the Catholic system losing its way.

"If you are going to go work for a non-profit, sacrifices have to be made because you have a community mission," he said.

Forbes targeted the Catholic system in full-page ads in the Washington Times, accusing CHW of abusing its non-profit and Catholic mission and failing to provide enough charity care.

A month later, CHW said it would consider offering free care to families at or below 200 percent of the federal poverty limit and discounted prices to families up to 300 percent of the limit.

Meanwhile, the Senate Finance Committee is examining such issues as excessive pay, mortgage assistance and other financial practices at the nation's more than 10,000 tax-exempt institutions.

Healthy Packages

Catholic Healthcare West's generous perks.

                                              Mtg
Official                  Annual Pay *   Assistance **

Lloyd Dean, CEO           $1.5 million      $2 million
Elizabeth Shih, Sr. VP     1.4 million         600,000
Charles Francis, Sr. VP      1 million         600,000
Ernest Urquhart, Sr. VP        899,000         500,000
George Bo-Linn, Sr. VP         768,000         300,000
Michael Blaszyk, CFO           754,000         750,000

* Includes salary, bonus and annualized value of mortgage assistance

** Total value of mortgage assistance

Source: IRS Form 990 for year ended June 30, 2003