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Fragile finances, big bonuses for health care execs -
Healthy bonuses boost HMO executives' pay despite worst operational losses in a decade // Compensation awarded to HMO executives in 1997 was affected by the worst operational losses of the 1990s. Still, some came out ahead as they met companywide strategic goals.
Star Tribune: Newspaper of the Twin Cities
December 21, 1998
Author: Glenn Howatt; Staff Writer

Financial bonuses awarded to managed care executives for 1997 were affected by the worst HMO operational losses of the decade.

However, because many HMO executives also oversee related businesses with healthier bottom lines, total compensation awarded to most of them actually increased in 1997 as they met companywide strategic goals.

Most notably, Andy Czajkowski of Blue Cross and Blue Shield of Minnesota saw his 1997 total compensation increase 33 percent to $758,376.

Czajkowski, the highest-paid CEO among the state's managed care companies, not only oversees Minnesota's largest health insurance portfolio, he also manages a sprawling $2 billion enterprise.

Known as Aware Integrated Inc., it includes subsidiaries that manage mental health and drug costs, write life and casualty insurance, provide dental insurance and administer health benefits for self-insured companies.

Czajkowksi's compensation is apportioned among the various Aware entities, with the core Blue Cross business accounting for about 82 percent, or $620,392, of his compensation. Another $45,368 came from the Blue Plus HMO subsidiary, the MII Life insurance company accounted for $41,030 and Atrium Health Plan, the company's Wisconsin HMO, paid Czajkowski $7,632.

Pieces of Czajkowski's compensation always had been publicly available, such as those accompanying this report, which are reported to state regulators.

Ever since the Aware holding company was formed four years ago, however, Czajkowski's total compensation was not publicly disclosed because no state agency regulates all of Aware's operations. And even though it is a nonprofit, Aware is taxed, meaning it does not file the publicly available IRS return that tax-exempt nonprofits such as Medica and HealthPartners use.

Aware released the information last week after requests from the Star Tribune.

Other managed care companies released total executive compensation data last month when they filed their IRS tax returns. (Although nonprofit returns are due in June, companies typically have sought and received filing deadline extensions from the IRS).

Officials for Eagan-based Blue Cross said Czajkowski's base salary has remained unchanged for the past four years at about $425,000. In 1997 he was awarded a bonus of $285,856, partly for reducing the company's operating loss by cutting administrative expenses and improving underwriting performance.

By contrast, Czajkowski's 1996 total compensation of $570,580 was a 7 percent decrease from his 1995 pay package. In 1996, the company lost $35 million from operations; in 1997, losses were trimmed to $10 million.

Incentives more common

Incentive bonus programs paid to executives like Czajkowski have become more commonplace in the nonprofit sector.

"Twenty years ago, nonprofits generally did not pay bonuses," said David Bjork, a consultant with the Minneapolis-based Management Compensation Group/HealthCare. "They have begun to pay bonuses to compete, to recruit and to retain good executives."

For-profit executives tend to receive larger bonuses, Bjork said, because their awards are often tied to bottom-line performance numbers such as earnings per share or stock prices. They also can receive some compensation in stock, which can reward an executive handsomely if the price appreciates.

Bonuses for nonprofit executives are tied to financial performance, but also can be linked to such factors as member satisfaction, enrollment growth and member retention.

CEOs of the state's two largest HMOs, Medica and HealthPartners, received lower bonus pay in 1997 because of operational losses.

HMO compensation for David Strand, CEO of Medica, a unit of Minnetonka-based Allina Health System, decreased 12 percent to $218,734. Medica reported a $24 million operational loss. Strand's total pay, which includes responsibilities at Allina other than the Medica HMO, was $409,445, down slightly from 1996.

Had Strand not received a raise as part of a promotion at Allina, his total compensation would have decreased at about the same rate as his HMO compensation, said Allina spokeswoman Meghan Gearity.

HMO compensation for George Halvorson of Bloomington-based HealthPartners went down 1 percent to $243,896 on the HMO's operational loss of $22 million. As CEO, Halvorson also is responsible for the company's other businesses, including the HealthPartners Medical Group clinics and Regions Hospital. His total pay increased 8 percent to $676,877.

Overstated pay

But HealthPartners officials noted that Halvorson's total compensation, which was reported on the company's IRS tax return, probably overstated his actual pay because it included all of his benefits, including $103,782 for a life insurance and comprehensive disability policy.

"Buying disability coverage and life insurance isn't generally considered base salary for the purposes of business salary comparison," said Sara McFee, HealthPartners spokeswoman. "In fact, if I went in for a car or house loan, the focus is on my base pay."

Halvorson's gross wages for 1997 were $513,816, a 9 percent increase over comparable 1996 compensation.

Employee benefit amounts reported by other companies - which are included in the totals - were $47,201 for Czajkowski at Blue Cross, $23,893 for Allina's Strand, and $81,969 and $52,151 respectively for Gordon Sprenger, exeutive officer, and K. James Ehlen, president, of Allina.

At Metropolitan Health Plan, pay for CEO John Bluford increased 35 percent to $121,099. The HMO, which is a part of Hennepin County government, increased Bluford's salary after the Legislature amended state salary caps, which allowed the county to pay Bluford more than 90 percent of the governor's salary. Only 40 percent of Bluford's salary is for his HMO duties, the other 60 percent is for his job as administrator of Hennepin County Medical Center. (Bluford recently resigned his post to become CEO of a Kansas City, Mo.-based medical center.)

UCare Minnesota's CEO Nancy Feldman had a 12 percent pay increase in 1997, putting her at $234,726.

Dr. William Jacott, head of the University of Minnesota Family Practice Department, said Feldman's compensation increased because of bonus payments made in 1997. Her base salary has remained unchanged for three years.

Data compiled by Warren Surveys, a national consulting firm, show that the average CEO compensation for HMOs in the Midwest is about $237,000.

"I feel we're right in the ballpark," Jacott said. "We are following the market."

Compensation trends mixed for health care executives

Compensation trends for executives who run the state's largest health plans were mixed in 1997. Andy Czajkowski, Blue Cross & Blue Shield CEO, led the list with a $758,376 in total compensation, up 33 percent. Compensation for all other executives increased, except at Allina Health System. The compensation data for some executives, namely those from Aware Integrated, HealthPartners and Allina, include salaries they receive for overseeing all aspects of company business, not just health plans.


1996 TOTAL 1997 TOTAL 96-97

Aware Integrated Inc. (Blue Cross & Blue Shield of Minn.) Andy Czajkowski, CEO $570,580 $758,376 33%. Mark Banks, COO 254,183 290,555 14%.

HealthPartners George Halvorson, CEO# 628,400 676,877 8%.

Allina Health System Gordon Sprenger, exec. officer 529,801 438,675 -17%. K. James Ehlen, pres. 639,188 443,775 -31%. David Strand, Medica CEO 410,537 409,445 -0.3%

UCare Minnesota Nancy Feldman, CEO 210,512 234,726 12%.

Preferred One Management Co. Marcus Merz, CEO 208,000 230,000 11%.

Metropolitan Health Plan John Bluford, CEO 89,932 121,099 35%.

# Halvorson's total compensation includes $103,782 for a life insurance and comprehensive disability insurance policy, Without that and other benefits, Halvorson's 1997 compensation was $513,816, a 9 percent increase from a comprable 1996 figures.

Source: Federal tax returns prepared by each organization. Preferred One, which as a private for-profit company is not required to disclose compensation data, voluntarily provided information to the Star Tribune. Aware Integrated also voluntarily provided compensation data for Czajkowski and Banks.

Section:  BUSINESS
Page:  01D
Copyright (c) 1998, 2001 Star Tribune: Newspaper of the Twin Cities