D-H Paid Departing Executives More Than $3 Million in 2012

  • Dartmouth-Hitchcock Co-Presidents Nancy Formella and James Weinstein  during an editorial board meeting in Sept. 2010. (Valley News - Jennifer Hauck)

    Dartmouth-Hitchcock Co-Presidents Nancy Formella and James Weinstein during an editorial board meeting in Sept. 2010. (Valley News - Jennifer Hauck)

  • Dartmouth-Hitchcock Co-Presidents Nancy Formella and James Weinstein  during an editorial board meeting in Sept. 2010. (Valley News - Jennifer Hauck)
Tom Colacchio (Courtesy photograph)

Tom Colacchio (Courtesy photograph)

Lebanon — Dartmouth-Hitchcock spent more than $3 million in 2012 on severance payments to three executives who left top management jobs, including a $2.3 million “separation payment” to former co-chief executive Nancy Formella.

The payments — which were made in the wake of a 2011 leadership shuffle that followed operating losses, layoffs, job eliminations and a failed attempt to acquire a southern New Hampshire hospital — were detailed in recently filed tax returns for the fiscal year that ended June 30, 2013.

Formella stepped down as president of Mary Hitchcock Memorial Hospital in November 2011 when D-H dismantled a leadership troika that had led the Lebanon-based hospital and clinic since January 2010.

D-H tapped James Weinstein, then president of Dartmouth-Hitchcock Clinic, to become the “single leader” of the hospital, clinic and the nonprofit holding company that connects the two.

Formella was given the new title of “executive adviser to the boards” and continued in that capacity for a year. In 2012, her compensation totaled $3.3 million and included $699,000 in base pay and $2.3 million in a “separation package … in lieu of a multi-year contractual obligation.”

In an email to the Valley News, Formella expressed her respect and thanks to D-H, but said that “because I no longer have any association with the organization, it would be inappropriate for me to comment on the terms of my departure.”

Two doctors who stepped down from executive jobs in 2011 also got severance packages. Thomas Colacchio, who after being replaced by Weinstein as clinic chief in 2010, became holding company president and the third member of the troika, collected a $320,000 severance package in 2012. Carl DeMatteo, former chief quality compliance officer, collected $437,000.

The management shake-up followed the onset of financial woes at D-H, which with its 350 hospital beds and 8,850 employees is northern New England’s largest health care provider.

In the 12-month period that ended Sept. 30, 2011, D-H posted a net loss of $18.4 million on $1.08 billion of revenue. The health care provider was under financial pressure in part because New Hampshire stopped reimbursing hospitals for a tax imposed in order to boost federal Medicaid revenue. That set off a wave of layoffs at New Hampshire hospitals, including D-H, where 60 employees were laid off and 340 more jobs were eliminated through attrition and early retirements.

D-H spokesman Rick Adams said in an email that the financial losses were “unrelated” to the leadership change, which was “a planned event after a thoughtful process of review by our board of trustees to establish a leadership model to better support the evolution of our health system.”

Still, in November 2013, when Standard & Poor’s revised from “negative” to “stable” its outlook for changes in D-H’s financial health, the bond-rating agency cited the “benefits from a single management team over the hospital and clinic” as a contributing factor.

Standard & Poor’s gave D-H’s bonds an A+ rating, signifying the health care provider had a “strong capacity to meet financial commitments, but (remained) somewhat susceptible to adverse economic conditions and changes in circumstances.”

In the 2012 fiscal year (which lasted only nine months, due to a changeover in reporting periods), D-H got back in the black, as its $956.5 million in revenue exceeded operating and other expenses by $43.9 million. In the fiscal year that ended June 30, 2013, D-H posted net income of $66.8 million on revenue of $1.32 billion.

But a funny thing happened in 2012. Dartmouth paid more to the dispatched executives — Formella and Colacchio, a cancer surgeon who returned to clinical work after giving up the presidency of Dartmouth-Hitchcock Health, a nonprofit holding company — than it did to its new leader.

Weinstein’s base pay in 2012, his first year alone at the top, was $778,000, a 15.9 percent increase over 2011, when his base pay as clinic chief was $671,000. With benefits included, Weinstein’s 2012 compensation totaled $893,000, up 18 percent.

But Weinstein’s pay package was still only about 27 percent of the $3.3 million that D-H gave Formella in the form of severance pay, her $699,000 paycheck as an adviser and various retirement and other benefits.

Weinstein also collected less than Colacchio, whose $1.1 million pay package included a $320,000 “change of control payment.” Colacchio had been scheduled to leave the holding company presidency in August 2012 but instead stepped down and returned to full-time clinical practice in November 2011, the hospital said in a release at the time of the transition. Colacchio referred questions about the payment to Adams, the D-H spokesman.

In 2012, two D-H neurosurgeons also got paid more than Weinstein: section chief David Roberts, whose compensation package totaled $1.1 million, and Kadir Erkmen, whose $1.2 million pay package included a $495,000 bonus.

Erkmen, whose 2011 bonus of $197,000 was the largest reported on the clinic’s 2011 tax return, left D-H and is now a neurosurgeon at the University of Texas in Houston. Erkmen also could not be reached for comment.

Adams noted that “neurosurgeons are among the highest-paid physicians in the country,” but declined to elaborate on the bonus paid to Erkmen. “We consider compensation at private matter between the employee and Dartmouth-Hitchcock,” he said.

D-H also awarded DeMatteo a $437,000 “separation payment in lieu of a multi-year contractual obligation,” according to the tax forms.

Adams said DeMatteo had been responsible for “quality and safety initiatives, as well as the institution’s compliance with regulatory requirements and reviews.” DeMatteo, who now works part-time in Dartmouth-Hitchcock’s Keene clinic, declined to comment on the payment other than to note that it was a contractual obligation and related to other executive changes at D-H.

Formella, a registered nurse who started as senior nurse executive at D-H in 1999 and still has a home in Hanover, continued to advise D-H’s boards until December 2012.

The next month, Beth Israel Deaconess Medical Center, a teaching hospital in Boston affiliated with Harvard, chose Formella as its chief operating officer and issued a release that noted her “strong proven track record of day-to-day hospital management and robust health system development.”

Weinstein, a spine surgeon, was brought to D-H in 1996 by John E. “Jack” Wennberg and in 2007 became director of The Dartmouth Institute for Health Policy and Clinical Practice. Weinstein worked with former Dartmouth College President Jim Yong Kim to establish the college’s Center for Health Care Delivery Science.

Weinstein took the top job at D-H eight months after it dropped its bid to acquire Catholic Medical Center and an affiliated clinic in Manchester, citing “evolving changes in health care reforms.”

Although the hospitals had called the proposal an “affiliation,” a review of the deal by the Charitable Trusts Unit of the New Hampshire Attorney General’s Office concluded that it would have given Dartmouth-Hitchcock Health, a nonprofit holding company, “control over core functions of (Catholic Medical Center), which until this point have operated as an independent Catholic hospital.”

Colacchio had played a leading role in D-H’s efforts to win regulatory approval of that deal.

Under Weinstein, D-H has joined with other hospitals and clinics in New Hampshire and Vermont to form accountable care organizations aimed at reforming health care payment arrangements and lowering costs.

In October, D-H signed an affiliation agreement with New London Hospital. Development of a regional health care network through formal affiliations with three other hospitals — Alice Peck Day in Lebanon, Mt. Ascutney in Windsor and Cheshire Medical Center in Keene — remains in the works.

D-H still has some work to do to shore up its balance sheet, which included $544 million in long-term debt at the end of fiscal 2013. In November, Standard & Poor’s said the health care operator’s “financial metrics remain somewhat below rating level medians,” citing concerns about the level of debt. In fiscal 2013, D-H paid $19.2 million in interest on its debt.

Although D-H is a nonprofit corporation and exempt from federal income taxes, bond raters want its annual revenue to exceed expenses by at least 4 percent. Bond ratings matter because they affect the interest rates paid by borrowers. In fiscal 2013, D-H fell short of the 4 percent target because its margin was only 2.9 percent .

Rick Jurgens can be reached at rjurgens@vnews.com or 603-727-3229.