Editorial: D-H Should Explain Big Pay Packages

If you seek confirmation that health care is big business, look no further than Dartmouth-Hitchcock’s most recent federal tax filing.

As staff writer Rick Jurgens reported last month, D-H made severance payments totaling more than $3 million in 2012 to three top executives displaced in a management shuffle in November of the previous year. That restructuring, undertaken during a time of great financial stress for the organization, dismantled a troika of executives at the top and elevated one of them, James Weinstein, to being a single leader.

One of the other co-leaders, Nancy Formella, became an adviser to the governing boards of D-H, for which she was paid $699,000 in 2012. She also received a separation package of $2.3 million before moving on in January 2013 to a Boston hospital. Thomas Colacchio, the third member of the trio, got a $320,000 severance package, while Carl DeMatteo, former chief quality compliance officer, got $437,000.

In the corporate world, those numbers might not raise eyebrows, but in the context of medical care in the Upper Valley, they certainly do. D-H is a tax-exempt, not-for-profit organization with a charitable mission that regularly solicits financial support from the community. Moreover, these payments were made in the wake of financial turmoil — including operating losses, layoffs and the elimination of jobs — that beset Mary Hitchcock Memorial Hospital, the Dartmouth-Hitchcock Clinic and the holding company that is the umbrella for the two during the tenure of the executives who were rewarded.

Neither D-H nor the executives involved felt compelled to provide any public explanation beyond that the payments were made to fulfill contractual obligations. This is shortsighted on several counts. Rank-and-file employees who suffered the consequences of D-H’s financial downturn are bound to resent severance compensation on that scale. More broadly, Upper Valley residents who are patients, volunteers or donors have an important stake in D-H and ought to be treated to a candid explanation.

It seems to us that the board that created the three-headed management structure in 2010, only to abandon it a couple of years later, and which presumably created the contractual obligations that were discharged in 2012, especially ought to explain its decision-making process.

Academic medical centers are large and complex organizations that present significant management challenges, and setting compensation at levels sufficiently generous to attract talented executives is vital. But it’s also true that at a time when health care costs are a burden to so many individuals and employers, the appearance or the fact of lavish compensation sends the wrong message about institutional priorities.

As recently as 2011, when then-Gov. John Lynch proposed cuts in hospital funding that eventually contributed to D-H’s financial troubles, he said in his budget address: “From a financial perspective, the hospitals can afford this change. Hospitals get millions of dollars in tax breaks for being non-profits. But according to their latest public filings, the top 200 executives of our 24 non-profit hospitals made a collective $60 million.”

Dartmouth-Hitchcock’s latest tax filing has done nothing to dispel the impression that something is out of whack.