CHOP paid its CEO a record $7.7 million in 2021, more than the hospital spent on charity care in three years

Children’s Hospital of Philadelphia delivered a record $7.7 million pay package to CEO Madeline Bell in 2021, as the coronavirus pandemic wreaked havoc in the health care industry, with deaths mounting and labor shortages putting nurses and other hospital staff under duress.

Bell’s pay was not just the highest in the region for CEOs of 13 Philadelphia-area not-for-profit health systems that year. Both the bonus and total pay are likely the largest ever received by a local health system CEO, an Inquirer analysis of tax returns has found.

The bulk of Bell’s total compensation was a $5.6 million bonus.

Her total pay amounted to more than the nonprofit hospital spent on free and discounted services to financially needy patients, or charity care, over the three previous years combined.

Bell’s pay was 43% higher than the region’s next highest-paid hospital executive in 2021. Ranking second behind Bell was Stephen K. Klasko, former CEO of Thomas Jefferson University and Jefferson Health. His pay in 2021 was $5.4 million. (Klasko’s top annual pay at Jefferson came in 2019, when he made $7.4 million, not including amounts reported in previous years.)

The lowest paid of area CEOs was Tower Health’s P. Sue Perrotty, a retired banker and former board member who took on the executive role in early 2021. Her pay was $662,500.

The pay package for Bell, a former staff nurse who has led the University City children’s hospital since 2015, doesn’t just stand out locally.

An Inquirer examination of CEO pay at nine other large children’s health systems nationwide over the five years through 2021 found no pay packages that came close.

CHOP declined to make Bell or its board chair, Christopher Gheysens, available for an interview. In an emailed statement, Gheysens called the CEO an “extraordinary leader” and said Bell’s compensation was “based on her excellent performance in leading CHOP to deliver on its very ambitious goals.”

CHOP is consistently the most profitable health system in the Philadelphia region and has extraordinarily large cash reserves.

Health system executive compensation — including packages far smaller than Bell’s — is in the spotlight this year in Pennsylvania after Commonwealth Court rulings in February found that hospitals don’t qualify for property-tax exemptions if they tie too much executive pay to financial performance.

Those rulings involved Tower hospitals, which lost the cases involving hospitals in Chester and Montgomery Counties. Tower and a health system lobbying group have petitioned the state Supreme Court to hear an appeal.

Beyond executive pay, politicians, advocates, and researchers are increasing their scrutiny of whether not-for-profit hospitals provide enough benefits to the community, including charity care, to justify their exemptions from many state and federal taxes.

In addition to receiving tax exemptions, taxpayers help fund CHOP through its treatment of large numbers of children who qualify for Medicaid, the government’s health care program for low-income families. CHOP is also the beneficiary of many charity drives, such as the auto dealers’ annual Black Tie Tailgate.

“Purely public charities don’t go paying multimillion-dollar bonuses,” said Howard Kelin, a Lancaster lawyer who represented Phoenixville Area School District in its successful bid to block Tower’s bid for property-tax exemption for Phoenixville Hospital.

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CHOP board chair Gheysens, who is CEO of Wawa Inc. and also oversees CHOP’s executive compensation committee, said in his statement that Bell’s compensation is benchmarked against a large group of her peers.

CHOP said its peer group includes 44 institutions, but did not identify them. Only four of the large children’s health systems included in The Inquirer comparison — which included prominent institutions such as Boston Children’s Hospital and Cincinnati Children’s Hospital Medical Center — are in the peer group used by CHOP’s compensation committee, according to CHOP.

Texas Children’s, in Houston, paid its longtime CEO, Mark A. Wallace, more than $5 million in 2018 and 2019, and nearly as much in 2020. That was the closest another CEO among the 10 largest children’s health systems came to Bell’s 2021 pay. Texas Children’s did not respond to multiple requests for its latest 990, which would contain 2021 compensation.

Among peer institutions, CHOP ranks as the nation’s largest children’s hospital by patient revenue, which totaled $3.1 billion in fiscal 2022. Its total revenue was $3.7 billion.

CHOP also has a track record of leading the region for CEO compensation. Bell’s predecessor, Steven Altschuler, who led CHOP for 15 years, was often the Philadelphia region’s highest-paid nonprofit health care executive.

Nonprofit health systems commonly use consultants to set compensation by looking at what peer CEOs make, said Vikas Saini, president and CEO of the Lown Institute, a Massachusetts not-for-profit that advocates for equity and accountability in health care.

The consultants tell the nonprofit boards they need to keep their executive compensation competitive with their peer groups, Saini said. This results in many systems opting to pay more than average, ratcheting pay ever upward. “That’s the escalator we’ve been on,” Saini said.

CHOP offered little detail on how it arrived at Bell’s $5.6 million bonus, a question central to recent court rulings examining at what point hospital executive compensation violates a Supreme Court precedent under which charities eligible for property-tax exemption must “operate entirely free from private profit motive.”

The bonus covered one-year and three-year incentive plans that set goals “in areas such as talent development, implementation of strategic planning, providing effective and efficient care, and grant funding,” CHOP said.

Bell’s total pay in 2020 was $1.74 million, including a $38,093 bonus.

CHOP declined to say how much of Bell’s $5.6 million bonus the next year was tied to financial goals, asserting that it was a “very small portion.”

Linking too much hospital executive pay to financial targets cost Tower Health property-tax exemptions at four of its suburban hospitals, two of which it has closed. Commonwealth Court ruled that tying 40% of former CEO Clint Matthews’ incentive pay to financial targets created a profit motive that disqualified the hospitals from property-tax exemption.

Lawyers who represent school districts in challenges to property-tax exemptions said not-for-profit health systems fiercely guard details of how they pay their executives, even as publicly traded and taxable for-profits are required to disclose a great amount of detail about their executives’ pay.

That secrecy doesn’t sit well with Laura Otten, a nonprofit consultant and graduate director for La Salle University’s master’s in nonprofit leadership program. She noted that best practices for the nonprofit sector have long emphasized transparency and accountability.

“Where is the transparency here? Where is the accountability here?” Otten said. “I think there is a responsibility to explain, particularly when what you’re doing seems excessive.”

» READ MORE: See a standalone table on health system CEO pay

Pennsylvania courts have long held that charitable organizations are allowed to be profitable as long as they spend any “excess” revenue on their charitable mission.

In health care, it’s widely accepted that nonprofits need to make money in order to maintain their facilities, invest in technological advances, and expand services.

What’s not clear is how much emphasis nonprofit boards are allowed to put on profitability and other financial measures when crafting pay packages for their CEOs.

In his opinion on the Pottstown case, Montgomery County Court of Common Pleas Judge Jeffrey S. Saltz described Matthews’ pay of $2.25 million in 2018 and $2.4 million in 2019 as “eye-popping.” Still, he found Pottstown Hospital qualified for tax exemption, noting that state appeals courts have provided only vague guidance.

But the appeals court overturned his decision granting the exemption.

Alexander Yaffe, managing director in the Baltimore office of Pearl Meyer, a national executive compensation consulting firm, said the level of emphasis on finance depends on the circumstances of individual health systems.

“For clients that are in a high degree of financial strain, it’s not uncommon to see more weight be put on achieving financial outcomes or goals that relate indirectly to financial outcomes,” Yaffe said.

The state hospital lobby is defending the industry’s executive pay practices as it supports Tower’s efforts to get back its property-tax exemption. In an amicus brief filed with the Supreme Court, the Hospital and Healthsystem Association of Pennsylvania said the Commonwealth Court decision “fails to recognize the importance of incentive-based compensation and financial-incentive-based executive compensation.”

“The same holding could apply to the over 80% of health care nonprofits that offer incentive-based bonuses,” said the Harrisburg trade group representing more than 250 hospitals, health systems, and physician groups.

Aaron Freiwald, a Philadelphia lawyer whose practice includes tax cases for school districts, thinks the Commonwealth Court ruling should stick. If nonprofit executive pay has more than a minimal tie to financial performance, it’s a sign that the organization operates more like a for-profit than a charity, he said.

What’s at stake is easy to see, Freiwald said: “It’s real money to these school districts, which is to say to my kids, your kids, our kids, the community of our children growing up in underfunded school districts, while beyond-wealthy hospital corporations are keeping their property-tax dollars in their own pockets.”

Editor’s note: The chart accompanying this article has been updated to correct compensation figures for Main Line CEO John J. Lynch III. An earlier version included incorrect information from the IRS.