Jefferson paid its former CEO a record $8 million in 2022

Thomas Jefferson University set a record for CEO pay at Philadelphia’s nonprofit health systems in 2022 with an $8 million payout to its former CEO Stephen K. Klasko.

Klasko’s package — including a $5 million “recruitment and retention bonus” — topped the previous record pay of $7.7 million received by Madeline Bell at Children’s Hospital of Philadelphia the year before, newly released tax returns show.

Klasko collected a total of $45.6 million over his 8½ years leading Jefferson through acquisitions that expanded the Center City institution from three Philadelphia hospitals to 18, stretching from Lansdale to Washington Township. Jefferson also took over Philadelphia University and Health Partners Plans, a nonprofit health insurer, during Klasko’s tenure.

That’s a big compensation number, but it’s not hard to find health system CEOs nationally that made even more. His transformation of Jefferson into a health-care colossus in a remarkably rapid period of time makes comparisons difficult.

The region’s next-highest paid CEO, Capital Health’s Al Maghazehe, made $5.25 million running a South Jersey-based system with two hospitals. CHOP’s Bell rounded out last year’s top three, earning $3.7 million at the internationally renowned specialty hospital.

Under Klasko, Jefferson’s annual revenue exploded to $9.8 billion in fiscal 2023 from $2 billion 10 years earlier. But the organization has logged seven straight years of operating losses, starting in 2017, according to Standard & Poor’s Ratings Services.

The $5 million bonus that punctuated Klasko’s tenure came after he said he wanted to leave Jefferson in 2020, but agreed to extend his stay to complete two final acquisitions. It’s not clear if the bonus was tied to his staying.

Klasko declined to comment through an official at his consulting firm, Klasko Advisory Partners. Jefferson also declined to comment.

Klasko’s payout came after he had retired, and it’s not unusual for CEOs to receive their final pay after leaving an organization.

For its review of how much CEOs of nonprofit health systems made in 2022, The Inquirer examined the latest tax returns of 20 nonprofit health systems, up from 13 in last year’s review. The new survey covers 10 health systems with operations concentrated in Southeastern Pennsylvania, seven in South Jersey and two in northern Delaware.

Second to Klasko in the ranking for 2022 was Maghazehe, who has been CEO of Mercer County’s Capital Health since 1998. His pay totaled $5.25 million, including a $1 million bonus and $2.79 million in long-term compensation.

It’s not the first time Maghazehe topped $5 million. That also happened in 2020.

Capital, which owns hospitals in Pennington and Trenton, had $1 billion in revenue and $26.7 million in operating profit in 2022. The nonprofit has expanded dramatically in Bucks County in the last decade, growing its presence from one to nearly 100 primary and specialty physicians.

Next, CHOP’s Bell received $3.7 million — $4 million less than her compensation in 2021, when her pay included a $5.6 million bonus based on both one- and three-year goals. In 2022, Bell’s bonus was $1.6 million.

Also in the top five were University of Pennsylvania Health System CEO Kevin Mahoney and his counterpart Dennis Pullin at Virtua Health in South Jersey. Both made around $3 million.

» READ MORE: See how much Philly-area health systems paid their CEOs in 2022

Penn’s revenue was nearly $10 billion, making it the region’s largest health system by revenue. At Virtua, which works closely with Penn on certain clinical programs, revenue was $2.6 billion.

Klasko, who grew up in Havertown and earned a medical degree at Hahnemann University, moved quickly after taking over at Jefferson in September 2013. At the time, Thomas Jefferson University was legally separate from its affiliated hospitals. He brought them back together and in 2014 ended the old Jefferson Health System, which since the 1990s had also included Main Line Health and Magee Rehabilitation Hospital.

Then Klasko took Jefferson off to the races, with seven acquisitions from 2015 through 2021. Five were completed in four years. Those deals were for Abington Health in 2015, Aria Health in 2016, Philadelphia University and Kennedy Health in 2017, and Magee Rehabilitation in 2018.

» READ MORE: A timeline of Jefferson’s acquisitions since 2015

Jefferson had agreed to acquire Einstein Healthcare Network in 2018, but that deal wasn’t completed until 2021 because the Federal Trade Commission sought to block the deal in federal court, but lost. The case was a rare defeat in health care for federal antitrust regulators.

Two months before Klasko retired as CEO at the end of 2021, Jefferson completed its acquisition of insurer Health Partners Plans, a nonprofit providing insurance through the government-funded Medicaid and Medicare programs.

Klakso remained an adviser at Jefferson through June 2022.

When Klasko announced his retirement in October 2021, experts called his record at Jefferson remarkable. “There’s been no one that’s been able to put together the kind of system that Steve’s put together in this short a period of time,” Joshua Nemzoff, a health-care investment banker in New Hope, said at the time. “As someone who does this for a living, I’m just amazed that he was able to do it.”

Jefferson has since closed Einstein’s acute-care hospital in Elkins Park and started using that space for the neighboring MossRehab. The closure left Jefferson with 12 acute-care hospitals and five specialty hospitals.

Klasko’s total of $45.6 million from September 2013 through June 2022 averaged $4.56 million a year, easily topping long-term averages for other notable health-system CEOs in the Philadelphia region with long tenures.

Ralph Muller, CEO of the University of Pennsylvania Health System for 17 years ending in June 2019, had been paid an average of $2.48 million a year since 2008, when new IRS reporting rules took effect.

The rules change made longer-term calculations unreliable. For the comparable time period, Steven Altschuler, Bell’s predecessor at CHOP, collected an average of $4 million a year from 2008 through 2015, when he left.

Looking beyond Philadelphia, a wider net captures CEOs whose pay matched or beat Klasko’s.

Northwell Health, a 22-hospital system based in New York that has grown rapidly through acquisitions, paid longtime CEO Michael Dowling $46.2 million for the nine-year period that overlaps with Klasko’s time at Jefferson. His average was $4.62 million. In 2022, Northwell had $15.6 billion in revenue, one-third more than Jefferson’s.

In North Jersey, Barry H. Ostrowsky, the former CEO of RWJBarnabas, collected $44.3 million from 2016 through 2022. That works out to an average of $6.33 million a year, thanks largely to a $12.7 million package in 2021. RWJBarnabas had $7.6 billion in revenue in 2022.

Klasko’s successor at Jefferson, Joseph G. Cacchione, was paid $1.3 million in the last four months of 2022. His pay include a $250,000 bonus and a $369,600 long-term incentive that isn’t guaranteed. At his previous job, Cacchione was paid $3.9 million though August 2022 as executive vice president for clinical and network services at Ascension Health, a 140-hospital system based in St. Louis.

Under Cacchione, Jefferson is undertaking its biggest move yet, with a definitive agreement to acquire the nonprofit Lehigh Valley Health Network. That will turn Jefferson into a 30-hospital system, stretching from Scranton to South Jersey, and expose it to a far wider range of competitors and insurance companies.

The chance to expand Jefferson Health Plans, the system’s Medicare and Medicaid insurance arm, was a key factor in the plan to acquire Lehigh Valley Health.

But the addition of Lehigh Valley Health will also dramatically shift what Klasko described in a January 2018 interview — before Jefferson owned the insurer — as Jefferson’s “very well thought out geography,” which was supposed to strengthen its hand when negotiating with insurers.

“Nobody can enter Philadelphia without going through us,” he said.