By Bara Vaida
Kaiser Health News
January 5, 2011

Health care reform was a big job in 2009, and it paid very well for some executives: Nine of 12 CEOs of health care trade associations made $1 million or more.

Lobbyists at the associations received compensation ranging from $250,000 to more than $1 million.

The earnings for both CEOs and lobbyists include bonuses, deferred compensation and other benefits, according to tax records for 2009. (Tax-exempt groups must file annually with the IRS on a Form 990, which is available to the public. The data typically lag a year.)

The bonuses suggest that association members were pleased with the performance of their Washington advocates during the extended congressional debate over health legislation.

“This was an industry that was facing a bet-the-farm debate, so that is why you see these executives get paid the big money,” said Ivan Adler, a principal at the headhunting firm The McCormick Group.

Most of these compensation packages were approved by boards of the trade associations in 2008, before the big health care battle, and pay levels for some executives were lower in 2009 than in 2008. It’s increasingly common that these packages offer a bonus and deferred compensation in addition to base pay as incentive to key association staff to meet financial, advocacy and other goals specific to associations.

“There is no one formula [for] association compensation,” said Nels Olson, managing director at the headhunting firm Korn/Ferry. “But one that is relevant here is advocacy, given the health care debate in Washington.”

According to a Kaiser Health News analysis of the 990s, here are some of the top-paid health care association executives and lobbyists:

Billy Tauzin, the former CEO of PhRMA, is among those who received a bonus. In addition to his base pay of $2.1 million, he was awarded a $2.3 million bonus. Bryant Hall, PhRMA’s top federal lobbyist after Tauzin, received a bonus of $91,750 on top of his $371,182 base pay. Hall left PhRMA on Dec. 31 to head Rubicon Strategies, a new health care lobbying group.

Another key health care player, Scott Serota, CEO of Blue Cross and Blue Shield Association, earned a bonus of $1.6 million on a base salary of $856,055, and BCBSA chief lobbyist Alissa Fox received a $130,000 bonus plus base pay of $278,760.

Chip Kahn, CEO of the Federation of American Hospitals, received a base salary of $900,000 and a bonus of $315,000, and Jeff Cohen, one of the group’s top lobbyists, earned $325,000 in base pay and a bonus of $65,000.

The other associations that paid their CEOs more than $1 million in total compensation were: the National Association of Chain Drug Stores, America’s Health Insurance Plans, the American Hospital Association, AARP, the Advanced Medical Technology Association and the Biotechnology Industry Organization.

PhRMA was among the advocacy winners when the law passed in 2010. The group agreed to discount the costs of brand-name prescription drugs for seniors hit by the “doughnut hole,” a compromise estimated to cost the industry about $80 billion. In turn, the industry received concessions from the White House that included a promise that the bill would not permit the reimportation of cheaper drugs from Canada. Hospitals were also winners. Even though they face cuts in Medicare reimbursements, the expansion of insurance coverage will reduce the number of uninsured seeking care in coming years.

Health insurers had a mixed record. They successfully beat back an effort to include a public health insurance option and stand to get millions of new customers from the requirement that nearly all Americans buy insurance. But the sector was demonized by Democrats and the White House, and insurers fear the mandate isn’t strong enough to entice healthy people to buy insurance.

Now the groups’ leaders must wrestle with Republicans’ vows to kill or change the legislation and the legal threat to the constitutionality of a critical provision requiring most Americans to carry insurance.

“Did they earn their pay?” said Adler of The McCormick Group. “I think the question is still open because we don’t know what Congress and the courts are going to do next.”

To be fair to the executives, there are some important caveats. They didn’t get all of that money in their paychecks. Deferred compensation programs are financial incentive packages that vest over time but still must be reported to the IRS on an annual basis. For example, former AARP chief executive Bill Novelli’s 2009 compensation included a base salary of $345,243; a $1.2 million payment that included deferred compensation from his eight-year tenure at AARP and severance of $350,657; and $35,362 in retirement and deferred compensation and $4,209 in nontaxable benefits. Novelli left AARP in April 2009 and was replaced by A. Barry Rand, whose total compensation was $648,640.

An association can decide to rescind compensation. In 2006, Craig Fuller, former CEO of the National Association of Chain Drug Stores, left the organization when it became clear that he and the organization’s board wanted to pursue different strategies. He left before his deferred-compensation plan vested. As a result, $1.12 million that had been set aside for him was returned to the association.

Kaiser Health News (www.kaiserhealthnews.org) is an editorially independent news service of the Kaiser Family Foundation, a nonpartisan health care policy organization that isn’t affiliated with Kaiser Permanente.