University's health bill

Our view: Far from shocking, the payout given University of Maryland Medical System's CEO was a reasonable cost of healing a critical business

May 20, 2010

Thanks to Wall Street bonuses and government bailouts, the size of the federal debt, the oil spill in the Gulf of Mexico and other recent scandals, U.S. politicians have learned to express outrage as reflexively as some of us say "ouch" even before the doctor inserts the needle. Just watch the cable networks or read the blogosphere: It pays to be angry these days, and the less rational the better.

But sometimes knee-jerk populist indignation comes off as, well, knee-jerk populist indignation. Such is the case when Gov. Martin O'Malley so swiftly condemns the multimillion-dollar payout handed to the former University of Maryland Medical System's CEO as "excessive" and a "golden parachute" that has "no place in the public sector."

Never mind that UMMS is a private, nonprofit institution and has been for 25 years. The $7.8 million given Edmond F. Notebaert two years ago is hardly the stuff of Goldman Sachs executives, or even a decent Major League Baseball closer. The biggest chunk (nearly $3 million) was simply a lump-sum payment of five years of pension benefits.

Here's how the rest breaks down: $639,000 in 2008 salary and $1.6 million for two years of bonuses. The only discretionary payment was the $2.4 million the UMMS board agreed to pay him to walk away from the top job.

John P. McDaniel received a similar-sized package when he retired from MedStar Health during the same year. Like it or not, CEOs of major health systems (UMMS has more than 15,000 employees and $2.5 billion in annual revenue) earn those kinds of dollars.

The more important question is, what did UMMS get in return? By the end of Mr. Notebaert's term, the system had become increasingly dysfunctional, the hospital feuding with doctors and the medical school, its governing board at loggerheads. Mr. O'Malley surely remembers this regrettable period. By all accounts, such woes are now a thing of the past. Most of the board of the era is gone along with their CEO.

Why spend to $2.4 million to send Mr. Notebaert packing? His supporters on the board would not have allowed otherwise. But to be fair, the system had expanded and became more profitable during his tenure. By certain measures, his time at the helm was a great success, if not a fully realized one. A reasonable financial settlement was the price of moving on.

What Mr. O'Malley and others should glean from this episode is the need for greater openness and transparency in UMMS decision making, particularly in matters of compensation. System officials say they have taken steps in this regard, although the fact that it has taken nearly two years for them to reveal details of the bonus does not inspire confidence.

No doubt some at UMMS are concerned that public outrage at the payout might be used by the unions to gain political leverage to organize the system's work force. But this seems unlikely. It doesn't take a medical degree to recognize the bonus for what it was — an unfortunate but necessary expense that has clearly made the organization a better place.

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