Birmingham Children’s Hospital

Children’s Hospital of Alabama is the “14th largest and 10th busiest” pediatric medical center in the United States. The hospital is licensed for 275 beds, and 42 Neonatal Intensive Care Unit (NICU) bassinets. Additionally, Children’s operates 13 outpatient specialty clinics that take referrals from health departments statewide. Located on the University of Alabama at Birmingham campus, the hospital is independent from UAB but staffed by UAB’s pediatricians. Children’s Hospital was recently named one of the country’s best hospitals by US News & World Report, with special mention of the hospital’s neonatology, pediatric neurology and pediatric neurosurgery specialties.

According to the most recent publicly available tax documents, Children's employs approximately 4,121 employees and operates with the help of 887 volunteers. In 2009, Children's assets totaled $607,021,403 and the hospital spent $215,917,370 on employee compensation and benefits. Compensation information for selected Children's Hospital executives, directors and employees is provided below.

Children's revenue and assets have increased dramatically in the past few years. The chart below compares key financial data from the hospital's 2008 and 2009 tax returns:

Much of the increase in Assets and Liabilities is attributable to bond money received for the construction of a new hospital. Much of this funding has likely been spent since the end of the 2009 tax year.

Revenue less expenses – what would be called "profit" in the for-profit world, more than doubled in 2009. This line item is calculated slightly differently in Children's audited financial report for 2009. See the Charity Case section below.

Report on Executive Compensation at Birmingham Children’s

Salary data included in the annual tax returns for Birmingham Children's Hospital shows that the hospital awarded its ten highest paid employees (five corporate officers and five pediatricians) over $2 million in bonuses in 2009. Over $1.5 million of these bonuses went to the three pediatricians listed in the second chart below.

The following compensation data is extracted from the2008 and 2009 IRS Form 990s filed by Children's. The 990s include "other reportable compensation," mainly expense reimbursements, which are not included in the charts below.

The highest paid employees at Children's are all pediatricians. From 2007 to 2009, the three individuals below collectively took home just under $10 million:

*Total Compensation figures are Salary, Bonus, Contributions to Employee Benefit Plans and Deferred Compensation

Children's Hospital of Alabama, 2009 Annual Report

According to an annual report released by Children’s, 40% of all patients treated are between the ages of 1 and 6; 26% between 7 and 12; 19% between 13 and 18, and 13% of patients were less than one year old. The bulk of all patients (56.6%) came from the 10 county primary service area around Birmingham. Below is a table displaying patient statistics since 2005:

Children’s Hospital of Alabama raises funds through several organizations, chief among them the Alabama Children’s Hospital Foundation. Children’s Hospital Foundation recently raised over $100 million as part of the “Keeping Promises” capital campaign to help finance the expansion (currently under construction). By all accounts, the Foundation has been extremely successful; the Keeping Promises campaign ended two years earlier than scheduled. In addition to the Foundation, Children’s holds controlling interest in several for-profit subsidiaries: TCH Ventures, an Alabama-based holding company, and Holy Innocents Indemnity Ltd., an insurance company domiciled in the Cayman Islands.

CraneWatchdog will provide further information on Alabama Children’s Hospital Foundation and other related organizations in future updates.

Mike Warren, CEO

Mike Warren joined Children’s Hospital in January 2008 after a long career with Energen, the parent of Alabama Gas. He was CEO of Energen for 22 years, and spent most of those years as a board member of Children’s Hospital. In his first year as CEO of Children’s Hospital, Warren made the paltry (for him) sum of $660,374 in total compensation. Continuing a longstanding personal practice, Warren deferred a large chunk of his salary ($250,746). Deferring compensation is generally done by executives to decrease their tax burden. The money is held back until a later date – usually upon retirement – when it will be taxed at a lower rate. Upon his retirement with Energen, Warren had the princely sum of $50 million in deferred compensation, according to the 2008 Proxy Statement Energen filed with the Securities and Exchange Commission:

The 2008 Proxy also shows that Warren had over $11 million in two retirement plans:

After his retirement as CEO, Mike Warren remained a Director of Energen until April 2010. According to the company’s 2010 Proxy, Warren owned 218,941 shares of Energen stock. The company’s stock price has fluctuated from $40 to $50 per share in the past year, but Warren’s stock holding have generally been worth over $9 million. All told, Mike Warren left Energen with around $70 million:

$50 Million Deferred Compensation

$11 Million Retirement Plans

$9 Million Stock

Mike Warren continues to be an active player in the stock of public companies Energen (NYSE:EGN) and Protective Life (NYSE:PL). An August 4, 2010 Securities and Exchange Commission (SEC) filing represents the 18th insider trade Warren has made in 2010.

The charts below show the changes in Warren’s many millions of dollars in stock holdings since the beginning of 2010:

Protective Life

*Based on the 08/10/2010 market closing price of $21.95 per share. Protective Life’s stock price has fluctuated from $15.20 to $25.58 in the past year.

The 4,296 shares of Protective Life Warren acquired in 2010 all came under the “Protective Life Deferred Compensation Plan for Directors who are not Officers of the Corporation.” Warren’s direct and indirect ownership of 32,690 shares is worth $717,545.50 at today’s market price.

Energen

*Based on the 08/10/2010 market closing price of $46.11 per share. Energen’s stock price has fluctuated from $40.25 to $49.94 in the past year.

Warren acquired shares primarily through Energen’s Deferred Compensation Plan. All but one transaction above represents purchases or sales of stock. The 18,848 shares of “Common Stock (By Spouse)” disposed of on 02/04/2010 represent a “Gift” to an undisclosed recipient.

When he became CEO of Children’s Hospital, Warren himself said "My experience and skills were not in the area of administering a hospital." Warren, giving himself a five to seven year timeline, has focused on a massive expansion of Children’s Hospital worth nearly a half billion dollars.

Birmingham Children’s Cut
Charity Care in Half in 2009

According to a newly released 2009 Audited Financial Report for Children’s Hospital, it appears the board got the businessman they wanted.

In comparing 2008 to 2009, financial results show impressive increases in nearly every major line item, including Operating Income (which in the for-profit world is called “profit:)”

Unfortunately, as the Hospital’s revenues were booming, the City of Birmingham was contributing over $250 million in bond and tax incentive money, and local donors were opening their wallets for capital campaigns to finance the new hospital, Children’s slashed charity care by nearly 50%. From Page 14 of the Audited Report:

Charity Care
As a part of its mission, the Hospital provides charity care for residents of its service area who are unable to pay for treatment. Charity care consists of the cost of services rendered to uninsured indigent patients and the difference between costs and payment received for care provided to patients who are covered by certain government programs for indigent and low income families. The cost of charity care for 2009 and 2008 was $7,369,038 and $14,424,745, respectively. The cost of charity care is estimated based on an allocation of total hospital costs to the charity services. These amounts are not reported as net patient service revenue in the accompanying consolidated statements of operations and changes in net assets.

Mike Warren has already shown his lack of concern for the living standards of crane operators and others building his new hospital. This new information, showing a precipitous drop from $14.4 million to $7.3 million in charity care for poor children in Alabama while revenue boomed, calls into question whether “The $70 Million Man” is truly the best choice to lead Birmingham Children’s Hospital.

Children’s Hospital of Alabama
Expansion Facility

Children’s Hospital of Alabama recently commissioned a massive expansion project in downtown Birmingham. The replacement facility will add over 700,000 square feet to the current campus, at a construction cost of approximately $435 million. The groundbreaking ceremony took place on May 14, 2009. The project is a joint venture between Birmingham-based general contractors Hoar Construction and BE&K, Inc., and has drawn controversy over the hiring of non-local workers. Details on both Hoar and BE&K will be provided in a future update. Below is a partial list of subcontractors taken from the job site in November, 2009.

There are two major sources of financing for the expansion: donations through the Children’s Hospital Foundation, and a $235 million bond issued by “The Special Care Facilities Financing Authority of the City of Birmingham – Children’s Hospital”, an entity created by the State of Alabama and the Birmingham City Council. Bank of New York Mellon Trust Company serves as the bond trustee. In March 2009, the City of Birmingham granted Children’s Hospital approximately $20 million in tax incentives, and both Children’s CEO Mike Warren and Birmingham Mayor Larry Langford touted the economic benefit the construction project would bring to the region.

In addition to public financing, Children’s Hospital raised over $110 million through its “Keeping Promises” capital campaign, a portion of which was earmarked for the expansion facility. The campaign kicked off in 2007, and was so successful that it ended two years early in May 2009. In January 2009, Phillip and Heather McWane, along with McWane Inc., donated $10 million to the Foundation as part of the “Keeping Green Promises” initiative, which focused on building the facility according to LEED standards. In 2008, Alabama real estate mogul Benjamin Russell and his wife Luanne pledged $25 million to Children’s Hospital; the hospital campus will be renamed the Benjamin Russell Hospital for Children upon completion of the expansion facility.

Look for more information on major Foundation donors and the Children’s Hospital Board of Trustees in future updates.