UPDATE: Erlanger executives will be receiving bonuses after all. 

In a letter sent to Erlanger employees Wednesday, Erlanger President and CEO Kevin M. Spiegel wrote that Erlanger's board met with outside legal counsel regarding the performance payouts.  The law firm informed the board that the payouts were appropriate.  The new plan for payouts is "current participants in the incentive program will receive 50% of the approved 2014 performance plan this month. The remaining 50% will be paid to the management group in July 2015, when our eligible nurses receive the second phase of their market adjustment."

Spiegel also mentioned that eligible regular associates will receive a 2% pay increase at the beginning of next year. 

The letter reads:

December 17, 2014 

Message from the President

I wanted to reach out to you personally and wish you and your family, Happy Holidays and Merry Christmas. As we approach the New Year I wanted to apprise you of some new and exciting opportunities on the horizon for both the Erlanger Health System and our associates.

Extraordinary work has been done by the entire Erlanger team during the past 18 months. Wall Street acknowledged that Erlanger has achieved one of the greatest turnarounds in the country, with outstanding financial improvement and unprecedented volume growth. Our recent bond offering on Wall Street provided $71 million of new monies to invest in our health system and the patients we serve. This is a significant investment opportunity for our region and we know that Erlanger associates are proud of what we invest back into our community. We are expanding Erlanger East Hospital significantly by building new patient rooms, new surgical suites and services, enhanced cardiac services, expanded cancer services and enhanced services at the Comprehensive Breast Center. At the University Campus we are upgrading our operating rooms and expanding services that will focus on advanced technology for vascular surgery, cardiac surgery and our orthopedic center of excellence.

I have introduced our plans for rebuilding the academic Children's Hospital to the community and invited them and Erlanger associates to be part of those exciting plans. Some of the funds from Wall Street will be allocated to Phase I of this project. Phase I is a new children's and women's ambulatory care building on East Third Street, which will offer state-of-the-art primary and specialty services. This project will require approximately 60% community support to complete. Our new investment funds will also enable us to convert the Massoud Building into a world-class neurosciences center.

Last week I met with the SEALs who, as most of you know, represent dedicated and passionate associates from all our campuses and departments. During this meeting, there were constructive exchanges and ideas about moving Erlanger forward.

Collectively, the SEALs had several suggestions about an employee compensation program. One idea was to include associates in a performance based incentive plan which would recognize the contributions of the entire workforce. I think this idea is great and commit to you that we will review a new associate compensation program, taking into consideration the SEALs' suggestions. We will thoughtfully consider all alternatives. My plans are to discuss these options and make a recommendation to our board at January's Board meeting. This recommendation will make associates eligible for the Fiscal Year 2015 plan (July 1, 2014 – June 30, 2015).

Last night, our board met with outside legal counsel regarding approval of the performance payout to managers. The law firm, Spears, Moore, Rebman and Williams, informed our board that the approval process for the performance plan was appropriate and the action taken by our board was also appropriate. Therefore, I am moving forward in the following way. Current participants in the incentive program will receive 50% of the approved 2014 performance plan this month. The remaining 50% will be paid to the management group in July 2015, when our eligible nurses receive the second phase of their market adjustment.

All eligible regular associates will receive a 2% pay increase the first full pay period in January. Eligible nursing associates received Phase 1 of a two-step raise in July 2014 and will receive Phase 2 in July 2015. Those nurses are not eligible for the January raise since the two step raise had already been initiated. With these raises, during calendar years 2014 and 2015, Erlanger has allocated approximately $15 million toward employee raises. This is the highest amount dedicated to associate raises in years. You performed, you deserve the recognition.

On another note, I think it's important you know that Governor Haslam's announcement to advance an innovative insurance plan which covers more Tennesseans is expected to bring more financial stability to essential safety net hospitals like Erlanger.

I thank each of you for your service and commitment, and look forward to our entire team achieving even greater success in 2015. You are a dedicated and loyal team, providing world-class healthcare to those we serve. We are off to a great start the first six months of this fiscal year and I am confident, as a team, we will continue to exceed expectations – and that of the community - in every way.

Happy Holidays.
Kevin M. Spiegel, FACHE
President and CEO

PREVIOUS STORY: After Erlanger's executive bonuses came to light last week, drawing criticism from local and state politicians, the hospital's Board of Trustees voted to put the payments on hold.

Until the questions of the hospital's operating budget can be addressed, the bonuses will not be paid.

In a news released issued Friday, Donnie Hutcherson, chair of the Board of Trustees at Erlanger Health System said “Due to the hard work and efforts of our management team, physicians, nurses and all other associates, Erlanger has achieved one of the most remarkable turnarounds in the healthcare industry – rebounding from $8 million in losses last year to $18 million in operating income this year.”

PREVIOUS STORY: Local and state leaders say they are still in shock over Erlanger's board of trustees approving $1.7 million dollars in bonuses to the hospital's top management. The move comes as Erlanger has faced financial hardships over the past several years.

"I was shocked to see that. I was disappointed to see that they were giving increases," says Hamilton County Mayor Jim Coppinger.

Coppinger is one of many leaders criticizing Erlanger's board for approving $4.7 million in bonuses to management, more than $230,000 of that going to the hospital's CEO, who was hired last year to turn the hospital around. The board also approved a two percent pay raise for all other employees.

"As a citizen and a taxpayer I would have preferred to not to see that happen. But again, when you're hiring people and you're putting these people in these types of positions, it's not unusual that you would be given bonuses. The timing, obviously, is poor and it's disappointing," says Coppinger.

"You have to remember this is a public institution, with a mission to serve the public," says State Senator Todd Gardenhire, who represents District 10.

Senator Gardenhire says several years ago the state legislature gave hospitals like Erlanger the ability to do strategic planning in private meetings without the public involved.

"Approving raises and bonuses and stuff is not really strategic planning," says Gardenhire.

He says Erlanger is back in the black thanks in part to $19 million in federal funding that he and other leaders helped secure. He says bonuses should be taken out of 'operating income.'

"When the county lends the hospital $10 million, so they can take that ten and put with another ten from the state, go to the federal government, bring down matching funds, that's not operating income," says Gardenhire.

Channel 3 made numerous attempts to contact trustees on the board with no response. But trustee Jennifer Stanley told our partners at the Times Free Press the federal money counts as revenue and the board agreed on performance benchmarks more than a year ago before that money came into the picture.

"We owe management the incentives we promised over a year ago. Not to pay would be an egregious moral and ethical violation, in addition to destroying trust between the board and management," says Stanley. 

"This seems to be a cookie jar that people can just stick hands in when they want to because it doesn't answer to shareholders, it doesn't answer to anybody," says Gardenhire.

Stanley went on to say the federal money should not be categorized as a "handout". As a public hospital that has served the under-served for years, she says that money is "owed" to Erlanger.

Gardenhire says with rising insurance costs, the two percent raise does not amount to much and he worries about morale among hospital staff. He also says he is thinking about pushing to make all board meetings public. Erlanger Board Chairman Donnie Hutcherson has issued the following statement with regards to the board approval of performance incentive pay at Erlanger:

“Erlanger has achieved one of the most dramatic turnarounds ever seen in healthcare.  Under the leadership of Kevin Spiegel, our team of physicians, nurses and all associates rebounded from years of losses to profitability in just 16 months.  Our future is brighter than it has been in years, and we are well positioned for the future.

Kevin Spiegel and his management team have been incredibly effective, surpassing even the highest expectations of the board.  Their incentive compensation targets were set long ago, and they performed superbly, and deserve the compensation they received.

Erlanger brings world class healthcare to the Chattanooga region.  The outstanding year we've had and the successes we've achieved are great news for the community.”