Insurer's chief made $429,750 last year

by George Hohmann
Daily Mail business editor

The chief executive officer of the company set up by the Legislature to provide medical malpractice insurance in West Virginia received pay totaling $429,750 last year, according to a report filed with the Offices of the Insurance Commissioner.

David Rader, president and CEO of the West Virginia Physicians’ Mutual Insurance Co., received a salary of $315,750 and a bonus of $114,000 last year, according to a compensation report filed by the company.

That was a $67,250 or 18.5 percent increase from 2005, when Rader received a $287,500 salary and a $75,000 bonus.

Rader started work in April 2004 when the company was formed. His salary that year was $187,500 and he received no bonus.

West Virginia Physicians’ Mutual was formed by the Legislature after hundreds of West Virginia doctors wearing their white lab coats descended upon the Capitol to point out problems with medical malpractice coverage.

The report filed with the insurance commissioner also shows the compensation received by other top officers of the company:

* Tamara Lively, chief operations officer, received $227,250 last year — $180,000 in salary and a $47,250 bonus. That was up $19,750 or 9.5 percent from 2005, when she received a $162,500 salary and a $45,000 bonus. Lively received a $75,000 salary and no bonus in 2004, when she joined the company.

* Gary Schultz, chief financial officer, received $226,000 last year — a $175,000 salary and a $51,000 bonus. That was up $26,042 or 13 percent from 2005, when he received a $156,458 salary and a $43,500 bonus. Schultz received a $61,442 salary and no bonus in 2004.

* Vice President Deborah Lessard received $140,625 in 2006, up from $72,917 in 2005. Vice President Scott Atkins received $65,000 last year.

Rader said, “All of my staff make less than they would if they were with another company similar to ours but in another state.”

He said Shultz, for example, has 25 years of experience as a chief financial officer. “Anywhere else he would earn $600,000,” Rader said. “There is no question, all of the officers at this institution earn less than their counterparts in other states. We look at those numbers constantly.”

The policyholders — that is, the physicians who buy malpractice insurance from Physicians’ Mutual — own the company.

“I like the fact the physicians own this company,” Rader said.

Profits go back to the doctors in the form of lower insurance premiums, he said. Physicians’ Mutual cut rates 5 percent in 2006 and reduced rates another 15 percent this year. Rader said some surgeons received a premium reduction of 28 percent this year.

“We’re a statutorily defined nonprofit mutual insurance company owned by the policyholders, not by somebody in New York, not by investors,” Rader said. “We think that’s a great deal for the physicians and we can prove it because of that huge rate decrease. This however means that there are no stock options for any employees in this company because there is no stock.”

Rader said it’s common in the insurance business to pay a base salary plus a bonus. “The bonus is commonly based on financial strength and cost containment,” he said. The bonuses paid to Physicians’ Mutual’s employees are voted on by the company’s board of directors, he said.

Dr. Robert Ghiz, chairman of the company’s board, said, “We’re just thrilled to death with the mutual’s success so far, which is reflected in the premium reductions.”

He said physicians can get further reductions by participating in a risk management program that teaches good doctor-patient relations and “hopefully will reduce the number of claims and lawsuits that might come about.

“Given that scenario, the salaries we pay the chief executive officer, the chief operations officer and the chief financial officer, we’re very happy with,” Ghiz said. “We think we’re getting a good deal.

“The bonuses have been dependent on the successes I’ve just mentioned,” he said. “They have certain goals and if they meet the goals the board gives them a bonus. Of course if we have a bad year and goals are not met, the bonus would be reduced or nonexistent.”

When the Physicians’ Mutual board was trying to recruit a chief executive officer, “nobody wanted to come to West Virginia,” Ghiz said. “We looked and looked and interviewed three or four people. We had to be competitive with salary. We think we got the best candidate and his performance has been exemplary. He certainly deserves the salary he’s getting.”

“Hopefully by having a good insurance company, good risk management for West Virginia physicians, we’ll give better health care to the citizens of the state with more availability of physicians and specialists.”

The Legislature launched Physicians’ Mutual with $30 million. The money came from a $24 million long-term, low-interest state lottery loan; a $3 million assessment on all insurance companies that do business in the state; and $3 million from a $1,000-per-physician assessment.

When the company started operations in mid-2004 all of the physicians insured by a state Board of Risk and Insurance Management — about 1,450 — had their policies transferred to Physicians’ Mutual.

Rader estimated Physicians’ Mutual now insures about 70 percent of the doctors in West Virginia.

Physicians’ Mutual is similar to BrickStreet Mutual Insurance Co., the sole provider of workers’ compensation insurance in West Virginia, in several ways: Both were recently created by the Legislature; both received some initial financing from the state; and both are mutuals, owned by the policyholders.

However, BrickStreet is much larger. It has about 500 employees. Physicians’ Mutual has 12 employees plus 12 to 14 workers on contract who will eventually transfer to the company.

BrickStreet has $993.4 million in assets. Physicians’ Mutual has $157.4 million in assets.

A BrickStreet compensation report shows its highest-paid executive is Harry Mahler, vice president for underwriting, who received $274,994 in 2006 — a salary of $215,071 and $59,923 in supplements.

Dr. James Becker, BrickStreet’s medical director in 2006, received $199,197 that year and Greg Burton, BrickStreet’s president and chief executive officer, received $194,577.

Ghiz said, “Of course we don’t compare our salaries with workers’ compensation but we do compare them with other physicians’ mutuals in the country and, if anything, we’re below average with those salaries.”

Rader is in a unique position in that he is not only the president and CEO of Physicians’ Mutual, he also sits on BrickStreet’s board of directors. Gov. Joe Manchin appointed him to BrickStreet’s board as an officer of an insurance company with 50 employees or less. Rader is one of seven BrickStreet directors.

Asked what he thinks of the compensation received by BrickStreet’s executives, Rader said, “I would like to see us doing more for the people at BrickStreet. If you look at their responsibilities and what they would be paid elsewhere, they are underpaid.”
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