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Healthy compensation: Ex-MeritCare CEO paid $1 million after Sanford merger

Sanford Health President and CEO Kelby Krabbenhoft, left, and MeritCare President and CEO Dr. Roger Gilbertson announce the merger of the two health care organizations during a news conference Nov. 2, 2009, at MeritCare in Fargo. Gilbertson took a $1 million buyout after the two companies merged. Forum file photo

FARGO - The merger 1½ years ago of Sanford Health and MeritCare created a new entity that doubled in size and covers a service area of more than 130,000 square miles.

But the unified health care giant needed only one top executive, and the departing chief administrator received a $1 million contract buyout, according to documents obtained by The Forum.

Dr. Roger Gilbertson, a neuroradiologist who had served as MeritCare's top executive since its founding 17 years earlier, received a "separation payment" provided by his contract of $1,000,920, according to a report Sanford filed with the Internal Revenue Service that recently became available.

Of that amount, Gilbertson was paid $48,624 in 2009, with the remaining $952,295 paid in monthly installments to end Nov. 1, as provided in his last employment contract, which took effect Jan. 1, 2007.

The remaining chief executive, Kelby Krabbenhoft, who had presided over the pre-merger Sanford Health, based in Sioux Falls, S.D., saw his base compensation increase by 17 percent since the Nov. 2, 2009, merger with Fargo-based Merit­Care.

Krabbenhoft's base salary rose to $900,000 this year from $746,924 during the budget year that included the merger - July 1, 2009, to June 30, 2010 - an increase of $153,076.

The year of the merger, Krabbenhoft's total compensation was $1.9 million, including a performance bonus of $81,300, and $216,388 for life insurance, an auto allowance and "ongoing benefit al­low­ance."

His deferred retirement benefit for the year was $730,587 but was not received by Krabbenhoft.

Current supplemental pay and bonuses are not yet publicly available for Krabbenhoft and other top Sanford executives through the annual disclosure reports for nonprofits, so a more complete comparison of pay before and after the merger is not yet possible.

Sanford executives and board members declined to be interviewed or to comment in detail about compensation for Krabbenhoft, Gilbertson and other top executives or physicians.

The only comment Sanford provided The Forum was a statement about Gilbertson's contributions to MeritCare over his long tenure.

"Dr. Gilbertson's gift to this region is invaluable - 30 years in medicine and 17 years as President/CEO of MeritCare only glance the surface," said Andrew Richberg, a Sanford executive vice president. "His vision for health care integration, medical knowledge and dedication to patients made him a pillar in our industry."

Gilbertson's legacy, Richberg added, is "strong, safe and sustainable health care for all people, in their hometowns, all across the region."

At the time of the merger, both Gilbertson and Krabbenhoft said the fact Gilbertson was approaching retirement made it easier to accomplish the merger.

"I wanted to have a clean break," Gilbertson said when he announced at age 72 his plan to retire when the merger took effect.

A compensation philosophy letter submitted as a supplement to Sanford's disclosures to the IRS gave a glowing assessment of Krabbenhoft's leadership, and said the top executive's compensation is set by policy below the midrange for peer health systems identified by a pay consultant's survey.

"Mr. Krabbenhoft has guided the organization from a Sioux Falls, South Dakota $246 million organization in 1996 to a $2.3 billion, multi-state organization in 2011," Ron Moquist, Sanford Health board chairman, wrote in the letter, dated April 25.

Krabbenhoft receives a taxable benefit allowance supplementing his salary every year that is part of his retirement plan, Moquist said.

Through his estate, Krabbenhoft plans someday to donate $1 million to the Sanford Children's Fund, he added.

"While the organization has grown by a factor of nearly 10 times under Mr. Krabbenhoft's leadership, his salary has not grown similarly," Moquist said in the letter.