The interim CEO of Grady Memorial Hospital has a two-year, $1.2 million contract that was put in place shortly before a new hospital board was formed with a mission that included selecting a new chief executive, The Atlanta Journal-Constitution has learned.

On Monday, the new board, the Grady Memorial Hospital Corp., announced the four finalists to lead Atlanta's major trauma center and medical refuge of last resort for the poor.

The interim CEO, Pam Stephenson, had applied for the position but was not among the finalists, officials said.

After years of multimillion-dollar deficits that threatened the hospital's survival, Grady has started to see some relief from the maladies that include a lack of privately insured patients, dwindling government payments, rising costs and years of neglect of facilities and equipment. A reprieve came in May, when a new board took over and the Woodruff Foundation delivered the first $50 million of a $200 million donation intended to save the hospital from financial collapse.

Stephenson's contract was apparently already in place.

News of that contract, a copy of which was obtained by the AJC, has raised questions as to what happens to Stephenson when the new CEO comes on board, which is expected to occur by the end of summer.

The answer may come down to money.

Stephenson's contract, with an annual salary of $600,000, stipulates that should the new hospital board replace her within the first year, she would be paid the remaining amount in the two-year contract. Should she leave in September, that could mean a parting check of about $750,000 or more.

News of the two-year contract has created concerns —- and objections —- among some Grady officials. The agreement was executed by the Fulton-DeKalb Hospital Authority, of which Stephenson is chairwoman, and was signed by Geoffrey Heard, vice chairman. Stephenson also serves as vice chairwoman of the new hospital corporation, the entity that assumed control over the hospital in late May.

Questions about Stephenson's contract mark another controversy for the Grady chief, who has weathered assertions that she has consolidated too much power over the hospital and has conflicts of interest.

The head of the new Grady corporation, Pete Correll, said he learned of the contract about a month ago while screening Stephenson as a CEO candidate.

"I'm working with Pam to come up with a new agreement that better defines her role, and what she's going to do during the transition," Correll said. "Right now we're talking about what's fair."

He said Stephenson has assured him that the issue of money would not be a problem in the CEO transition at Grady. "My sense is that Pam is a woman of her word, and if she said it won't be a problem, it won't," he said.

Meanwhile, two Fulton-DeKalb Hospital Authority members said they were unaware that a contract with Stephenson even existed. Authority member Thomas Dortch said on Tuesday that he was concerned the contract may have been executed away from the eyes of the public. He said the subject of the contract did not appear on any Authority agenda or in any minutes of meetings, and that he has missed only one public meeting this year, a couple of weeks ago.

If the final contract was not formally approved by the Authority in a public session, then Dortch said he believes it is not valid and must be scrapped. The contract was signed sometime between late January and late May.

Dortch said he would not have voted for a two-year contract for the interim CEO, knowing that the Authority would soon hand over control of the hospital to the nonprofit corporation.

"That is not the way you do business," he said.

Most important, he believes, the contract should have been approved in a public.

"I'm not one for hiding," he said. "I would not have agreed to do something like this quietly."

Dortch said he would raise the issue at the next meeting of the hospital Authority.

Authority member Dick Teters said he neither saw a copy of the contract nor voted on executing it.

Stephenson was not available Tuesday; she was undergoing complicated dental work, said hospital spokeswoman Denise Simpson.

Russ Hardin, president of the Robert Woodruff Foundation, which has pledged to donate $200 million to Grady, expressed concern over the contract.

"Our grant was an investment in new governance and new leadership at Grady. If there is a secret contract out there, then that is more evidence of the desperate need for new governance and new leadership," Hardin said.

Russ Willard, spokesman for the state Attorney General's Office, said the issue is whether the authority has the power, as defined in its bylaws or the enabling legislation, to delegate the power to execute a contract without it receiving final board approval.

Stephenson's contract is effective as of Jan. 28, 2008, the time when the Grady authority fired its prior CEO, Otis Story, and replaced him with Stephenson. In addition to her base salary of $600,000 a year, the contract provides for a potential annual bonus of 50 percent of her salary, bringing her potential annual earnings to $900,000.

The prior CEO had received a similar contract.

Stephenson also was promised a $10,000 annual car allowance, four weeks of vacation and a monthly allotment of $8,500 for as many as three months to help her in closing her private law practice.

Heard, the authority member who signed the contract, said he did not recall when the contract was signed or whether the board voted on the final document in a public session. But he did recall that the contract was executed before the new corporation took control of Grady in late May.

He said the board acted appropriately in that it announced in public in January that it was hiring Stephenson for a similar amount of money as her predecessor and that the authority would draw up a contract.

He said Stephenson was selected because she understood Grady, state law and government aid issues. She was offered a two-year contract because "a good major league pitcher will not sign for a one-year contract."

The authority, he added, understood that a new corporation might soon be taking over Grady, but he added that much of the transition was in flux. It remained unclear when, or if, the new corporation would be in place. Meanwhile the hospital was hemorrhaging millions in debt every month.

"The ship was sinking, and we had to get the ship out of the water. And we needed a director," Heard said.

STEPHENSON COMPENSATION

Base salary: $600,000 per year

Bonus: Eligible for up to 50 percent of her base salary

Car allowance: $10,000 a year

Vacation: Minimum of four weeks

Transition expenses: $8,500 a month for up to three months to help in the transition and closing of her law practice

If removed from office: Gets remaining salary for the entire two-year contract

Additional bonuses: Cellphone, laptop computer, wireless e-mail device and membership fees, including the 191 Club in Atlanta.

GRADY MANAGEMENT TIMELINE

DECEMBER 2006: Facing estimated losses of $21 million for the year, the Grady board, formally the Fulton-DeKalb Hospital Authority, hires consulting firm Alvarez & Marsal to develop a plan for the hospital.

MARCH 23, 2007: Alvarez & Marsal recommend about $48.5 million in cuts that include reducing bed capacity, cutting 250 jobs, closing the oral surgery and dental clinic and doing away with pediatric surgery.

APRIL 6, 2007: Otis L. Story Sr. is selected CEO by the Authority.

MAY 1, 2007: More than 400 senior employees —- many of them nurses and others involved in patient care —- accept early retirement offers, twice the number officials had originally targeted. Some employees were eventually rehired.

MAY 28, 2007: Consultants Alvarez & Marsal project that Grady will be in the red about $78 million at the end of 2007. That excludes $29 million owed to Morehouse and Emory University medical schools, which furnish Grady's physicians. It recommends adding board members who have the skills needed to run a major public institution.

JUNE 21, 2007: CEO Otis Story tells the board he expects to cut up to 100 positions, saving Grady up to $10 million for the rest of the fiscal year.

OCT. 11, 2007: Grady Health System projects a 2007 deficit of $50 million to $55 million, among the largest deficits in the Atlanta medical giant's history.

OCT. 20, 2007: The Authority approves a contract with PricewaterhouseCoopers to find inefficiencies and clean up finances. The contract could cost Grady up to $27 million.

NOV. 26, 2007: The Authority votes unanimously to hand over most of its power to a new management board.

JAN. 28, 2008: The Authority ousts Grady chief executive Otis Story. His position is filled by the Authority's chairwoman, state Rep. Pam Stephenson, (D-Lithonia).

MARCH 6, 2008: The Atlanta Journal-Constitution obtains Stephenson's payroll start form from the hospital, which says she is employed full time at $23,076.92 every two-week pay period. It notes that a formal contract will follow.

MARCH 14, 2008: The Authority announces the appointment of a 17-member board for the new private, nonprofit Grady Memorial Hospital Corp. Stephenson, already Grady CEO and head of the Authority, is also a member of the new board.

MAY 2008: The Robert Woodruff Foundation delivers the first $50 million of a $200 million donation to Grady.

The Grady Memorial Hospital Corp. takes control.

Ex-CEO Otis Story files lawsuit in Fulton County Superior Court saying that Stephenson's conduct was "willful, malicious, fraudulent, wanton, oppressive, reckless."

—- Compiled by news researcher Joni Zeccola