Wednesday, July 10, 2019
This must be the season of scrutiny for nonprofit hospitals. A few days ago we blogged about one nonprofit hospital's particularly aggressive collection activities, including thousands of lawsuits against indigent patients the hospital agreed to treat in exchange for tax exemption. Forbes online published an article last week discussing how "the top 82 nonprofit hospitals" are making billions and paying their Tophats millions. Of course, the law pretty much allows nonprofit hospitals to accumulate mountains of money as they pursue their charitable purpose. In other words, nonprofits can make money they just can't pay dividends. The law also allows nonprofit hospitals to pay reasonable compensation determined by reference to similarly situated for- and non-profit hospitals. That the top nonprofit hospitals have large, and sometimes fee-generated endowments, and pay their Tophats outrageous salaries is not necessarily indicative of a non-charitable purpose. Academic hospitals, in particular, typically treat the sickest patients and the rarest diseases -- in part because doing so assists in their teaching and research mission -- and they cross-subsidize those activities from fees paid by non-indigent patients among other sources. The theoretically ideal tax exempt hospital would probably need to accumulate a largess (if not from donations, then from paying patients I suppose) with which to "cross subsidize" (but not sue for payment) indigent care and find new cures and treatments. I am not so sure I can say the same about outrageous salaries but that is a problem of corporate governance, whether for-profit or nonprofit, that has caused outcries for years. And, in final defense of the regs (53.4958-4(b)(1)(ii)(A)) allowing nonprofits to pay for-profit market salaries, it should be remembered that nonprofits exist within an amoral profit seeking market. They don't normally get discounts on labor, supplies or other inputs just because they are the proverbial "good guys." Still, the Forbes article is consistent with the trend towards alarm-ism with regard to the wealth of hospitals that pay no taxes and still put plenty of patients in the poorhouse through their fee structures:
Our auditors at OpenTheBooks.com looked at America’s healthcare system and found that so-called “non-profit” hospitals and their CEOs are getting richer while the American people are getting healthcare poorer. Our new oversight report Investigating The Top 82 U.S. Non-Profit Hospitals, Quantifying Government Payments and Financial Assets specifically looked at large nonprofits organized as charities under IRS Section 501(c)3 with the mission of delivering affordable healthcare to their communities. We found that these hospitals add billions of dollars annually to their bottom line, lavishly compensate their CEOs, and spend millions of dollars, which are generated by patient fees, lobbying government to defend the status quo. Last year, patients spent 1 out of every 7 U.S. healthcare dollars within these powerful networks. Many are household names like Mayo Clinic* in Rochester, MN; Cleveland Clinic*, in Cleveland, OH; and Partners HealthCare in Massachusetts. Here’s how executive compensation breaks down at the 82 largest non-profit hospitals using the IRS 990 informational returns and auditing the latest year available:
- 13 organizations paid their top earner between $5 million and $21.6 million;
- 61 organizations paid their top executive between $1 million and $5 million;
- Only 8 organizations paid their top earner less than $1 million (which proves it’s possible).
This chart [see above] shows the income bands of top-paid executives in the 82 large charitable hospitals across America.
The article includes a link to a study -- it seems almost more like an advocacy piece, but that doesn't mean the facts are not real -- presented in a neat sort of YouTube-like format. Anyway, here is the presser on the study:
FOR IMMEDIATE RELEASE:
June 24, 2019
REPORT: Healthcare Charities Raking in Cash & Stockpiling Money
OpentheBooks.com Oversight Report – Top 82 U.S. Non-Profit Hospitals, Quantifying Government Payments & Financial Assets, studied the largest charitable healthcare providers where roughly 1 out of 7 U.S. healthcare dollars was spent last year.
Senator Tom Coburn, "The problem in health care is not that markets have failed. The problem is they have never been tried. This report shows that hospitals and so-called health care ‘charities’ benefit handsomely from the status quo. The lack of price transparency in our health care system is driving up costs and reducing access and quality. Giving patients an honest look at health care economics is one of the best ways to drive reform."
Why are the salaries so high at these healthcare charities? Furthermore, net assets at these charities increased by 23.6% or $38.9 billion last year.
Salaries ran as high as $21.6 million. In fact, six CEO's made between $10 million and $21.6 million; seven CEO's made between $5 million and $9.99 million; 25 CEO's made between $2.5 million and $4.99 million; another 36 CEO's made over $1 million; and only 8 executives took a paycheck under $1 million. Adam Andrzejewski, "America’s patients shouldn’t have to go on a scavenger hunt to discover prices for services. The lavish salaries for health care CEOs and rich endowments for charities may be one reason why the numbers are so elusive for patients. In every other area of the economy shoppers can see what things cost. It’s long past time to apply basic standards of transparency and price discovery to health care." For more than 50 years, American presidents have been sounding the alarm about America’s healthcare system and rising costs. Hard data backs up this concern. In 1970, healthcare amounted to 7% of GDP and today is near 20%.
BY THE NUMBERS:
- $203.1 billion – the total of combined net assets of these 82 non-profit providers;
- 23.6% – the percentage of growth in combine assets from $164.2 billion to $203.1 billion;
- $20,000 – the annual healthcare costs for the average American family;
- $21.6 million – Banner Health CEO earnings last year;
- $26.4 million – Combined lobbying costs spent by the 82 hospital organizations spent last year.