For hospitals, 'nonprofit' stops with CEO's paycheck

August 29, 2010|By Jay Hancock

Eight top Baltimore hospital executives pulled in more than $1 million each in fiscal 2009, according to newly detailed disclosures from the Internal Revenue Service.

Close to a dozen had personal dues for "social clubs" financed by your charitable donations, tax dollars and health insurance premiums. Many enjoy lavish and opaque executive retirement plans that also put upward pressure on the medical costs that threaten government budgets and the economy.

Don't say they're worth it. Don't say that there's a "market" in hospital-management talent and that organizations must pay top dollar. And really, don't start quoting Wall Street salaries to try to make these look reasonable.

Hospitals aren't Goldman Sachs. They're not Stanley Black & Decker or Microsoft, either. They're nonprofits, getting charitable donations and huge government subsidies beyond all the loot they rake in from Medicare and Medicaid. If the newly required disclosures on the IRS "Form 990" put pressure on hospital boards and CEOs to tone it down, it's about time.

"This is taxpayer-subsidized money. This isn't money coming from Bill Gates. I bet the hospitals in Baltimore are the biggest property owners who don't pay property tax," says Dean A. Zerbe, a Washington lawyer and former tax counsel for the Senate Finance Committee. "Don't cry me a river about how you can't help the poor, and you take them to court when they can't pay, when you're paying your CEOs like nobody's business."

After being out to lunch for years on nonprofit executive pay and other abuses, the IRS has begun paying attention and enforcing the law. A little.

This year it published a study showing that the average compensation for chief executives at nonprofit hospitals of all sizes was $490,000. A select group of 20 (unidentified) hospital bosses made an average of $1.4 million. The agency says it moved to penalize several cases of excessive pay, although it won't identify those hospitals or executives, either.

"We've been looking at executive compensation for several years now," said Judith E. Kindell, a senior technical adviser in the Exempt Organization Division of the IRS. "When we redesigned the 990, one of the things we wanted to make sure about is that there is a lot more transparency about executive compensation."

For some hospital donors, the revelations are transparently shocking.

"Donors are completely outraged," says Ken Berger, president of Charity Navigator, an organization that helps people make smart giving choices. "Donors tell us more than anything that they're just blown away by the fact that an organization that is a charity basically is creating millionaires in its leadership.

"The most common remark we get is this: 'I've been giving to this organization for years, and I can't believe what the CEO is making, and I will never support this organization again.' "

IRS Form 990 must be completed annually by nonprofits and is publicly available from the organizations or online at Guidestar.com. The form has required executive-pay disclosure for years, but many nonprofits were lackadaisical about completing it and sometimes went to lengths to hide pay. The new forms are stricter and more detailed, requiring better disclosure of pension munificence and perks such as country-club dues, for example.

Why any hospital executive should need a company-paid club membership is a deep mystery. It can't be to woo potential donors. No donor with half a brain wants to endow an institution so employees can play golf with her money.

It shouldn't be to wine and dine business prospects. A hospital's business is collecting revenue for medical care. To be frank, there's too much of that going on already for the good of the country's wallet. Hospitals are far too focused on sales and marketing and not enough on delivering quality, efficient care.

Hospital trustees on any compensation committee can deliver a windy treatise about how pay for senior executives is ethical, carefully considered and worth every penny.

It's all a crock. The "independent" compensation consultants that boards rely on are often referred by the CEO himself. The consultants know they can't make waves, or they won't get hired to rubber-stamp executive pay at other hospitals. To justify high pay, boards and consultants often use unrealistic comparisons from much bigger institutions or from the for-profit sector.

It doesn't take $1 million to get a great boss. American Red Cross took in $3.3 billion in revenue in fiscal 2009. That's twice the size of the Johns Hopkins Hospital. But Red Cross CEO Gail McGovern made $456,000, according to the organization's IRS filing.

That's less than two-thirds of the fiscal 2009 pay of Edward D. Miller, chief executive of Johns Hopkins Medicine, and about one-fourth of the pay of Ronald R. Peterson, president of Johns Hopkins Health System and Johns Hopkins Hospital. (The previous year, Miller raked in hundreds of thousands of dollars in additional compensation through his position as dean of the Johns Hopkins University School of Medicine. His JHU pay wasn't available for the most recent fiscal year.)

But Peterson's $1.9 million is less than what some other hospital system bosses make, you may say. And Hopkins is the top hospital in the country.

"The problem with nonprofit hospitals is, they're all off the charts," says Charity Navigator's Berger. "The IRS has indicated they're going to continue studying nonprofit hospitals because they're so extreme."

For top management, these institutions aren't nonprofit at all. So why do they continue to be tax-exempt?

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