USA Today Examines Salaries of Not-for-Profit Hospital Executives

USA Today on Thursday examined executive salary levels and "perks" at not-for-profit hospitals, which "have become fodder for industry critics." Federal law does not permit tax-exempt organizations to operate profitably to enrich individuals.

Executives at the six largest not-for-profit hospital systems each have salaries of more than $1.2 million a year and receive "generous benefits," such as forgivable loans and commuting expenses, according to company information and documents from Internal Revenue Service, which this summer began a review of compensation at 2,000 U.S. charities, including hospitals. The five highest-paid CEOs in the not-for-profit sector are hospital executives, according to a survey released Monday by the Chronicle of Philanthropy.

The median annual salary for not-for-profit hospital CEOs in 2003 was $625,000, compared with $341,000 for CEOs at for-profit facilities, according to a survey in Modern Healthcare. Ascension Health, for example, in 2003 paid then-CEO Douglas French $1.6 million in salary and benefits, and paid incoming CEO Anthony Tersigni, then chief operating officer, $1.4 million. Ascension, which is the nation's largest not-for-profit hospital system, also compensated Tersigni $85,000 for commuting expenses from his Michigan home to company headquarters in St. Louis.

Some hospitals offer other additional benefits, according to USA Today. Executives at Catholic Healthcare West "have access to large loans they don't have to pay back." Eight CHW executives have received forgivable loans for mortgage assistance since 1998, USA Today reports. However, CHW officials say their executives in FY 2003 helped turn the hospital system's six years of operating losses into $51 million in operating revenue.

Charles Chapman, chair of CHW's compensation committee for the board of directors, said the company will provide "relocation loans" on a "case-by-case basis," adding that the company is satisfied with its return on investment. Chapman said, "Health care may be the most complex industry in the U.S. today. Without good leadership, we might not have a system here to provide health care."

Hospital officials say not-for-profit facilities, which make up 85% of the nation's roughly 5,000 hospitals, need to offer high salaries to attract top talent. Douglas Anning, a lawyer who specializes in hospital law, said, "A big hospital in an urban area with multiple campuses may have 10,000 employees and one or two billion a year in revenue. It takes a pretty sophisticated and knowledgeable business person."

Economists say executive compensation in hospital systems remains a small part of total spending and is less overall than what practicing doctors receive, according to Paul Ginsburg, president of the Center for Studying Health System Change, USA Today reports. Chapman said, "If all our executives came to work for $1 a year, it would reduce our costs by only 0.2%."

However, patient advocates say not-for-profit hospital executives do not deserve such high salaries when their facilities implement "unreasonable" prices and collection practices for the uninsured, USA Today reports.

"I would not begrudge the salaries if they weren't at the same time putting so many families in financial ruin with their billing and collections practices," Anthony Wright of Health Access said.

K.B. Forbes, who heads an advocacy group for the uninsured, said, "We can understand someone making several hundred thousand, but when they're pulling in seven figures, they're acting like they are part of the NBA of the hospital sector" (Appleby [1], USA Today, 9/30).

As Congress continues to look into billing practices and other financial issues at not-for-profit hospitals, IRS is reviewing hospital records to determine whether compensation was excessive, pay was accurately reported and loans or other financial deals with officers and others were merited. Tax attorneys say hospital boards will be protected from IRS penalties if they can prove they compared executive salaries and benefits with similar organizations.

Jim Unland of The Health Capital Group said, "[Not-for-profit] hospitals have to be prepared to demonstrate not only that they are paying salaries within some reasonable range of industry standards but also that executives are bringing measurable value in key areas of operations, including community benefits" (Appleby [2], USA Today, 9/30).

Tax attorneys and other industry experts say the IRS review likely will uncover few "massive problems" with not-for-profit hospital management, but the "fallout from the review could affect the industry in other ways," USA Today reports.

John Colombo, a professor of law at the University of Illinois-Urbana-Champaign, said, "What [not-for-profits] have to worry about is the public perspective. What's the public going to think when all these numbers are highlighted?" Colombo added, "At some level, if fuel keeps being added to the fire, state legislators ... might jump in and say it's time to get rid of tax exemption for hospitals or change it in a significant way. That's the real risk" (Appleby [1], USA Today, 9/30).