The chief executives of nonprofit hospitals in California earn an average of $732,000 per year and 16 of them pulled in more than a million dollars, according to a study by the trade publication Payers & Providers.
Ron Shinkman, editor of the newsletter, culled data from 2007 and 2008 tax filings of the state’s nonprofit hospitals.
He found that CEO compensation, in 11 cases, surpassed the charity care rendered by those hospitals. Some of those hospitals pointed out to Shinkman that the cost of charity care doesn't count the money the hospitals spend rendering care to patients on Medi-Cal, which pays rock-bottom rates.
The highest-paid executive in the state was J. Kendall Anderson, CEO of John Muir Health, which operates two hospitals in Contra Costa County. Anderson earned $7.45 million in 2008, most of which ($5.3 million) was part of a one-time retirement payout. Executives from Cedars Sinai, Hoag Memorial, Scripps Health and Stanford are also top earners, all earning more than $1.5 million in 2007 (details below).
Shinkman’s report adds to a growing body of research that exposes nonprofit hospital chief executives to questions of whether their compensation aligns with the mission of tax-exempt hospitals. Those hospitals, nationwide, receive $12 to $20 billion in tax breaks in exchange, theoretically, for providing charity care to the needy.
Hospitals generally defend the compensation, approved by a board of directors, as the cost of recruiting top talent.
A 2005 report by the Government Accountability Office, though, found that some nonprofit hospitals provide only marginally more charity care than for-profit hospitals.
The Boston Globe reported last year that Sen. Charles Grassely, R-Iowa, is growing increasingly concerned about nonprofit hospital CEO pay and whether the hospitals are providing charity care commensurate to their tax breaks.
Sen. Charles Grassley of Iowa, the top Republican on the Senate Finance Committee, said yesterday that he is concerned that such salaries may be too high and that the hospitals' boards of directors are not taking full responsibility for approving them. Grassley said he hopes to introduce legislation, possibly as part of a sweeping health care overhaul later this year, that would put more pressure on boards to keep salaries in check.
'It really concerns me, and something needs to be done about it,' he said.
Grassley followed through, adding provisions to the health care reform law that heighten scrutiny on nonprofit hospitals. Here are changes he sought and received, according to a March 24 post on the lawmaker's website:
The health care legislation signed into law yesterday includes provisions Grassley co-authored to impose standards for the tax exemption of charitable hospitals for the first time.
The bill requires that a hospital complete a community-needs assessment once every three years and adopt and publicize a financial assistance policy; prohibits billing those who qualify for financial assistance the top rates; and prohibits a hospital from taking extraordinary collection actions if the hospital has not made reasonable efforts to notify patients of its financial assistance policy.
The bill also requires the Internal Revenue Service to review the tax-exempt status of each hospital every three years; requires Treasury and Health and Human Services to submit an annual report to Congress on the level of charity care, bad debt expenses and the unreimbursed costs of means-tested and non-means-tested government programs; and requires Treasury and HHS to provide a report in five years on the trends on the items reported on an annual basis.
Grassley is not the only one calling for a close look at tax-exempt hospitals. New Hampshire Attorney General Michael Delaney announced a plan in May to review the compensation of nonprofit hospital CEOs in that state, alarmed by the $1.3 million annual earnings of one executive.
Perhaps lavish in New Hampshire, that salary wouldn’t even crack the top five in California. Thanks to Shinkman, whose full report is available for a fee, here are the top five earners at California nonprofit hospitals:
- Ken Anderson, John Muir Health, $7.45 million (2008)
- Thomas Priselac, Cedars-Sinai Medical Center, $2.985 million (2007)
- Peter Foulke, Hoag Memorial Hospital Presbyterian, $2.399 million (2007)
- Chris Van Gorder, Scripps Health (as system, not hospital, CEO), $1.665 million (2007)
- Martha Marsh, Stanford Hospital & Clinics, $1.578 million (2007)