Recently a New England Journal of Medicine study asked the question: how much of their own money are nonprofit hospitals spending to improve health in the communities they serve?
The answer: not very much. A measly 7.5 percent of the average hospital’s spending nationwide went to “community benefit expenses” — outlays ranging from local health improvement campaigns to the financial losses a hospital absorbs by treating Medicaid patients instead of better-funded private payers.
The figure also includes “charity care,” or the amount of money a hospital spends at cost to provide discounted or free care for poor patients.
According to their filings with the Internal Revenue Service, New York City hospitals’ average community benefit expense was double the national rate, or 13.7 percent. But it’s not that our hospitals are frequently shredding the bills of the sick, poor and uninsured.
The main reason New York City does well is its heavy spending on teaching hospitals, which train medical students. On charity care alone, the city’s hospitals actually spent significantly less than the national average — 1.2 percent of total expenses compared to 1.9 nationally — with larger, more prestigious hospitals typically spending the least.
In fact, a dozen of the city’s nonprofit hospitals spent more in 2011 compensating employees who each earned at least half a million dollars than the organizations did on paying for care for the poor and uninsured.
That year — the most recent available in public records — Beth Israel Medical Center, Lenox Hill Hospital, St. Lukes-Roosevelt Hospital Center and New York Downtown Hospital all in Manhattan, were among those that spent more on sky-high salaries than charity care. So did Kingsbrook Jewish Medical Center in Brooklyn and Bronx-Lebanon Hospital Center.
On the more generous end of the spectrum, Maimonides, Mount Sinai and Montefiore spent between $16 and $25 million more in charity care than they handed out to their half-million dollar club of highest-paid employees.
Part of the enormous Continuum Health Partners, Beth Israel spent $5.4 million on uncompensated care in 2011, according its to tax filings, or little more than one-third of a percent of its total expenses.
Yet that same year, its single highest paid employee, chief of plastic and reconstructive surgery Mark Sultan, made almost as much, receiving $4.9 million in total compensation.
All told, the hospital’s $500,000-plus elite, which includes doctors and administrators, raked in a little over $28 million in salary and other compensation like retirement and bonuses. That’s more than five times more than what the hospital laid out at a loss to the poor and uninsured.
Four out of five of the New York City hospitals owned by Continuum in 2011 spent more on their highest-paid executives than on charity care. So did three of the five New York-Presbyterian institutions.
“The Continuum hospitals provide millions of dollars each year in uncompensated services as part of its mission to always provide the highest quality of care to everyone who turns to us for help,” said Jim Mandler, Vice President of communications for Continuum Health Partners, parent organization of Beth Israel Hospital.
“Our physicians and other clinicians are fairly and equitably compensated for all of the outstanding care they provide to our patients — care that is delivered with expert skill and tremendous compassion.”
Asked about the disparity at a City & State conference on health care this week, Continuum Health Partners President and CEO Stanley Brezenoff scoffed.
“It’s nonsensical,” he told The New York World. “Charity care is based on patient need and executive compensation is based on the market. They’re totally unrelated.”
Yet at least one study has suggested otherwise. In a 2010 paper looking at nonprofit hospitals in Connecticut, two health care management professors at the University of Connecticut business school found a negative correlation between executive compensation and the amount a nonprofit hospital spent on uncompensated care for the poor and uninsured. In other words, the more they spent on pay at the top, the less they spent on providing discounted or free services for the needy.
One reason, the authors concluded, was that executive bonus payments tied to revenue discouraged giveaways. The findings led them to question the extent to which tax-exempt non-profit hospitals provide a community benefit.
“If a CEO at a nonprofit hospital wants more pay, the general idea is to fill up as many beds as possible with private-pay patients,” said coauthor Rexford E. Santerre. “But since these nonprofits are tax exempt, doing that means they are not responding to their community mission.”
A similar story can be told at Kingsbrook Jewish Medical Center in Brooklyn, which in 2011 spent only $814,033 on uncompensated care at a cost to the hospital. That same year, the hospital paid President and Board Director Linda Brady $1.3 million and Board Trustee Rafique Chaudry $1.1 million. In total, the hospital’s most highly compensated employees made nearly three times as much as what the hospital spent on its poorest patients.
Some hospitals even made money by minimizing the volume of charity care they provided. Their 2011 tax returns show both New York Eye and Ear Infirmary and St. John’s Episcopal Hospital received more revenue for the charity care they provided than they gave out to patients.
Industry sources say that it’s important to look at the total value to a community that health care executives provide.
“When you start looking at their community benefit strictly on the basis of charity care, you miss a large portion of the message,” said Tom Flannery, partner at Mercer LLC, a human resources consulting firm based in the city.
“These are teaching institutions where they are training the physicians of the future —some heavily integrated in the community — doing a significant level of research and they’re pretty active in the world communicating what they’re doing, how they’re doing it and why they’re doing it and helping other institutions advance.”
Still, some cities and states have begun to ask why institutions that pay executives generously, but are stingy with charity care, remain tax exempt. At least two have moved to revoke tax exemptions for institutions that fail to give back through reduced-price or charity care.
In 2010, Illinois Governor Pat Quinn signed legislation spelling out how much charity care a hospital had to spend to maintain a tax exemption, after a heated case saw the state’s Supreme Court strip an Urbana hospital’s tax exemption for lack of charity care.
A similar fight is currently being waged in Pittsburgh, where the city is seeking to remove tax exemptions for the University of Pittsburgh Medical Center. The Pittsburgh system, consisting of 15 hospitals, spent about 1.65 percent of its total expenses on charity care, according to 2011 tax returns.
Put another way, the University of Pittsburgh hospital system is currently fighting to keep its local tax-exempt status while devoting significantly more of its total expenses in charity care than the average hospital in New York City.
Flannery suggests the battles have less to do with exorbitant compensation than with the recession and municipal budget shortfalls.
“I would ask the question, ‘What is motivating the government to take a look at this issue?’ Part of it is the fact that they don’t have the resources that they did in the past,” he said. “If you’re hungry, you go in search of a meal.”
No one in New York City is making such threats. And despite special attention to the issue of nonprofit executive compensation from Gov. Andrew Cuomo, the most highly paid executives at some of the city’s biggest hospitals will probably remain in the clear.
“It has long troubled me that executive compensation seemed so high compared to the paltry amount of charity care that’s been offered,” said Elisabeth Benjamin, Vice President of health initiatives at the Community Service Society, which published an in-depth report last year recommending steps to expand indigent care in New York State.
“The high levels of executive compensation speak to the priorities of the institutions.”
Additional reporting by Merritt Duncan and Gregory Barber.