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Hospital CEO pay: The real issue is charity care

July 08. 2012 12:23AM

If your hospital's CEO makes $800,000 a year, does that invalidate the hospital's nonprofit status? Attorney General Michael DeLaney seems to be building a case that it should. He'd do much better to focus on another factor instead.

Last week, Delaney held a press conference to highlight a new report from the New Hampshire Center for Public Policy Studies. It found that CEO pay at New Hampshire's 23 nonprofit hospitals rose by an average of 18 percent from 2006 through 2009 while wages in the private sector in general rose by only 4.8 percent.

'I recognize that there should be a stronger correlation between CEO wages and the completion of the charitable mission of our nonprofit hospitals,' Delaney said. But why?

One could make an ethical case that nonprofit organizations should pay their top executives the smallest percentage of their revenue that is practical so more can go to charitable work. But a legal case?

Although a huge executive pay package might be a sign that an organization is shirking its charitable duty, that is not necessarily the case. A large and complex organization might need to pay market rates to attract top quality talent - because it might need that talent to survive in a highly competitive environment.

More important than executive pay is the percentage of a hospital's operations that is devoted to charity. If 97 percent of a hospital's operations are for-profit in nature, is it really a charitable organization? What about 80 percent, or 60?

In New Hampshire, nonprofit and for-profit hospitals alike are buying up independent physician practices. They are expanding operations, buying land, building new facilities. But when nonprofit hospitals do it, local governments lose tax revenue.

That is fine if the hospitals are dedicating those new operations to charitable care. When they are just expanding to enhance their revenue, why should the taxpayers effectively subsidize that by letting it go untaxed?

Legislators and the Attorney General's Office need to determine how much charitable care is done at both types of hospitals and determine if the state needs a new way to define charitable medical care in the law. Why exempt 100 percent of a hospital's operations from taxation if only a small percentage of those operations is dedicated to charitable care?

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