Are nonprofit hospitals profiting?
March 16, 2010
In these tough economic times, French Hospital Medical Center in San Luis Obispo, which was losing money a few years ago, is now raking in more than $6 million a year in profits, according to a CalCoastNews analysis of data from the Office of Statewide Health Planning.
At the same time, the data shows that about 75 percent of indigent and Medi-Cal patients in San Luis Obispo County are seen at two local for-profit hospitals, Sierra Vista Regional Medical Center in San Luis Obispo and Twin Cities Community Hospital in Templeton.
Two non-profit hospitals, Arroyo Grande Community Hospital and French Hospital, attend to a fraction of the county’s poor patients while operating as tax-free entities, according to the data.
By comparison, Sierra Vista and Twin Cities paid a combined total tax of $1,985,000 in 2008. Of that, more than $545,000 went to local public schools.
State law requires hospitals in California to provide the Office of Statewide Health Planning and Development with quarterly financial reports. In addition, any structural changes, such as physical expansions at California medical facilities, requires the approval of the agency.
Because of their tax-free charity status, not-for-profit hospitals such as French cannot funnel monies earned to owners or shareholders. Profits by federal law must be put back into the organization.
Instead of using the extra monies to provide charity care, some not-for-profit hospitals have elected to spend their revenues on top-level employee salaries and elaborate expansions.
Flush with cash, French plans to announce an expansion of its intensive care unit. In addition, sources tell CalCoastNews that the non-profit is also considering an emergency room remodel and the addition of a new tower.
French is expected later this month to announce its expansion plans, which is projected to cost between $25 million and $40 million.
In 2006, Congress asked the IRS to begin investigating salaries of not-for-profit hospital executives. Around that time, French’s parent company, Catholic Healthcare West, a hospital system based in San Francisco, forgave a $300,000 housing loan it made to French Hospital CEO Alan Iftiniuk.
Without counting the forgiven loan, Iftiniuk received total compensation of $971,902 in 2006, according to a Catholic Healthcare West tax return.
Since then, Iftiniuk’s salary has been reduced to just over $400,000 a year. However, he has received bonuses for his high-profit margin of more than $300,000 a year along with an almost $100,000 a year benefit package for a 2008 total of $794,679.
By comparison, Catholic Healthcare West paid Arroyo Grande Community Hospital President Rick Castro a total compensation package of $382,619 in 2008, according to IRS records.
A 2009 IRS report that looked at the salaries paid to not-for-profit hospital administrators put the national median CEO salary – including bonuses and benefits – at $377,000. The report noted that CEOs at large hospitals in urban areas received substantially higher compensation than their counterparts in rural areas.
Nationally and locally, not-for-profit hospitals fare better than their for-profit neighbors. While 77 percent of not-for-profit hospitals are making a profit, only 66 percent of for-profit hospitals are in the black, according to the American Hospital Directory.
A law passed in 1996 gives the IRS the authority to fine not-for-profit executives for receiving salaries and other benefits that are deemed excessive, as well as to penalize trustees who approve the compensation. The law requires excessively compensated executives to repay a portion of their income, along with a 25 percent penalty.
So far, the IRS has taken limited action against several executives for their excessive high salaries.
Not-for-profit hospitals found taking advantage of their charitable position face the possibility that their tax-exempt status can be revoked. In return for their tax-free status, federal law requires non-profits to provide a public benefit.
“French argues that we (Sierra Vista) are a bigger hospital and as such we should see more indigent” patients, said Ron Yukelson, Sierra Vista’s chief spokesman “However, if you take size into account, our percentage of indigent care is still (much) larger” than French.
An employee who works in French’s emergency room, who asked to remain unnamed to protect her employment, claims that since Catholic Healthcare West purchased the hospital in 2004, French has discouraged those without insurance to stay and receive treatment.
That assertion is just plain “ridiculous,” said Megan Maloney, French’s communications director when asked last year about the employee’s assertions. “It is our mission to care for the indigent.”
In an unrelated action, Catholic Healthcare West agreed in 2006 to settle a class action suit that claimed French’s parent company had a practice of price-gouging the uninsured. The suit, filed by two San Francisco lawyers, was settled for an estimated $228 million.
Last year, the Senate Finance Committee estimated that not-for-profit hospitals receive between $12.6 billion and $20 billion a year in annual tax exemptions. Lawmakers have asked the IRS to take a hard look at the high salaries and charitable practices of not-for-profit hospitals.
In 2005, a group of local doctors and other investors, who purchased the land where French is located and lease it back to Catholic Healthcare West, have made public their plans to increase the size of French while fighting Sierra Vista’s goal to become a trauma center.
Some of these same doctors claim the public would be better served with only one hospital in San Luis Obispo: French Hospital.