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.

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If you look at the overall operation, it is benefing/ profiting both as a profit (They make money from both Athem Blue Cross and via patience’s co-pay, deductable, and percentage responsibility) and non-profit (tax exempt) operation (both)!

Interesting article and comments.

I guess that Non-Proft health care doesn’t necessarily mean lower health-care costs in the long run.

In 1986 Congress decided it was time to take a peak at the tax exemption afforded Blue Cross/Blue Shield (the Blues) and discovered that there was no longer any justification for continuing exemption for service benefit plans if their primary purpose was providing medical insurance indistinguishable from that provided by commercial carriers.

According to the Alliance for Advancing Non Profit Health Care, 48% of Americans with private health insurance are covered by Non-Profit plans with an enrollment of at least 100,00 members! That is one hell of a lot of Americans. However, that is not to say that all Non-Profit entities have attained IRS tax exemption.

In Colorado Just recently, Kaiser operating as a Non-Profit tax exempt Health Care unit ended up with a $700 million surplus and had to work deals with the insurance commissioner to determine how to utilize the reserve.

Seemingly, every Health Care system on the planet is struggling with rising costs and are now in transition mode to cope.

The Canadian Health Care system is changing rapidly, with a shift of service delivery from publicly funded, non-profit institutions like hospitals, to the corporate sector. Privatization discussions focus on the public/private split in health spending, a split that right now stands at 68%-32%.


No matter how any of this falls out the fact is ER service is costly, and much would be unnecessary if we had a decent universal health package for all our citizens. When someone uses the ER and doesn’t pay for it we all pay a little more to make up for that. Those who say no one is ever denied service for health issues is nuts. At times of my life I have not been willing to pay the huge ER costs I have foregone care in the hopes I would ‘just make it’. Its a gamble no one should have to take.

I had a few chats with the crazed tea party people yesterday in front of Congresswoman Capps’ office where they were wrapped up in flags (literally!) calling her and our President everything in the book for trying to bring us sensible health care legislation. Those Palinistas (one sign said ‘Rush rules all’) have been led astray and represent the worst in human intelligence and compassion. I talked for over 1/2 hour with a guy who claimed to have a PhD, he couldn’t focus on one fact for over 20 seconds. They are dupes of the cabal of rich fascists who hope to sabotage everything we voted for when choosing a real man for President. We are the majority-I call on all with good intentions to stand up for what you know to benefit the majority of Americans-universal, affordable health care for all.

What does this post have to do with what we are talking about?

Not a bad question Sally. But apparently our whole system is in confusion, I felt like pointing out one facet, as this article points out another related one. In so many or our societal affairs I think it would be good to analyze how we do things and clean it up. Health care, non profits (hospitals, churches etc), the IRS, our bankrupt (morally) political system and processes, energy policy, our individual responsibilities, the education and infrastructure aspects of society. The list goes on and on, we have been riding high on money, ignorance and living ‘happily’ though poorly on our daily portion of soma (junk food, TV, grumbling). And at the heart of a lot of our current economic disaster is the disastrous health ‘care’ system, a bloated and greedy mostly private conglomerate of corporations intent to bleed us dry for what should be our basic rights-affordable and available health care for all.

Have you read the health care bill or at least received impartial information on it and the effects? The Canadian system has mostly failed, and how can you trust the US government when they have wasted 70,000 flue shots at taxpayers expense. Did you get your flue shot? Would you even want it?

Apparently we were all sold a load of bull.

Obviously when you chose to forgo the huge ER costs with no medical insurance and chose to take the gamble, you must have had assets that the hospital could attach, and were unwilling to risk the assets or possibly risk bankruptcy. Had you been an illegal alien with no assets, you would have taken advantage of the hospital, and those with insurance, to get medical care. You made the choice, and in my opinion took the right course. Would you have had to use a clunker to pay for insurance or a house not like the neighbors? Of course you could have secured medical treatment at 1/3 the cost of US medical care here in Panama, Costa Rica, etc. Full medical insurance at a fine private hospital close by is available for $78 a month. Similar to Mexico.

I am all in favor for affordable health care. Hard for a doctor to do with the malpractice insurance at $100,000 a year, nurses with salaries twice that of school teachers, and doctors being restricted by the AMA. With the new bill, you will see many doctors retire, and the fewer doctors, the longer the wait. The “cabal of rich fascists” will not care, the have the money to get medical care anywhere. You are right to be bitter, the poor always get it in the neck, especially in socialist systems: consider Cuba, China, and former Russia.

So the choice comes to what you want, and what you are willing to sacrifice for it. It also comes from what you know. As to your comment praising Obama, we shall see. As to the Tea Party, they are a powerful voice holding all politicians noses to the grindstone, especially Lois Capps, a politician voting the democratic line (easy job). Dupes, have you ever been duped? How many promises have you received that were never fulfilled. Do not put your faith in government. We all have been sold down the river repeatedly. It is the history of mankind.

What the hell, leave it to French Hospital ie: Catholic Health Care West to figure out every which way to avoid their duties while touting themselves as a Not for Profit Facility. It’s equally disturbing that only CCN has the courage to bring these facts to the public’s attention. As a concerned citizen I plan to lodge a complaint with all appropriate overseers, starting with the IRS.

Who else should I contact? Sally, you seem to be a conscious practitioner with concern for public welfare and someone who knows what steps we can all take. While many will sit back idly and claim disgust, others will take action. What do you suggest we do to bring this to the forefront and further expose these self serving sycophants?

JordanJ, Sally, Cindy etal

So based on another “sources tell CalCoastNews……..” story you want to know what agencies you can contact to relay these “facts” to? I suspect the agencies are going to want something a little more concrete than anonymous sources. Or at least a personal experience to back up the complaint. “I read it in Uncovered SLO” may not be enough to be taken seriously. How hard would it be to call French Hospital and ask them yourself what specialists they have on call to back up their emergency room docs?

The secret when you call French is to ask what specialists are on PAID call, that requires the Doctor to be there not just to take a phone call then decide whether to come in or not.

Doctors charge from $400 to $1,500 per day to be on paid call, whether or not they see patients, and when they do see patients they bill the patient for the services they provide.

I would contact the Board of Supervisors for SLO county.

They can go after CHW and show they are not acting as a non-profit. They could be looking at $2 million a year and we certainly know the schools could use another $500,000 that the for other 2 hospitals pay .

The office of Inspector General in Washington DC is looking at these issues they would be a good one to contact.

If you look at any “not for profit entity” you will see the directors making big salaries. These entities are constructed to make money for the executives. However, would you want your medical care in the hands of idiots. Become president of French! (If you have the experience and brains.) And by the way, lets take a look at the self serving lawyers, legislators, and judges. Lodge your complaint, there is nothing like light.

French Hospital sounds like it is certainly operating as a for profit hospital. As for not providing their share of services to the indigent, I have to wonder how they are managing to accomplish that. I can only imagine that they must be providing the bare minimum to a patient that comes into the ER and then when determining that the patient has no insurance or means to pay they probably release them without any additional care that the patient may require. It just doesn’t make sense that they aren’t providing their fair share if hospitals are required to treat a patient first and then inquire about means of payment after.

On the other hand, I have to say that I have never been seen in an emergency room or taken anyone to an emergency room where they didn’t do intake prior to providing a service. I suspect that it would be very easy to take note of who is homeless during an intake session. For instance a lack of a home address would be a dead give away.

Hi Cindy

When you go to the ER the ER docs take care of most small things and send you on your way

When you need a specialist ENT, Nuro, Orthopod ect. they call one to come in at that time they know if you have insurance. French does not pay doctors to be on call, on call means the doctor must be in the emergency room in 20 minutes.

What happens is the doctor does not want to come in if they will not be paid.

Sierra Vista has all specialist on paid call so they are required to be in the ER within 20 minutes so French transfers the patient to Sierra Vista and they treat the patient. Since usually when a specialist is called in it also means being admitted to the hospital or possibly surgery the costs are very high.

The moral of this story is if you need an ER go to Sierra Vista as you know there will be a specialist available.

That more than explains how they are managing to avoid providing care to the indigent and uninsured. That was a piece of high value information Sally.

I think that there should be a sales tax on groceries of 3 percent to take care of health care and hospital costs to the homeless and indigent. I think illegal aliens should go home for their health care.

The story states French is considering a remodel to the ER. Anyone who has ever had a bed in that ER near the ambulance entrance during a rain storm knows that the ER could use a remodel.

Everyone has a good or bad experience at any hospital. The fact is whether you are a nurse at Sierra Vista or French you have your patients best interests at heart. Most doctors practice at both hospitals and have the best interests of their patients as their foremost concern.

This is about finances and what the hospital administration does through their policies that is good or bad for the community, it is about parading as a not for profit when the bottom line is is more important.

The law says that no Emergency room may ask for insurance until the patient has been seen by a doctor, it is the law if Twin City hospital did not follow the law then turn them in, but of course they did follow the law.

Lets look at the facts half the hospitals do 75% of the medicare and indigent care.

French exists for the sole benefit of the executives.

This county is missing out on a lot of tax dollars for a pair of hospitals the are not really not for profit and use sleasy methods to get more business.

after all the stories that Cal Coast news has done about French and Arroyo Grande the posts say that Cal Coast news should be very careful about getting sued by French and Arroyo Grande, so why has the only response either hospital has made was to attack the people but they have never refuted the facts.

You are absolutely correct Sally. This article is accurate and it is a known fact that CHW has forgiven Alan’s home loan. He also has a job as a “consultant” in San Diego that he goes to as well so he is not even on French premises for a large part of his employment. He is as sleasy as they come. That organization is all about $$$$$, don’t let them fool you ds_gray.

As someone who has received care at all 3 facilities mentioned, I can say that French does NOT concern themselves with insurance. In fact, my wife was just in the French ER last week, and we were told that they were NOT ALLOWED TO EVEN ASK about insurance status until AFTER my wife had been diagnosed and treatment started. Period.

In contrast, insurance consideration comes before treatment at the other two facilities. My wife was in the ER at Twin Cities the day BEFORE the ER visit at French, and had to endure what amounted to an admitting interview before receiving sub-par treatment in Twin’s brand new ER unit, thus the ER visit to French the following day.

From my perspective, French’s ethic appears to be ‘patient first’. I do not think so at Twin Cities. In fact, not one doctor at Twin even examined my wife – abdominal pains. Got lots of lectures and spent the whole day there, but in the end, she got codeine pills and was sent home – and SHE’S ALLERGIC TO CODEINE. She received 3 physical exams by 2 doctors and a thorough ultrasound at French. I will continue to choose French over Twin or Sierra and have done so even though we live much closer to Twin.

As for salary, if the staff at French is getting more money, maybe they’re doing a BETTER JOB. As far as the lawsuit – filed by 2 SF lawyers – gee, do ya think maybe that was ‘ambulance chasers gone wild’?