Not-for-prof­its: more scru­tiny

Modern Healthcare - - Special Report - —Joe Carl­son

If you thought your not-for-profit health­care provider faced a lot of scru­tiny in 2009, just wait and see what this year brings. Ob­servers say tax-ex­empt hos­pi­tals and health sys­tems are likely to face more ex­am­i­na­tion than ever be­fore from fed­eral reg­u­la­tors, state pros­e­cu­tors, me­dia out­lets and the pub­lic at large.

Con­sider: Any pa­tient who walks in your doors and has ac­cess to an In­ter­net con­nec­tion can now find out if your CEO has a com­pa­nyspon­sored coun­try club mem­ber­ship in ad­di­tion to his or her sixor seven-digit salary, thanks to greatly ex­panded In­ter­nal Rev­enue Ser­vice Form 990 dis­clo­sure records avail­able at guides­

Con­sider that the IRS’ new com­mis­sioner of tax-ex­empt or­ga­ni­za­tions, Sarah Hall In­gram, is on record say­ing that an or­ga­ni­za­tion’s ad­her­ence to gov­er­nance prin­ci­ples is one of the strong­est pre­dic­tors of the po­ten­tial for fraud­u­lent ac­tiv­ity.

And con­sider that mem­bers of Congress who have long sought to crack down on hos- pitals per­ceived as not do­ing enough char­ity work to jus­tify their tax ex­emp­tions are fac­ing re-elec­tions from vot­ers who are in­creas­ingly fed up with big cor­po­ra­tions that take gov­ern­ment sub­si­dies and then fail to pass on the ben­e­fits to the pub­lic at large.

“Heads-up, boards: make sure you’ve got those good prac­tices, you’re trans­par­ent and arm’s-length,” says Marie Sin­ioris, pres­i­dent and CEO of the Na­tional Cen­ter for Health­care Lead­er­ship.

One is­sue likely to face en­hanced scru­tiny is ex­ec­u­tive com­pen­sa­tion. Just ask 2,192-bed New York-Pres­by­te­rian Hospi­tal Pres­i­dent and CEO Her­bert Pardes, whose $2.67 mil­lion in to­tal com­pen­sa­tion was re­ported in the New York Post on Dec. 13, 2009, un­der the head­line, “Sick­en­ing bonuses; Hosp CEOs snag $1M amid big health cuts.” Wrote the Post’s Melissa Klein and Su­san Edel­man: “While warn­ing of lay­offs and slashed pa­tient ser­vices, many hos­pi­tals shower their top ex­ecs and depart­ment heads with bonuses and perks. They in­clude hous­ing al­lowances, chauf­feurs, first-class air travel, tu­ition for their kids and coun­try-club mem­ber­ships.” Re­mem­ber: 2010 is an elec­tion year. “The change in the Form 990 is still new enough that I don’t think it’s got­ten the ex­po­sure that I ex­pect it to. I think that will hap­pen in 2010,” says Thomas Dolan, pres­i­dent and CEO of the Amer­i­can Col­lege of Health­care Ex­ec­u­tives.

While the pub­lic mind will likely be at­tracted to the Form 990 sec­tions on com­pen­sa­tion, reg­u­la­tors will be looking at the gov­er­nance sec­tions, par­tic­u­larly those on con­flicts of in­ter­est dis­clo­sure, fi­nan­cial trans­parency, and arm’s-length deal­ing with ven­dors who are also board mem­bers.

“The IRS has clearly seen enough ex­am­ples of bad boards where they know what they look like,” says health­care lawyer Michael Pere­grine, a part­ner with the law firm McDer­mott Will & Emery. “If you’re re­ally push­ing the edge of the en­ve­lope in a way that is not sup­port­able, you’re go­ing to see more chal­lenges from the IRS” and state at­tor­neys gen­eral.

And in cases where malfea­sance or mis­man­age­ment is found, reg­u­la­tors are go­ing to be push­ing for res­ig­na­tions of not just ex­ec­u­tives, but board mem­bers, Pere­grine says.

Dolan: Changes in the IRS’ Form 990 to draw more at­ten­tion.

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