Not-for-profits: more scrutiny
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 guidestar.com.
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.