That giant whooshing sound you could hear in Washington in January was the collective exhale of the not-for-profit healthcare world as the Democrats took control of Congress. It meant that Sen. Chuck Grassley and Rep. Bill Thomas, the GOP attack dogs who had been growling and snapping at tax-exempt organizations that act like for-profits, had been muzzled (or, in Thomas case, retired). In their place would be soft, fuzzy Democratic pups named Sen. Max Baucus and Rep. Charlie Rangel, who would let the industry get back to business as usual.
To a certain extent, they were right. The congressional heat has been turned down on not-for-profits on a range of issues. In particular, the idea of regulating community benefit standards seems to have been put on the back burner. Democrats are far more sympathetic to not-for-profit providers on most issues, as long as there is some notion they are continuing to provide a semblance of a safety net for the uninsured. They may not like hearing stories about executives who live like pashas on huge expense accounts and get lavish bonuses that would make some for-profit executives green with envy, but they are relatively less likely to do something about it.
Lately, however, we have had some reminders that a couple of hounds are still out in the field, noses to the ground.
One is the Internal Revenue Service. Earlier this month the agency reported that many not-for-profits have failed to provide details on highly compensated executives. None of the 50 not-for-profit organizations that paid executives more than $250,000 filed required schedules that detail executive compensation. Nearly half of 780 not-for-profits studied did not fully follow a three-step process to demonstrate that boards appropriately and independently set compensation.
The agency has come out with some recommendations to clear things up, but we are troubled that it needed to. We have had years of analysis of this topic, a commission study and industry self-policing, and still people are confused, or worse, just ignoring the rules.
The IRS report briefly woke Baucus, the new Senate Finance Committee chairman, who said that any confusion caused by paperwork should be fixed immediately and pledged to pursue abuse within the sector.
The IRS also recently promulgated voluntary guidelines on governance practices, which underscored the need for independent evaluation of executive pay and called for boards to pay no more than reasonable compensation for services rendered. And it is still rumored to be investigating community benefit practices at many not-for-profit hospitals.
Then there is the Government Accountability Office, which performed its own audit of not-for-profit hospital pay practices and found basic controls to prevent abuse but inconsistent oversight of perks.
You want just one tiny recent example of why there is continued interest on the part of the watchdogs? Earlier this month the North Carolina Blues announced its executives got big pay boosts, led by President and Chief Executive Officer Robert Greczyn Jr., who got a 22% raise to $3.1 million. The so-called not-for-profit insurer took action after a study found that its executive pay lagged behind that of 25 similarly sized insurers.
Meanwhile, the plan reported a year-end profit of $189 million, its fourth straight year being at least $150 million in the black. Even as its reserves have grown to $1.1 billion, however, the company expects to increase premiums by 11% this year because of rising medical costs.
Now if the previous two paragraphs had been written about a for-profit, nobody would blink. But not-for-profits get tens of billions of dollars in tax breaks every year to act differently. Many do, but an increasing number do not.
Baucus and Rangel might find that support for the safety net is not incompatible with ensuring that not-for-profits act like not-for-profits.