Although executive compensation was legally reasonable at nearly all of the not-for-profit hospitals singled out for review by the IRS, the salaries may still raise some eyebrows.
Compensation was pretty high, and while permissible under current law, I wonder how it will be received in the court of public opinion, said Steven Miller, commissioner of the IRS Tax Exempt and Government Entities office, during a healthcare conference in Austin, Texas, organized by the state attorney generals office.
Miller told conference attendees that his office is nearly ready to release its long-awaited final report on enforcement at not-for-profit hospitals, including its findings of executive compensation.
Nearly all hospitals surveyed appeared to have used comparability data and the rebuttable presumption of reasonableness provisions in the excess-benefit rules on executive compensation. I think that is a good thing, Miller said. Still, the compensation amount paid to the top management officials will be considered high by some.
The report will also reveal that on average, not-for-profit hospitals spend 9% of their total revenue on community-benefit activities with the cost of uncompensated care accounting for just over half of that total figure. Meanwhile, tax-exempt hospitals reported an average profit margin of 5%.
Last year, Sen. Chuck Grassley (R-Iowa), ranking member of the Senate Finance Committee, presented a staff draft proposal that would force not-for-profit hospitals to devote at least 5% of revenue to charity care in order to justify tax exemption. Grassley is expected to introduce similar bright line legislation this year.