GAO Says Nonprofit Hospitals Have Array Of Policies on Executive Pay, Governance

(excerpted from BNA Daily Tax Reports)

Nonprofit hospitals have a wide variety of policies regarding executive salaries, fringe benefits, and governance practices, such as paying executives entertainment and automobile expenses, the Government Accountability Office said in findings issued July 28.

The GAO findings were addressed to House Ways and Means Committee Chairman William M. Thomas (R-Calif.). At Thomas's request, GAO launched a year-long study of the governance and compensation policies of nonprofit hospitals, as part of lawmakers' investigation into the nonprofit status of hospitals and other institutions.

Thomas's staff was briefed on the results June 5, according to the briefing report, Non-Profit Hospitals Systems: Survey on Executive Compensation Policies and Practices (GAO-06-907R).

Thomas has held several hearings on the nonprofit tax issue. For example, at a May 2005 hearing he said the tax-exempt status of the nation's nonprofit hospitals should be reviewed because it is becoming harder to differentiate between the activities of this sector and for-profit institutions (102 DTR G-1, 5/27/05 ).

Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) also is investigating these issues. Both chairman are examining what nonprofit institutions do to gain and keep their special status under the federal tax code.

Tax Exemption Worth $50 Billion

The financial stakes in the investigation are high. Thomas was told by Comptroller General David M. Walker, head of GAO, at the May 2005 hearing that the exemption is worth more than $50 billion a year to nonprofits, including hospitals.

GAO examined the corporate governance structure for determining executive compensation; the basis by which compensation and benefits are earned by or awarded to executives; and the internal controls hospitals have regarding the dispensation of travel, entertainment, gifts and other perquisites.

GAO examined the policies of 65 hospitals, and conducted this work between June 2005 and June 2006. The report contains no conclusions or recommendations about its findings.

GAO said many hospitals reported policies and practices, such as having an executive compensation committee or board responsible for approving executives' base salary, bonuses, and perquisites. Many hospitals also reported having a conflict of interest policy covering members of the compensation committee and its consultants, and relying on comparable market data of total compensation and benefits before making executive compensation decisions.

For example, GAO said, the hospitals surveyed often reported they provide payment of automobile-related expenses for executives, as well as written policies covering business travel and entertainment expenses. The providers reported a mix of practices related to payment for other perquisites, such as membership in recreational and social clubs, GAO said.

The report is available at http://www.gao.gov/new.items/d06907r.pdf.