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IRS study of community benefit activity and executive compensation in nonprofit hospitals

The IRS has released the full results of a study into the community benefit activities and executive compensation practices of nonprofit hospitals. The data for the report came from more than 500 questionnaires the IRS sent to a sample of nonprofit hospitals. The results are broken down into four demographic and five revenue-based categories.

To retain its tax-exempt status, the IRS requires that nonprofit hospitals provide a "community benefit." This benefit usually takes the form of research, professional education and training, uncompensated care and community programs.

Documents:

Taken from the study's community benefit findings:

  • Significant differences were observed between the federally-designated rural critical access hospitals and the high population hospitals, and between the smallest- and largest-revenue hospitals.
  • The average and median percentages of total revenues spent on community benefit were 9 percent and 6 percent, respectively. The percentage spent on community benefit generally increased with revenue.
  • Uncompensated care accounted for 56% of aggregate community benefit expenditures. The next largest categories of community benefit expenditures were medical education and training (23%), Research (15%), and community programs (6%).
  • The expenditure mix varied both by community type and revenue size. For example, 15 large research hospitals accounted for 93 percent of the total research expenditures recorded in the study.
  • Overall, hospitals reported excess revenues of 5 percent of the total. Large revenue size hospitals were generally the most profitable, critical access hospitals were the least so. Twenty-one percent said they were operating in the red.
  • Uncompensated care and community benefit expenditures were concentrated in certain hospitals. For example, 9 percent of the hospitals reported 60 percent of the aggregate community benefit expenditures; 14 percent of the hospitals reported 63 percent of the uncompensated care expenditures.
  • No correlation was found between community benefit expenditure levels and per capita income levels of the hospital's surrounding area. However, community benefit expenditure levels generally increased as uninsured rates of the hospital's surrounding area increased.

Taken from the study's executive compensation findings:

  • The average and median total compensation amounts paid to the top management official to the questionnaire were $490,000 and $377,000, respectively. The largest amounts were reported by high population and other urban and suburban hospitals while critical access hospitals reported the smallest amounts paid. Average and median total compensation paid increased with revenue size.
  • The IRS further examined 20 of the most highly compensated officials. Nearly all examined amounts were upheld as established pursuant to the rebuttable presumption process and within the range of reasonable compensation.