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Not-for-profit providers paid their CEOs an average of $490,431 in total compensation annually in 2006, according to a new report from the Internal Revenue Service (IRS).
The report is based on responses to questionnaires that the IRS sent to a sample of more than 500 nonprofit hospitals. As part of the study, the IRS also examined 20 nonprofit hospitals regarding their executive compensation practices. The reported data was analyzed based on community type and revenue size.
The report found that the average and median total compensation amounts reported as paid to the top management official by respondents to the questionnaire were $490,000 and $377,000, respectively. By community type, 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.
Hospitals were selected based on high compensation amounts paid taking into account the size and circumstances of the hospital, according to the IRS. The average and median total compensation amounts reported by the group of 20 examined hospitals were $1.4 million and $1.3 million, respectively.
The report also found that the average and median percentages of total revenues reported as spent on community benefit expenditures were 9 and 6 percent, respectively. Among the community types, these percentages were lowest for rural hospitals (both critical access and non-critical access hospitals) and highest for high population hospitals. The percentage spent on reported community benefit expenditures generally increased with revenue size.
The IRS said that uncompensated care was the largest reported community benefit expenditure for each of the study's demographics, other than for a group of 15 hospitals reporting large medical research expenditures (93 percent of all research expenditures reported by the study's respondents). Overall, the average and median percentages of uncompensated care as a percentage of total revenues were 7 and 4 percent, respectively. Uncompensated care accounted for 56 percent of aggregate community benefit expenditures reported by the hospitals in the study.
The agency concluded that both the community benefit and reasonable compensation standards have proved difficult for the IRS to administer. The IRS said that executive compensation "poses similar challenges," but the agency said it "will seek a better understanding of the impact of certain aspects of existing law, including the permitted use of for profit comparables, and the rule excepting the initial contract between the organization and the executive."
The IRS acknowledged that the reported data has limitations and may not accurately reflect the respondent group or represent the nonprofit hospital sector as a whole.