Houston Methodist Hospital's $18 million compensation question mark

For me, the tax returns for nonprofit hospitals are a bit like eating bags of potato chips. Cracking open just one isn't an option.

Since I first started scrutinizing 990 tax forms about three years ago, I've probably examined close to 1,000 of them from hospitals and healthcare systems all over the country. I won't get into the exact details as to what prompted me to start looking at them so closely, but an uncharitable phone call a Southern California hospital CEO made directly to me was the catalyst.

I discovered that CEO was making more than $1 million a year. It opened my eyes at the time, but it turned out such compensation isn't a surprise in the nonprofit hospital world; it's pretty much pro forma for the CEOs of medium-sized facilities and up. The CEOs of multi-hospital systems can earn $3  million, $4 million, or even $5 million a year or more.

My reading of 990s has also dug up some unrelated gems, such as the disclosure that the CEO of another hospital in California was also running a patient collections firm retained by the same hospital. I later found out that to save on berth fees, he also parked his sizable boat in the hospital's parking lot, much to the annoyance of his employees. He's running another hospital in suburban Chicago these days. I don't know if his seafaring vessel or self-dealing tagged along.

I will give credit to the executives running the largest hospital in the nation's fourth largest city for being much more low-key.

During the course of research for FierceHealthFinance's most recent CEO compensation survey, it appeared Houston Methodist Hospital had shelled out more than $18 million in compensation to three of its highest-paid executives over 2010 and 2011, according to the tax returns of that city's largest acute care facility. Indeed, Houston Methodist Hospital has been so modest about the practice that it doesn't even list the specific recipients of this largesse in its tax returns.

We're talking some big money here, by the way. One exec seemed to have hauled in $3.725 million in 2011, another $3.53 million, with a third taking in $1.66 million.

If this was occurring in just one year, I could dismiss it as an anomaly, such as some large retirement packages being exercised. But it's not. In 2010, Houston Methodist Hospital appeared to have reported one executive was compensated to the tune of $4.03 million, another $3.7 million, and a third $1.56 million.

The only names provided are "Methodist Hospital Group." A footnote says to look at "Schedule O," which is a supplemental form to the 990. Except there is no Schedule O to be found in either of Houston Methodist Hospital's 2010 or 2011 returns--at least the ones I could get hold of.

Of course, I also looked at the Methodist Hospital Group tax return--it's now known as Houston Methodist--and there is no corresponding amounts of compensation listed. 

Names and pay were fully disclosed in Houston Methodist Hospital's 2009 return, although the sums being paid were relatively modest compared to what was listed in 2010 and 2011.

After some two weeks of mostly unanswered phone calls and emails, I finally got a response from Stefanie Asin, Houston Methodist's director of communications. "There must have been some miscommunication," she said, adding that she had just returned from a vacation in Italy.

The explanation, I was told, is that the sums are an aggregate of Houston Methodist Hospital's most highly compensated executive, key employees, trustees and officers.

"We operate as a system," Asin told me by text late Monday night. "(It) makes more sense to us to report as a system, rather than separate companies."

That kind of reporting is fairly commonplace. However, the numbers mashup is not. When a hospital defers to a system on compensation, it usually leaves such spaces blank. Adding them all together makes it far more difficult to discern where compensation is going, and to whom. And while Asin told me the IRS guidelines allow such aggregate reporting, the instructions on the tax return say otherwise.

"Best practices would be for the organization to not only be transparent on the 990s but it should be transparent and proactive on its financial statements," said James Abruzzo, co-director of the Institute for Ethical Leadership at Rutgers University and a follower of the conduct of not-for-profit organizations.

That I spent nearly two weeks convinced Houston Methodist Hospital had some highly paid secret executives despite my Form 990 familiarity suggests he has a point. - Ron (@FierceHealth)

 

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