How Nonprofit Hospitals, Health Systems Compensate Executives

Nonprofit hospitals and health systems are a staple to the US healthcare industry. These facilities are funded mainly by charity, religion, or research and educational funds.

Nonprofit health systems are exempt from paying federal, state, and local property taxes. In return, the organizations must invest their profits in hospital operations and community initiatives rather than funnel the profit to shareholders.

Nonprofit health systems are also known for providing care to all patients, regardless of whether they have healthcare coverage or are uninsured.

However, some experts have questioned whether community investments and charity care from nonprofit health systems justify their tax-exempt status.

A report from the Lown Institute Hospitals Index revealed that 72 percent of private nonprofit hospitals spent less on community health investments than they received in tax breaks in 2018.

The industry remains divided on the value of nonprofit health systems, though. The American Hospital Association (AHA) maintains that the community benefits from nonprofit hospitals exceed the federal revenue foregone due to tax exemption; thus, their status is justified.

Before nonprofit hospitals can direct profits toward the community, they must compensate their executives. Among seven nonprofit health systems with revenues ranging from $3.1 billion to $5.5 billion, an average of 0.64 percent of the revenue went toward executive compensation in 2019.

This company analysis was conducted by Xtelligent Healthcare Media using publicly available data from 2019 tax filings and form 990 documents, including revenue, number of employees, total executive compensation, and top executive compensation.

The nonprofit with the highest revenue of $5.5 billion was BJC Health System in St. Louis, Missouri. The total executive compensation was $27.7 million, or 0.5 percent of the revenue. The single top executive of the health system made $2.3 million in 2019. BJC was one of four health systems to have more than 30,000 employees.

Atlantic Health System in Morristown, New Jersey, was the smallest facility with an estimated 16,000 employees and had the smallest revenue of $3.1 billion. One percent of Atlantic’s income was used to compensate executives at $28.3 million, while the top executive made $3.5 million—the second highest-earning chief executive.

The highest-earning top executive was at Henry Ford Health System in Detroit, Michigan, making $5.2 million. The total executive compensation was 0.4 percent of the health system’s $3.5 billion revenue, or $14.3 million. Henry Ford Health System was the oldest nonprofit and first claimed tax-exempt status in 1954.

University Hospitals Health System in Shaker Heights, Ohio, had the highest total executive compensation in 2019 at $38.9 million—1.3 percent of its $4 billion revenue. The top executive at this health system received a salary of $2.6 million.

Spectrum Health in Grand Rapids, Michigan, generated $3.5 billion in revenue and compensated executives $27.1 million in 2019 (0.8 percent). The top executive at the health system earned $2.3 million.

Memorial Hermann Health System in Houston, Texas, and Allina Health System in Minneapolis, Minnesota, had two of the highest revenues but relatively low top executive compensation. Memorial Hermann made $5.3 billion and compensated its chief executive $2.4 million. Total executive compensation was $7.8 million, or 0.2 percent of its total revenue.

Meanwhile, Allina Health System generated $4.6 billion in 2019 and compensated its top executive $2.2 million. The health system’s total executive compensation was 0.3 percent of its revenue at $14.3 million.