Grassley to introduce bill modifying how 'not-for-profit' hospitals set executive pay

Senate Finance Committee ranking member Chuck Grassley (R-Iowa) on Tuesday said that he intends to introduce legislation that would increase pressure on the boards of directors at not-for-profit hospitals to ensure pay for the facilities' presidents is reasonable, the Boston Globe reports.

Presidents of not-for-profit hospitals have on average about $500,000 a year in salary and other benefits, according to recent Internal Revenue Service survey of 485 hospitals. In close examination of presidents' pay at a smaller group of not-for-profit hospitals, IRS found an average salary of $1.4 million.

Hospital boards rely on a consultant's analysis comparing salaries at similar institutions, which could include for-profit hospitals, to justify executive pay. Federal rules state that it is the responsibility of IRS to prove that a president's salary is excessive. Grassley said, "I think that the process is self-serving; it has a multiplier effect -- the higher some consultant says (an executive) has got to be paid, the more he's in demand," adding, "People ought to be paid for what they're really doing."

Grassley is considering whether the rule should be changed to make it the responsibility of the hospital board to prove that the salary is fair. Such a change "is part of a broader set of changes Grassley is considering, either as part of the health care [overhaul] bill," expected later this year, "or as a standalone measure to create more rigorous standards for the definition of" not-for-profit hospitals, the Globe reports.

Ron Schultz, a senior technical adviser to IRS, said that the agency is planning to conduct an examination comparing the executive pay rates at for-profit and not-for-profit hospitals (Wangsness, Boston Globe, 3/4).