In order to avoid financial penalties and jeopardizing tax-exempt status, non-profit hospital boards and executives must have a keen understanding of excess benefit transactions, according to "Governance for Health Care Providers: The Call to Leadership," a healthcare book written by Kenneth Ackerman of Integrated Healthcare Strategies.
Excess benefit transactions are economic benefits given to a person — most commonly in the form of compensation — that are considered to be unwarranted within the context of a tax-exempt organization. Mr. Ackerman outlined three types of excess benefit that could impact non-profit hospitals.
1. Unreasonable compensation. Paying hospital executives more than the value of services received.
2. Revenue-based compensation. Paying hospital executives based on revenue could result in "private inurement," meaning the person receives benefits greater in value that what he or she provides in return.
3. Bargain sales. Paying more for assets than they are worth or selling assets for less than they are worth.
Mr. Ackerman also notes that if non-profit hospitals fail to disclose all compensation of all necessary executives on tax forms, this could also be deemed as an excess benefit transaction even if the compensation is deemed reasonable.
Excess benefit transactions are economic benefits given to a person — most commonly in the form of compensation — that are considered to be unwarranted within the context of a tax-exempt organization. Mr. Ackerman outlined three types of excess benefit that could impact non-profit hospitals.
1. Unreasonable compensation. Paying hospital executives more than the value of services received.
2. Revenue-based compensation. Paying hospital executives based on revenue could result in "private inurement," meaning the person receives benefits greater in value that what he or she provides in return.
3. Bargain sales. Paying more for assets than they are worth or selling assets for less than they are worth.
Mr. Ackerman also notes that if non-profit hospitals fail to disclose all compensation of all necessary executives on tax forms, this could also be deemed as an excess benefit transaction even if the compensation is deemed reasonable.
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