Nonprofit hospitals that pay board members linked to less charity care

Nonprofit hospitals that pay their board members are associated with providing less charity care than hospitals that do not compensate their trustees, according to a study published April 3 in Health Affairs.

Because board member compensation was linked with less charity care, the researchers from Johns Hopkins University and George Mason University wrote that their findings may affect how hospital trustees are selected and how well they fulfill fiduciary duties.

The researchers analyzed Internal Revenue Service data from 2019 for the 2,058 nonprofit hospital organizations in the U.S.

"Trustees in nonprofit organizations are generally expected to be motivated to serve on the board as advocates on behalf of stakeholders to advance the organizational mission," the authors wrote. "Our results suggest that this general depiction of compensation in nonprofit organizations does not apply to many nonprofit hospitals."

Five key takeaways:

1. Among all nonprofit hospitals, more than 37 percent compensated their board members in 2019.
   
   
2. From 2011 to 2019, nonprofit hospitals that paid board members increased compensation by 57 percent, rising from $31,964 to $50,156. 
   
   
3. The average amount of charity care provided by nonprofit hospitals was $6.6 million in 2019.
   
   
4. On average, a $10,000 increase in average board member compensation was linked with a nearly $70,000 decrease in annual provided charity care. 
   
   
5. From 2011 to 2019, average charity care-to-expense ratio for nonprofit hospitals that paid board members decreased from 2.5 percent to 1.6 percent. For non-paying hospitals, the ratio fell from 2.5 percent to 2.2 percent on average during the same period. 

Six study limitations:

1. Compensation was defined as a salary or contract service, so total compensation for trustees in other forms may be higher. 
   
   
2. Some board members are employed by hospitals, so compensation for only board services was difficult to determine.
   
   
3. Because of how IRS data is organized, the authors could not study individual hospitals within a health system and there were inaccuracies with measuring state fixed effects. 
   
   
4. Because the study is descriptive, it does not provide evidence for causal inferences between charity care and board member compensation.
   
   
5. The authors could not identify how much in charitable contributions and services a hospital received from individuals because of a lack of data.
   
   
6. The relationship between board member compensation and the proportion of uninsured or publicly insured patients was beyond the study's scope.

The study's authors were Ge Bai, PhD, Hossein Zare, PhD, and Gerard Anderson, PhD from Johns Hopkins, and Sebahattin Demirkan, PhD, from George Mason. Funding and support was provided by the Episcopal Health Foundation, the Commonwealth Fund, Arnold Ventures and PatientRightsAdvocate.org.