Within 4 Years, 4 Nonprofit Hospitals in NJ pocketed a Fortune of $1.7 Billion in Profits (tax-free)
by Lynn Petrovich
Posted December 21, 2016
In the early morning hours of May 24, 2011, I found myself at the emergency room of our local nonprofit hospital, Monmouth Medical Center, in Long Branch, New Jersey. My husband drove me there after a fall I took in our back yard the night before. Sitting uneasily in a wheelchair with my right leg swollen to about three times its normal size, I politely tried to answer the ER administrator’s 20 to 30 questions (which had nothing to do with my injury) – a mandate provided by the well compensated hospital executives – before I was allowed treatment for my injury. Here’s a sample:
“Who is your employer?”
“Is this your current employer?”
“What is their address?”
“Do you have insurance?”
“Can you provide proof of insurance?”
“Do you know how much your deductible is?”
“How will you pay for your deductible?”
“We do take credit cards, you know”
“What card will you be using for this visit?”
“Do you have the card with you?”
In pain and frustrated beyond belief, I barked at the gatekeeper blocking me from the care I needed by insisting I was “good” for the bill. Could I see a doctor now?
For those foreign to our unique system, citizens of this country are busy learning American Health Care 101: Profit before patient care.
Once away from the gatekeeper, I was sent for X-rays ($430), exam and diagnosis ($1,400), installation of long leg splint ($324), and pharmaceuticals ($27), I was sent home with a diagnosis of “fibula fracture” with crutches ($255). Total bill for ER services $2,436. I was there less than an hour.
The doctor’s note says “Patient was in moderate painful distress”.
Years before my broken leg, I ‘d become interested in nonprofit hospital accounting by examining the required IRS informational returns submitted by nonprofit hospitals, Form 990s, noticing year after year after year of increasing bottom lines (profits), as well as their indifference to patients’ needs.
In 2010, I authored a report “Sticker Shock: Nonprofit Hospital Accounting Practices – a Rip-off Report and why we desperately need Universal Single-Payer Health Care”. In this report, I described how nonprofit hospital billing practices are designed to confuse and confound patients, obscure the true costs of services rendered, enhancing the outrageous compensation, severances, bonuses, and perks of the executives at the top of the organization, while aggressively pursuing the poor, uninsured, and under-insured patient for puffed up hospital invoices – often 10 or 20 times the cost of actual services rendered – all in direct conflict with their “charitable” purposes – and in order to sustain their profit machines. Hospitals spend millions on advertisements, media events, so-called charity balls, photo ops, payments to already wealthy athletes for their endorsements, privileged “naming” rights, and private country club memberships, while hording billions in surplus fund balances.
Entities operating as a nonprofits must file an application for, and be granted permission by, the IRS under a special section of the IRS code: 501(c)(3), which mandates qualifying entities must organize and operate exclusively for charitable purposes:
“The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged”
Further, none of a nonprofit’s earnings may “inure”* to any private shareholder or individual.
*to advance, accrue, to serve to the use, benefit or advantage of someone.
As fate would have it, 2 weeks before my broken leg, I contacted the financial department at Monmouth Medical Center (a part of Saint Barnabas Health System) seeking clarification of expenses reported on its Form 990s for the years 2008 and 2009. My correspondence specifically requested the following information:
(a) Office expenses were consistently 20% of total reported operating costs ($52 million per year). What made up these costs (Form 990, page 10)?
(b) A copy of the organization’s debt collection policy which the organization states it maintains (Schedule H, page 2);
(c) Between the years 2008 and 2009, the number of employees decreased by almost 110 but salaries and compensation increased by $2.2 million (Page 1 and 8). Why was that?
(d) All references to compensation of related organization employees (Barnabas Health) were omitted on the 2009 Form 990 return (specifically, Mr. Del Mauro – despite being listed on page 1 as the principal officer – as well as Mr. Ostrowsky). Why were they omitted? (Part VII – Additional Data)
I received polite responses from those on the receiving end of my requests who offloaded my inquiries on to others in the organization. Finally, about a month after my initial requests, I received an official response, dated June 6, 2011, from Chief Financial Officer, Gerald L. Tofani (compensation in 2009 $251,465) who wrote:
“Thank you for your questions regarding the Monmouth Medical Center Form 990. We have reviewed your questions carefully. Unfortunately, responses to your questions would require disclosure of proprietary and/or confidential information. We are therefore unable to provide a response.”
Give me a frickin’ break (no pun intended).
Who would have thought debt collection policies and details on office expenses were “confidential”?
The stench of abuse, corruption, waste, and special privileges among so-called nonprofit hospitals is enormous, and this fueled and accelerated my curiosity.
(More on that later.)
Recently our local paper published a front-page article (hospitals spend millions on advertising earning them unlimited influence over the press) alleging hospitals were losing money since the implementation of the Affordable Care Act. I realized I needed to take a fresh look at “nonprofit” hospitals here in NJ.
What I found – based on a sample examination of four nonprofit hospitals in NJ – was astounding:
Over a four year period, the following nonprofit hospitals made a fortune (tax-free) of almost $1.7 Billion (numbers are cumulative over 4 years, results of operations provided by hospitals based on filed Form 990s for years 2011, 2012, 2013 and 2014 as reviewed on Guidestar.org):
Monmouth Medical Center
Revenue (Income) $1,493,021,273
Operating Expenses $1,254,836,119
Profit (tax free) $ 238,185,154
Jersey Shore Medical Center (Meridian Health – group return)
Revenue (Income) $6,381,531,987
Operating Expenses $5,699,972,770
Profit (tax free) $ 681,559,217
Robert Wood Johnson University Hospital
Revenue (Income) $3,554,387,986
Operating Expenses $3,185,154,923
Profit (tax free) $ 369,233,063
St. Barnabas Health
Revenue (Income) $2,727,021,464
Operating Expenses $2,332,845,742
Profit (tax free) $ 394,175,722
TOTAL PROFIT – TAX FREE $1,683,153,156
(Note: Profit includes adding back depreciation because depreciation is a paper – not actual cost – which is predominantly used by profit-first organizations to lower income taxes. Organizations do not write a check to “depreciation”.) Also it is important to note that nonprofit organizations are exempt from paying (1) income taxes, (2) property taxes or (3) sales taxes.
Cumulative surplus for these four nonprofit entities totaled over $2.2 Billion, cash in the bank and/or Wall Street investments/brokerage firms.
In addition to the above, The Robert Wood Johnson Foundation (EID #22-6029397), whose mission includes “promoting the health and health care of New Jerseyans and to support research, evaluation, learning and communication efforts that can improve the nation’s health” reported almost $10 Billion in surplus funds as of 12/31/14.
In 2012, Barnabas Health, NJ’s largest nonprofit conglomerate, paid its outgoing CEO, Ronald Del Mauro (he was mentioned in my May 2011 request to Monmouth Medical Center), a precedent setting severance package of $21.6 million. The purpose, I am convinced, was to set the “bar” for severance packages for future retiring CEOs.
This particularly unconscionable and disproportionate reward, for someone who was paid $3 million per year (plus car and driver) and who was at the helm of Barnabas Health when it settled in 2006 with the US Department of Justice for the sum of $265 million over allegations it submitted fraudulent, inflated billing charges under Medicare’s outlier program. From the 2006 settlement agreement:
“From October 1, 1995 through August 7, 2003, the Saint Barnabas Entities allegedly submitted or caused to be submitted false claims to the Government Health Care Programs [Medicare Program, Title XVIII of the Social Security Act, 42 U.S.C 1395-1395ggg; and the TRICARE Program, 10 U.S.C. 1071-1110] for inpatient and outpatient outlier payments based on artificially inflated charges for inpatient and outpatient care.”
And yet, the stench of nonprofit hospital accounting continues in New Jersey.
Another hospital – mentioned earlier as one of the 4 pocketing billions – Jersey Shore Medical Center (also known as Jersey Shore University Hospital), one of several major trauma hospitals in NJ, wrote a published front page article in one of our local papers, The Coaster – defending is tax-exempt status as a nonprofit by reminding everyone that it serves the community.
Of course, my curiosity again went into high gear. I delved into Jersey Shore University Hospital’s (Meridian Health) most recent Form 990.
Below is what Meridian Health reported in 2013 for nonprofit hospital operations:
(1) Profit (tax-free) of $173 million on revenue of $1.6 Billion (16% return, page 11);
(2) Cumulative profits (called surplus – in cash and investments) in excess of $1 billion (page 11);
(3) $1.5 Billion costs of services for operations of the hospital that year included a quarter of a billion for “Office Supplies” and “Other” (page 10);
(4) Over $17 million doled out in salaries and extravagant deferred compensation packages to a select few at the top (over $4 million to two top execs) including over $2.8 million (must be nice!) just in bonuses (Schedule J, Part II);
(5) $4.1 million spent on fundraising (page 10). Fundraising revenue equaled $1.4 million (page 9) for a loss of $2.7 million;
(6) Variable compensation (bonuses) for select individuals is “calculated based on a percentage of the organization’s total revenue” (Schedule J, Part II) which is interesting because IRS regulations prevent anyone from individually profiting from nonprofit activities (yet they are!);
(7) According to the audited financial statements (page 23) which accompanied the Form 990:
- “the Corporation currently has five forward starting pay fixed interest rate swap agreements” (on long-term bond liabilities for capital improvements – meaning when this hospital wanted to construct additions like operating, surgical, or patient care units, instead of using surplus which it had, it secured long term bonds which it then sold to the public – promising tax free income – and then used those bonds as collateral in risky predatory contracts with bankers). The amount listed as “interest rate swaps not designated as hedging investments” totaled $50 million in liabilities (Schedule D, part X). Fifty million dollars in liabilities. This means if the hospital had to terminate the swap agreements for any reason at the end of the reporting period (12/31/13), the hospital would have to fork over $50 million to Wall Street (not patient care) for the privilege of having these contracts. Interest rate swap agreements, hedging, investments, etc. have nothing to do with providing health care services. They are tools of profit for Wall Street investors.
How anyone could question if Jersey Shore University Hospital is run like a for-profit business escapes reason. It is, in fact, the role model of our economic system of profits before people which forces communities to pick up the tab – because they do not pay property, sales, or income taxes – while rewarding investors, not patients, prioritizing profits over patient care.
While Jersey Shore Medical Center’s board of directors and highly paid executives were negotiating interest rate swap agreements with the profiteers, patients were being gouged with unconscionable medical bills for services provided….predominantly the poorest of the poor. Just to enter the emergency room, the tab begins running at $2,000.
In bankruptcy, medical bills are considered general unsecured debts and as a result unpaid medical bills are the number one reason Americans file for bankruptcy protection (and two-thirds of those filers had health insurance).
What we need is a truly universal health care system (like more than 33 other countries), an Improved and Expanded Medicare for All. Legislation, HR 676, has been introduced into Congress each year. The Expanded and Improved Medicare for All Act would establish:
“Medicare for All Program to provide all individuals resigning in the United States and U.S. territories with free health care that includes all medically necessary care, such as primary care and prevention, dietary and nutritional therapies, prescription drugs, emergency care, long-term care, metal health services, dental services, and vision care. [It would] establish the Medicare for All Trust Fund to finance the Program with amounts deposited: (1) from existing sources of government revenues for health care**, (2) by increasing personal income taxes on the top 5% of income earners, (3) by instituting a progressive excise tax on payroll and self-employment income, (4) by instituting a tax on unearned income, and (5) by instituting a tax on stock and bond transactions. Transfers and appropriates to carry out this Act amounts that would have been appropriated for federal public health care programs, including Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP).Allows patients to choose from participating physicians and institutions.”
**I think the legislation should amend (1) above to include “from existing sources of government revenues for health care”: nonprofit hospitals’ cumulative surpluses, which is most likely hundreds of billions of dollars.
This legislation would end the profit-first vultures of our health care system, including so-called nonprofit hospital conglomerates, by placing hospitals on a global budget, covering everyone from cradle to grave, without copays, deductibles, premiums, networks, or co-insurance. Any conversation we have about moving into a moral, equitable, truly universal health care system must take into consideration the billions of dollars in profit, waste, abuse, and redundancy which is on the books of “charity” hospitals.
Hospitals should provide health care for the sick; not unlimited pockets of money for the wealthy.
Click here for additional backup information in spreadsheet format.
Lynn M. Petrovich, CPA
Posted with permission from Lynn Petrovich