Hospitals in the U.S. are continuing to land in hot water for excessive spending on CEO pay and other extravagances at the same time as they face financial challenges and lay off hundreds. Steward Healthcare, a for-profit system formerly owned by private equity, has been front and center for such behavior. While the system has filed for bankruptcy and shuttered hospitals, its former CEO appears to have walked away with hundreds of millions and even bought a $40 million superyacht. But it’s not just for-profit hospital systems that have been in the news for issues of social responsibility.
Corporate jets and CEO payouts
University of Pittsburgh Medical Center reportedly spent $50 million to lease a corporate jet shortly after announcing 1,000 layoffs. This plane was used to fly to Ireland, Italy, and Croatia, where UPMC has international hospitals, as well as other cities. This expense adds to the concerns some have about nonprofit hospital systems in the U.S. going overseas to target high-income patients there. It was previously announced that UPMC plans to open up five hospitals in China.
“It is a legitimate question for taxpayers to ask, what is my benefit to flying to Italy and Ireland? What do we as a community get from that? And the short answer is, not much,” said Vikas Saini, Lown Institute president, to WTAE.
The Pittsburgh Post-Gazette also reported that UPMC former CEO Jeffrey Romoff made $17.8 million in FYE 2023. His replacement, Leslie Davis, made $11.3 million that year, according to UPMC’s tax forms. Both compensation packages are at the extremely high-end of what nonprofit hospital CEOs are paid, and even rival some of the highest paid for-profit hospital CEOs.
Community investment spending in decline
Do UPMC’s overseas expansions and “competitive” CEO pay lead to greater investment in local community health needs? As UPMC has grown as an organization, their meaningful community investments have not grown proportionally.
Community benefit spending for UPMC Group Return, 2014-2023
| Fiscal year ending | Total expenses | Financial assistance | Financial assistance, share of expenses | Meaningful community investment | Community investment, share of expenses |
|---|---|---|---|---|---|
| 2014 | $9.9 B | $123 M | 1.24% | $261 M | 2.63% |
| 2015 | $10.4 B | $102 M | 0.98% | $257 M | 2.48% |
| 2016 | $11.4 B | $90 M | 0.79% | $265 M | 2.33% |
| 2017 | $12.2 B | $77 M | 0.63% | $272 M | 2.24% |
| 2018 | $13.3 B | $74 M | 0.56% | $276 M | 2.08% |
| 2019 | $14.9 B | $86 M | 0.57% | $303 M | 2.03% |
| 2020 | $16.5 B | $86 M | 0.52% | $314 M | 1.90% |
| 2021 | $18.4 B | $73 M | 0.40% | $288 M | 1.56% |
| 2022 | $20.1 B | $68 M | 0.34% | $321 M | 1.60% |
| 2023 | $22.7 B | $76 M | 0.34% | $376 M | 1.66% |
A review of UPMC’s spending on community benefit from their group tax return (including 31 of their hospital facilities) shows that in the past ten years, the system’s spending on financial assistance and other meaningful community benefits has declined as a share of expenses. While a decline in financial assistance could be explained by increasing Medicaid coverage, their spending on other community health programs did not make up the gap. Overall, they spent less on meaningful community investment as a share of expenses than both the state average (2.72%) and national average (3.87%) rates in 2021.
Children’s hospital layoffs
UPMC is not the only hospital receiving attention for layoffs amid high CEO pay. Texas Children’s Hospital announced last month they are laying off 5% of their workforce (estimated at about 1,000 people). A representative from Texas Children’s said it “reduced the size of its executive leadership team and plans to cut executives’ compensation this year” before deciding on the layoffs.
That’s a good course correction, but may be too little too late, given that they paid their CEO Mark Wallace $8.8 million in 2022 (the largest amount of any children’s hospital CEO that year). About $4.7 million of this compensation was bonus and incentive pay. The hospital has also committed $65 million to be the title sponsor of the Houston Open golf tournament as part of an effort to grow its “regional, national, and international” brand, according to the CEO.
Community benefit spending for Texas Children’s Hospital, 2014-2022
| Fiscal year ending | Total expenses | Financial assistance | Financial assistance, share of expenses | Meaningful community investment | Community investment, share of expenses |
|---|---|---|---|---|---|
| 2014 | $1.5 B | $13 M | 0.85% | $23 M | 1.56% |
| 2015 | $1.7 B | $13 M | 0.76% | $29 M | 1.72% |
| 2016 | $1.9 B | $18 M | 0.95% | $38 M | 2.03% |
| 2017 | $2.0 B | $14 M | 0.71% | $29 M | 1.44% |
| 2018 | $2.2 B | $21 M | 0.96% | $42 M | 1.89% |
| 2019 | $2.4 B | $23 M | 0.96% | $39 M | 1.62% |
| 2020 | $2.5 B | $24 M | 0.94% | $49 M | 1.92% |
| 2021 | $2.7 B | $29 M | 1.07% | $55 M | 2.01% |
| 2022 | $3.2 B | $30 M | 0.92% | $59 M | 1.81% |
At the same time, Texas Children’s Hospitals’ community investments lag behind their peers. A review of their tax forms from 2014-2022 shows that while their spending as a share of expenses slightly increased over time, their spending in recent years still falls well below the Texas state average rate (6.44%) and the national average rate (3.87%).
The examples of UPMC and Texas Children’s bring up larger questions about what communities should expect from nonprofit hospitals. As nonprofit hospitals have transformed from small charities into big businesses, the value of their tax breaks gets larger and larger. Why are local communities seeing job losses and less community investment while CEOs prosper and their hospitals expand overseas? Since the local citizens are the ones giving up this potential tax revenue, it’s more than fair for them to have concerns.