Massachusetts Lawmakers Learn of Hospitals’ Offshore Accounts As They Debate Budget

On April 29, 2014, the Massachusetts Nurses Association (MNA) released a list of 40 hospitals that maintain bank accounts in the Cayman Islands and other offshore locations. Although the existence of the accounts may be disclosed on the Form 990 that hospitals file with the U.S. Internal Revenue Service, the values are not. At a press conference in front of the state house, the MNA noted that the legislature was considering the budget—including the amounts it would pay to hospitals—but had no idea how much money the hospitals actually have. All but one of the hospitals on the list had accounts in the Cayman Islands. Bermuda, Luxembourg, Canada, and Ireland also were popular sites for foreign accounts. The MNA’s mascot, a “fat cat CEO,” gave legislators beach towels as a reminder of “where our tax money is going.”

Karen Higgins, past president of the MNA and co-president of National Nurses United, said, “This week legislators debate the state budget and decide how many of our tax dollars they will provide to hospital administrators. Yet legislators have NO idea how much money hospitals store in offshore accounts or why hospitals don’t keep their excess reserves in Massachusetts’ banks.”

Legislators expressed surprise, disappointment, and even anger when they learned of the offshore accounts. Rep. Jay Kaufman, chair of the Revenue Committee, said the data was “new and disturbing.” “We’ve been struggling mightily” to keep health care costs down. “Why are our hospitals keeping accounts in the Caymans where they’re hidden from our oversight?” He added that the legislature has a responsibility to know and the hospitals have a responsibility to tell.

It was reported that he Massachusetts Hospital Association (MHA) responded that hospitals often deposit funds in offshore accounts for purposes of self-insurance.  It described self-insurance is a “long-standing, fiscally sound and cost effective practice for hospitals compared with the purchase of commercial coverage.”  Reports stated that the MHA added that those self-insurance funds are traditionally held by entities in the Cayman Islands or Bermuda.

Proposed Legislation

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The MNA also has filed a citizen initiative petition proposing a Hospital Profit Transparency and Fairness Act (H3844), which would require hospitals to disclose all of their investments, including any held outside the United States, to a state agency. Hospitals with a patient mix that includes fewer than 60 percent government-paid patients and with profit margins exceeding 8 percent would be required to pay a civil penalty equal to the excess to a newly created Medicaid Reimbursement Enhancement Fund (MREF).  The state agency would disclose the information to the public. In addition, the bill provides that if the chief executive officer (CEO) of a hospital accepts compensation, including benefits and perquisites, valued at more than 100 times the compensation of the lowest-paid full-time worker, the hospital must pay an amount equal to the excess to the MREF.

Compensation for Top Management at Nonprofits

According to David Schildmeier, a spokesperson for the MNA, both for-profit and charitable hospitals that store funds in foreign bank accounts enjoy excess profits because they “cherry pick” the privately insured patients and avoid patients with Medicare and, especially, Medicaid. The CEOs’ compensation includes benefits far beyond those available to ordinary workers. For example, he stated, the benefits provided to the CEO of a major hospital system in Massachusetts include a travel allowance of $3,000 per year for his wife, who is not employed by the company, and $13,000 per year to pay a personal financial planner.  Form 990s filed by nonprofit hospitals disclose that compensation for top management may include the costs of membership into health or social clubs and personal services, such as maids, chefs, or drivers.  Some officers or directors received “other reportable compensation” of hundreds of thousands of dollars in addition to their salary, incentive bonuses, and retirement plan payments. One received more than $1 million.

Higgins and Schildmeier noted that a recent study in  JAMA Internal Medicine found that the compensation of nonprofit hospital CEOs was not related to readmission rates, mortality, or any other measures of quality of care except for patient satisfaction. The study also found no relationship between CEOs’ compensation and the financial performance of the hospitals.

Closures of Hospitals and Essential Units

At the same time that nonprofit hospitals have compensated their CEOs so generously and enjoyed comfortable operating margins, they have closed pediatric, psychiatric, and substance abuse units. Bay State, a nonprofit hospital system that made significant profits, stopped offering pediatric, urology, and other services at its Greenfield hospital. Over the last five years, while Greenfield residents clamored for restoration of these services, Bay State spent $500 million to build a new patient tower at its Springfield hospital.  Schildmeier said that Partners Health, which reported $350 million in profits, closed its medical detox unit. The University of Massachusetts Memorial Medical Center closed a 16-bed psychiatric unit at one of its hospitals.

Some hospitals that serve the poor have closed because they could not afford to continue operating. “North Adams Regional Hospital closed on March 27 with only two days’ notice, leaving a community of 38,000 with no health care services,” Schildmeier said. Cambridge Health Alliance, which serves a low-income population, is closing its emergency psychiatric services. Schildmeier said that the MNA estimated that if H3844 had been in effect, the MREF would have received $120 million, which would have been sufficient to keep the North Adams hospital open and save several other programs.