Q: I have received information that my local non-profit hospital pays too-high salaries to its top administrators, has a serious morale problem among doctors and nurses, and is not transparent to the public which grants its non-profit status. My understanding is board members of the hospital do not receive salary information and a full accounting of the hospital’s operations and finances when they meet periodically.
What laws govern non-profit hospitals re: transparency? What can those of us who use the hospital and live in its service area compel the hospital administration share detailed financial information, and other operational facts, with the public?
A: As private nonprofit organizations, nonprofit hospitals are not subject to either the California Public Records Act or the Brown Act unless they were created by a covered board and delegated some of that board’s governmental duties, or if they share a director with a covered board and receive public money from that same board. Govt. Code section 54952(c).
Aside from that, there are no other state laws that I am aware of that focus on openness of these organizations’ records. Corporations Code sections 5914-5925, and the Attorney General’s regulations that go with those sections, require that the Attorney General review and consent to any sale or transfer of a health facility owned or operated by a nonprofit corporation. The review and consent process created does require open meetings. But it does not explicitly require that the organization’s financial records be made public. And, of course, it only applies when the organization seeks to sell health care facilities.
With respect to federal law, nonprofit hospitals, like all nonprofit organizations, are subject to the financial reporting requirements of the Internal Revenue Service, and thus must file a Form 990 every year. Such reporting will indicate executive compensation and general income and expense and operating budget information. The new regulations enacted in 2009 also require all nonprofits to explain how they calculate executive compensation. However, the 990s may not provide the detailed information you seek, and will not be available until several months after the close of the hospital’s fiscal year.
Other than that, I have not identified any other legal requirements regarding transparency of these organizations’ dealings. It should be noted, however, that like any nonprofit organization, the directors do have a fiduciary duty to manage the organization’s finances and cannot reasonably do so if they do not review the organization’s financial information. It is up to the directors to insist that staff provide this information.
Bryan Cave LLP is general counsel for the First Amendment Coalition and responds to First Amendment Coalition hotline inquiries. In responding to these inquiries, we can give general information regarding open government and speech issues but cannot provide specific legal advice or representation.