The compensation for executives in the medical field, whether their employers are for-profit or nonprofit tends to be high, according to conventional wisdom. Yet a closer look at the nonprofit world shows that there are significant differences in pay, depending on the type of health-related activities or services provided. Taking hospitals out of the mix leads to a more nuanced portrait of compensation in the nonprofit health sector.
The National Taxonomy of Exempt Entities, the classification system used in nonprofit research and in ERI’s Nonprofit Comparables Assessor, divides health organizations into four types:
1) Health General and Rehabilitative (Major Group E)
Including Hospitals and Community Health Systems, Health Maintenance Organizations, Family Planning Centers, Rehabilitative Medical Services, Ambulance, Emergency Medical Transport Services, Organ and Tissue Banks, Convalescent Facilities, Home Health Care
2) Mental Health, Crisis Intervention (Major Group F)
Including Alcohol, Drug and Substance Abuse, Psychiatric, Mental Health Hospital or Group Home, Hot Line, Crisis Intervention Services, Counseling, Support Groups, Mental Health Disorders
3) Diseases, Disorders, Medical Disciplines (Major Group G)
Including associations, support agencies, and service organizations active in the prevention or treatment of specific diseases or disorders; categories are Birth Defects and Genetic Diseases, Cancer, Diseases of Specific Organs, Nerve, Muscle and Bone Diseases, Allergy Related Diseases, Digestive Diseases, Disorders, Medical Disciplines (Geriatrics, Pediatrics, Surgery)
4) Medical Research (Major Group H)
Including associations, support agencies, and service organizations active in research on specific diseases or disorders; categories are the same as in G above.
While there are close to 1.6 million nonprofit organizations registered with the Internal Revenue Service in the United States, only about 40% of them have revenues that reach the level of $50,000, which requires the filing of an annual Form 990 (an exception – all private foundations of any revenue or asset size must file a Form 990-PF). Public charities (tax-exempt organizations to which donors can make tax-deductible donations) are a subset of the more than 30 types of tax-exempt organizations and comprise about 80% of the total.
The number of reporting public charities – meeting the revenue requirement for filing a Form 990 – is over 300,000 each year. About 35% are involved in human services, while the second largest category is education organizations (almost 18%), followed by health organizations (12%). Of these health organizations that are large enough to file Form 990, the vast majority are not hospitals.
According to the annual report on the nonprofit sector prepared by the National Center for Charitable Statistics at the Urban Institute, while hospitals and primary care facilities all health care organization receive 59 percent of the revenues in the entire sector, other health related organizations account for only 9 percent of the total. The table below is adapted from the 2013 NCCS report and shows that the over 34,000 health organizations account for 9 percent of the total revenues and 8% of the assets.
Table 1. Number and Finances of Nonprofit Health Organizations, 2011
Using ERI’s Nonprofit Comparables Assessor, the table below illustrates the variation in average CEO salaries by types of health organization (excluding hospitals).
Table 2. CEO Compensation for Health Organizations by Type and Size (excluding Hospitals)
Mental health organizations clearly have lower salaries, while it appears that the medical research entities, often headed by MDs, are paid higher than heads of the others working in health. Other factors that typically influence salary levels are size and even geographic location.
The IRS requires that public charities to set executive salary levels looking at compensation data from similar organizations (typically defined as similar in type of service provided, size, geographic location). Finding closely comparable organizations in health requires a close look at type of services provided and activities, since there is a wide variation among the broad category of all nonprofit health organizations.