Sutter's Giant Sucking Sound

Sutter Health, which owns one of California's largest hospital empires, is a nonprofit, tax-exempt charity. Critics wonder why Sutter dispenses so little charity, and vacuums so much profit, from the hospitals it acquires.

Last year, federal government inspectors nearly yanked Medicare licensing from Sutter's Visiting Nurses and Hospice Organization in San Francisco over management and record-keeping problems.

And the Marin County District Attorney's Office prosecuted Sutter in October for false advertising and obtained a $27,000 fine against the firm. In an advertising campaign, Sutter's Marin General Hospital had used the statement, "We received the highest possible ratings from the California Medical Association and State and Federal agencies."

In fact, the hospital had received a low score in an accreditation survey.

There is no requirement that Sutter Health provide a specific level of charity care in exchange for its tax-exempt status. Federal law requires hospitals built with federal grant money to make a "reasonable volume" of service available to those who cannot pay. It does not designate what is reasonable.

And while tax laws prevent the nonprofit, tax-exempt Sutter Health from being owned by a for-profit corporation, those laws do not prevent Sutter itself from owning a slough of for-profit corporations. The laws do not prevent Sutter from moving the money made in its nonprofit operations into its for-profit operations. And the laws do not prevent members of Sutter boards from doing business with companies in which they have a vested interest.

Congress, IRS officials, legislators, and their colleagues are beginning to pay attention to the empires that nonprofits like Sutter have built through the so-called health care revolution of the past few years. But for all their posturing, little has changed.

What the IRS code allows Sutter to do isn't necessarily sound public policy. Technically, the majority of Sutter's assets belong to the public. By definition, a nonprofit organization is considered a public trust. It is this trust that Sutter, with its self-dealing, apparently excessive compensation, interlocking directorial boards, and offshore investments, appears to have breached.

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