The pandemic spelled disaster for countless Central Valley industries and businesses, including hospitals. In Madera County, the only general acute care hospital cited financial challenges before shuttering in 2022 and later filing for bankruptcy.
But just a 20-minute drive south to Valley Children’s Hospital, an entirely different financial reality unfolded in the same county.
At Valley Children's Hospital, the first three years of the pandemic spelled record-highs in profits, federal funding, executive compensation and excess revenue directed to its financial investment portfolio, according to a Fresnoland review of the hospital's tax filings from 2013 to 2022.
Since 2013, the hospital has made at least $1.1 billion in profit. As of September 2023, it also had $1.3 billion set aside in cash, savings and investment accounts, according to the hospital’s 2023 audited financial statements obtained by Fresnoland.
As the hospital’s profits, financial investments and executive compensation rose, its direct community investment remained stagnant over the last decade. Direct community investment is defined as the money the hospital gives back to the community in exchange for nonprofit tax breaks. That can include financial assistance for patients, subsidized health services or even building affordable housing.
Over the last decade, the hospital claimed it gave $90.5 million back to the community, according to tax filings. About 80% of that went to its own associated medical group.
“It seems very, very unusual,” said Vikas Saini, the president of the Lown Institute, a nonpartisan Massachusetts-based health policy and research firm. “It's hard to see how that kind of money over that period of time for a medical group would be reasonable to count as a community benefit.”
In March, the Lown Institute published an analysis that found more than 1,900 U.S. nonprofit hospitals are in what it termed as a “fair share deficit” — in that the tax breaks nonprofit hospitals receive from the government are greater than their direct community investment.
Saini confirmed in an interview with Fresnoland that Valley Children’s Hospital was among the nonprofit hospitals across the country with a fair share deficit, estimating the hospital's tax breaks in 2021 to be $37 million more than its direct community investment. The Institute also estimated the hospital’s 2022 tax breaks to be $40 million more than its direct community investment that year.
Hospital spokesperson Zara Arboleda criticized the Lown Institute’s fair share analysis for excluding resources spent on training in its definition for direct community investment. She also said the analysis was based on a flawed model for calculating tax breaks.
“That is Lown’s interpretation,” Arboleda wrote over email. “We don’t share that view.”
Saini said the categories the Lown Institute analyzed are ones that have a direct, meaningful benefit to the local community. While many categories, including training and research, fall under community benefit according to federal guidelines, not all of them are necessarily a direct community investment.
“If you wanted to call it a community benefit, then you’d need to show more than just you’re doing good things in society,” Saini said. “You need to show more directly that doctors you’re training are being trained to work in the community, that the research you’re doing is leading to results that are going to directly benefit the community.”
While the federal government has generally defined categories that fall under community benefits, there’s a wider dispute in the health industry about what that should include. Experts said the federal government should clarify what shouldn’t count as a community benefit.
Who is the hospital really giving back to?
Fresnoland calculated direct community investment by taking the sum of Valley Children’s Hospital’s reported expenditures on charity care, community health improvement services, community benefits operations and cash contributions to community organizations.
Three experts who spoke with Fresnoland said they were surprised to hear that the hospital donated $73.7 million to Valley Children’s Medical Group over a span of eight years and claimed it as a community benefit. The experts had a similar reaction to the fact that 80% of the hospital’s $90.5 million in reported community investments over the last decade went to the hospital’s own medical group.
“The hospital and the medical group are two shops under one roof,” said Ge Bai, a professor of accounting and health policy at Johns Hopkins University, whose research area is health finance. “These transactions appear more of internal transfers than external donations aimed at advancing community benefit.”
Arboleda, the Valley Children’s spokesperson, said donations from the hospital to Valley Children’s Medical Group group were a community benefit since it helped establish and cover ongoing costs at two of the hospital’s specialty care centers — one in Bakersfield and another in Modesto. Before the two new locations, Valley Children’s already had five other specialty care centers in the San Joaquin Valley.
“This practice is questionable and raises doubts about whether the donation was intended to benefit the community or solely serve the financial interest of the affiliated medical group and, by extension, their parent organization,” Bai said, which she described as gaming the system.
VCH Senior Vice President and Chief Strategy Officer Jane Willson said that, in the last decade, the hospital has made an $850 million investment in its own operations, expanding care and increasing quality. She said the new care centers in Bakersfield and Modesto are an example of that, along with a $9 million interventional radiology suite and a $5.6 million 3T MRI machine at the hospital.
“I think we're very focused on providing the pediatric specialized care that the children of the Valley need and that's what we are focusing on in terms of our community impact,” Willson told Fresnoland.
Last fall, the hospital announced plans to develop at least 40 acres of land into a bustling retail space, and hospital executives hope to attract restaurants, gyms, grocery stores and a hotel, less than three miles away from the affluent Riverstone suburb.
CEO and President Todd Suntrapak told reporters in October about the hospital’s need for additional funding and complained about rising costs and low reimbursements from Medicare and Medi-Cal.
Suntrapak drew flak last month for not only drawing a $5.1 million compensation package in 2022, but for also getting a $5 million home loan from Valley Children’s Hospital. Fresnoland confirmed Suntrapak bought a $6.5 million coastal property in Carmel, California that same year.
All-time record-highs during a pandemic
Valley Children’s Hospital received more government grants between 2020 and 2022 than any other three-year period in the last decade, about $137 million.
Of that, about $70.7 million were federal pandemic relief funds doled out to Valley Children’s Hospital and its three sister nonprofits. Part of the requirements for the federal relief was to file reports to the federal government about how those taxpayer dollars were used.
Arboleda, the hospital’s spokesperson, denied Fresnoland’s request for the reports. She said they are confidential documents and cannot be released in full to the public. Fresnoland has filed a Freedom of Information Act request with a federal agency for the hospital’s pandemic relief reports.
During the first year of the pandemic, Valley Children’s Hospital pulled in $92.3 million in profit, more than double what the hospital made in 2019 and higher than annual profits in the four years before the pandemic. In 2021, the hospital made $82.8 million in profit, another year with comfortable margins.
The second year of the pandemic was also when the hospital set a record-high in investments — about $825 million. Most of it was stashed in publicly traded securities and a portion, $116 million, was tied up in hedge fund investments.
Then in 2022, Valley Children’s Hospital posted a record-high total revenue of $1.1 billion, which beat its previous record of $772 million set the year prior. Minus expenses, the hospital's total 2022 profit equaled out to $354 million — another record-high.
Willson, the hospital’s chief strategy officer, told Fresnoland that the hospital’s 2022 profit looked different than years prior because of a unique accounting change, but she did not elaborate.
Willson also said she did not know how much it fluctuated the hospital’s reported revenue and profit that year, or what those figures would have been without the accounting change.
Beginning in 2018, Valley Children’s Hospital’s investment strategy took a turn. Not only did the nonprofit hospital begin investing in hedge funds, it also began placing excess revenues into offshore investments. By 2021, the hospital had about $150 million in Central American/Caribbean and European investment accounts.
As profits swelled, compensation for executives at Valley Children’s Hospital also grew rapidly, reaching $27 million in 2022 — a record-high. That’s almost double what it was just three years prior — about $13.7 million in 2019. But it wasn’t all just big raises; the hospital’s executive staff went from 18 people in 2013 to 29 in 2022.
A decade ago, only three executives were compensated more than $500,000 at the hospital. In 2022, 19 hospital executives had compensation packages north of half a million dollars.
The board of trustees for a nonprofit organization has full control over how much to pay executives. Bai, the health finance expert from Johns Hopkins, said trustees need to hold executives accountable.
“The board is supposed to represent the stakeholders — in this case, it's really about the community’s best interest — to oversee the executive function of the hospital,” Bai said.
Fresnoland requested an interview with the hospital’s 2022 board leadership — which included Jeanine Campos Grech as board chair and Jose Elgorriaga as vice chair, both of whom remain on the board today.
Speaking through the hospital’s spokesperson, both declined interviews.
The hospital has relied on current hospital board chair Michael Hansonto defend the hospital’s executive compensation. He was not on the board when executive pay peaked in 2022.
‘Nonprofit hospitals are behaving more and more like for-profit’
As of September 2023, Valley Children’s Hospital had $1.3 billion set aside in a myriad of ways, according to its audited financial statements. The hospital’s cash and cash equivalents were valued at $469 million and its mutual funds and ETFs were together worth about $499 million.
Valley Children’s Hospital’s investment strategy spans hedge funds, stocks, venture capital and ETFs, according to its 2023 audited financial statements. The hospital also had a $63 million investment in private capital funds, which included venture capital investments ranging from “the electronic gaming sector” to “oil and gas and in non-fossil fuel extraction.” Additionally, the hospital had about $100 million invested across 10 hedge funds.
While a detailed investment portfolio may seem more akin to Wall Street, rather than a children’s hospital in Central California, Valley Children’s is not alone in putting its cash reserves to work through financial investments.
“It’s actually not uncommon for hospitals to have a big investment portfolio,” said Bai, the health finance expert from Johns Hopkins. “This is a big trend, that is, nonprofit hospitals are behaving more and more like for-profit, especially large ones. They are no longer performing as a pure hospital in the traditional sense — relying solely on patient care revenue.”
But what would the incentive be for a nonprofit to set aside over $1.3 billion in financial investments? Bai said it comes down to growing and maximizing size. “They want to have more and more assets — so it will never be enough.”
In Bai’s view, the issue isn’t whether nonprofit hospitals have detailed investment portfolios — it’s whether revenue finds its way back to the hospital’s patient services and into the local community.
“You can invest, but the key is, you eventually use the revenue and profit generated by these for-profit branches, these for-profit activities, for the core mission,” Bai said.
Part of the hospital’s investment strategy includes venture capital investments ranging from oil and gas companies to the electronic gaming sector.
‘Doesn't seem consistent with the mission’
Experts also told Fresnoland that even with the hospital's donations to its associated medical group, its direct community investments are still lower than expected, especially when compared to its soaring profits and executive compensation.
“I’d say that this hospital in particular seems to be an aberration, an outlier,” said Chris Whaley, a health economist and professor of Health Services, Policy and Practice at Brown University.
Part of a nonprofit hospital’s core mission is supposed to include giving back to the community. Yet in 2022 — the year of record-high profits and executive compensation — Valley Children’s Hospital’s net community benefit expense was just 2% of its total fiscal year expenses.
Additionally, over the last decade, the hospital spent an average of just $185,899 on charity care per year, defined as financial assistance that a hospital provides to patients who cannot afford a medical procedure.
“If you are a hospital whose reinvestment to the community through charity care is less than not just what you're paying your CEO but what you're loaning your CEO to buy a beach house, then that doesn't seem consistent with the mission of a nonprofit hospital,” Whaley said.
Hospital spokesperson Arboleda said that since Medi-Cal covers most children in California who are not insured by private health insurance, the hospital’s charity care is not as high as other hospitals.
However, Saini of the Lown Institute shared with Fresnoland benchmark averages for direct community investment. Among all California nonprofit hospitals in 2021, the average was $10.4 million. Among nonprofit children’s hospitals in California that same year, the average was $15.2 million.
Valley Children’s Hospital lagged far behind those benchmarks, with $3.4 million in direct community investments in 2021.
“Based on these numbers, Valley Children’s community investments do not seem anywhere near the average of nonprofit hospitals in either the region or the state,” Saini said.
Additionally, all nonprofit hospitals in California have to outline the different ways they give back to the community in an annual report. Valley Children’s Hospital’s 2022 report noted transportation assistance, meal coupons and enrollment assistance with health insurance plans for patients.
Between 2016 and 2019, the hospital’s donations to Valley Children’s Medical Group peaked. Yet during those years, the hospital’s annual community benefit reports did not specifically mention or list amounts for the multimillion-dollar donations to its own medical group, despite counting them as a community benefit.
Instead, the report referenced the hospital making “cash contributions for the purchase of land and other capital-related items to be used to increase access to healthcare services for children in neighboring communities.”
And, at the same time it had over a billion in cash, savings and investments, Valley Children’s Hospital continued its long-standing Kids Day fundraisers, which brings in hundreds of thousands every year from local residents and businesses.
Valley Children's Hospital gave a $5 million home loan to Chief Executive Officer Todd Suntrapak in 2022, according to tax filings. That same year, Suntrapak purchased coastal property for $6.5 million in Carmel, California, Fresnoland confirmed.
‘It's zero, we have no value to report’
Not all nonprofit hospitals’ tax breaks are greater than their community investment. The Lown Institute’s analysis cited more than 450 hospitals they said are doing their fair share — of which 10 are in California, including Adventist Health hospitals in Tulare, Saint Helena and Marysville.
Usually, the bulk of community benefit is composed of charity care and subsidized health services, Saini said.
“Running an asthma clinic that might not be a moneymaker but would be good for everybody — that would be an example of a subsidized health service that's relevant to children,” Saini said.
Over the last decade, Valley Children’s Hospital has not reported spending any money under the subsidized health services category, according to tax filings.
"It's zero, we have no value to report,” said hospital spokesperson Arboleda, adding that she didn’t know why.
There are a number of ways new policy and legislation could reform the systemic issue of nonprofit hospitals inadequately giving back to their communities, Saini said. That includes the federal government revising requirements for what nonprofit hospitals report in tax filings.
For example, Saini said, the IRS should require hospitals to report the calculated value of their tax breaks, as well as how much exactly they recover by going after patients for unpaid bills through debt collection measures.
Saini also said hospitals should be required to report the number of patients who receive or are denied financial assistance.
He added change could also happen on other levels of government. Saini pointed to state lawmakers in Oregon who passed a law requiring hospitals to spend a minimum on community benefits, tailored to each hospital’s financial situation.
“I would argue, in addition, there should be much more community involvement and oversight,” Saini said. “That means actually significant independent community voices rather than, you know, hand picking a few community people.”
How we reported the story:
Fresnoland analyzed yearly tax filings by Valley Children’s Hospital between 2013 and 2022 — obtained through ProPublica’s Nonprofit Explorer database.
Using a decade’s worth of the hospital's Form 990 tax filings, Fresnoland analyzed the following:
- Revenue, expenses and profit
- Cash, cash equivalents and savings
- Financial investments (including hedge fund and offshore investments)
- Executive payroll and compensation
- Government grants (including $70.7 million in federal pandemic relief funds)
- Community benefits expense and direct community investment
- To calculate their total community benefits expense under federal IRS guidelines, nonprofit hospitals are required to fill out several categories on the Form 990’s Schedule H. Although not every community benefit expense goes directly to the community, a few categories speak to that specifically, including charity care, community health improvement services, community benefits operations and cash contributions to community organizations.
- We found the sum of reported expenditures under those specific categories listed in Valley Children’s Hospital’s tax filings to calculate direct community investment.
- The Lown Institute’s 2024 Fair Share Analysis similarly focused only on direct community investments to calculate how much nonprofit hospitals are giving back to their community.
- Additionally, we found the sum of the hospital’s reported donations to Valley Children’s Medical Group over the last decade to determine how much community investment was actually going to the hospital's medical group.
Additionally, Fresnoland analyzed the Valley Children’s Hospital’s investment strategy using its 2023 audited financial statements.
This article first appeared on Fresnoland and is republished here under a Creative Commons license. From the KVPR editor: Valley Children's Healthcare is a current business sponsor of KVPR, but we cover them like we would anyone else.