On Valentine’s Day, construction was completed on the first phase of Health City Cayman Islands, a $2 billion facility being built over 15 years in Grand Cayman. Health City is a joint project of U.S. tax-exempt Ascension Health and an India-based medical group.
The locals are pleased, one writing on the Cayman News Service website, “I can see all Caymanians finding jobs, having their empty apartments occupied by renters, real estate selling at a premium again; life will be like it was in the 80s and most of the 90s.”
Ascension justified the expansion as step toward bringing “high-quality, low-cost medicine to the Caribbean and South America,” but came under criticism at home. The hospital enjoys tax-exempt status in recognition of its public service mission in the U.S., but was building a facility in one of the world’s premier tax secrecy jurisdictions for the super rich.
“The Cayman Islands – which enjoys a standard of living ranked 14th among world nations – seems a strange place to launch a health mission aimed at social justice and health-care access,” Leigh Turner, a healthcare expert at the University of Minnesota, told a reporter from the St. Louis Post-Dispatch.
“That seems like a place where you build a private, for-profit health center,” Turner said.
Such apparent anomalies are not uncommon among nonprofit hospitals in the United States. A 100Reporters examination of hospital I.R.S. statements has found tax-exempt hospitals throwing flashy parties, collecting pricey art (see sidebar), paying their executives private-sector wages, and stashing a lot of cash abroad.
The tax-exempt Cleveland Clinic, for example, is helping Saudi Arabia open a hospital in Abu Dhabi this month, and has actively recruited staff from Ohio, including 700 nurses “in the midst of a [U.S.] nursing shortage,” observed the Cleveland Plain Dealer. Doctors and other healthcare professionals have also been offered “sweet deals.”
The new hospital, described by its designer as “five years ahead of state-of-the-art,” sits atop a 260-acre manmade island on the Persian Gulf. It will cost $2.5 billion, about $1,136 per square foot – nearly twice the square-foot cost of a new Veteran Administration Medical Center being built in Aurora, Colorado, that is under fire for cost overruns.
Abu Dhabi ranks among the most expensive places to live on the planet — a seemingly odd fit for a nonprofit hospital whose mission is to provide “better care of the sick, investigation into their problems, and further education of those who serve.” The Cleveland Clinic did not respond to a request for comment.
Offshore investments of nonprofit hospitals “raise great tax policy questions for state and local governments that give hospitals property tax exemptions,” said Mark Everson, a former I.R.S. Commissioner under President George W. Bush. While offshore investments are often less regulated and carry greater risk, he noted that tax-exempt organizations are supposed to take fewer risks with their funds than for-profits.
Some hospitals also park their malpractice insurance funds offshore, said H. Woods Bowman, a professor of public policy and expert on the finances of nonprofits. “Insurance is not a charitable purpose under U.S. law. Therefore, [a hospital] must organize it as a separate for-profit corporation and pay taxes on its net income. Hence…an incentive to charter…offshore. I’m guessing that the Caymans regulate insurance companies with a light hand.” Offshore accounts carry no overhead costs of offices and employees, Bowman said, adding, “Everyone does this.”
David Rosenbloom, director of the International Tax Program at New York University’s School of Law, also defended the practice. “Lots of entities and individuals are so frustrated by the low yields in the US that they are eager to do anything that will give them a boost,” Rosenbloom wrote in an email.
A former nonprofit hospital C.F.O. and whistleblower, Charles Rehberg of Albany, Ga., said that hospitals send money offshore for a number of reasons.
“I think the appeal is due to the secrecy afforded by offshore arrangements and the relative lack of regulatory control and reporting,” Rehberg wrote in an email. “In the U.S. there are states like South Carolina that are really just as good as offshore, as far as the insurance aspects go. But the U.S., by virtue of state departments of insurance, keeps some oversight and has rules and some reporting requirements.
“When the money goes offshore, it is totally up to the hospital as to how they fund it, invest it, what expenses are incurred, how they report, etc. There is virtually no legitimate oversight by outside regulators,” Rehberg wrote. “It is all too much like a numbered Swiss bank account.”
Gary Fendler, spokesman for Ascension Health, says its participation in Health City Cayman Islands is limited, so far, to the first phase. “Decisions about future phases have not been made.” The location was chosen because healthcare professionals from India want “a politically and economically stable location to practice medicine.
“They also wanted a location with quality schools for their children,” Fendler said in an email.
But while a number of factors appear to influence nonprofit hospital decisions to go offshore, the idea of loyalty to a U.S. economy in exchange for generous U.S. tax exemptions does not appear to enter the dialogue.
Patricia Brown, director of the Graduate Program in Taxation at the University of Miami School of Law, points out that nearly every U.S. taxpayer receives one exemption or another, and fealty to the homeland cannot be legislated.
Of the five largest not-for-profit hospitals in the U.S. by number of beds, as ranked by Becker’s Hospital Review, all listed offshore investments in their most recent financial reports to the I.R.S.:
- New York and Presbyterian Hospitals ($3.7 billion total revenues), $258 million offshore;
- Florida Hospital Orlando, a part of Adventist Health Systems ($2.9 billion revenues), $53,126 offshore;
- Jackson Memorial Hospital is owned by the University of Miami, which reported $87 million in investments in Central America and the Caribbean;
- University of Pittsburgh Medical Center Presbyterian ($1.2 billion gross receipts), $546 million offshore;
- Orlando Regional Medical Center, a part of Orlando Health Inc. ($1.7 billion total revenues), $26 million offshore.
The millions, perhaps billions, of dollars squirreled away overseas underscore behaviors that have long concerned Washington. U.S. Sen. Charles Grassley (R-Iowa) has questioned nonprofit hospital tax breaks, saying that the nonprofits are nearly indistinguishable from their for-profit counterparts.
A decade ago, the University of Pittsburgh Medical Center shipped $204.5 million in revenues to various ports around the Caribbean, including more than $27 million to fund managers in the Safehaven Corporate Centre, Grand Cayman, according to a report in the Pittsburgh Post-Gazette. “It’s troubling that some nonprofits are part of that game,” Grassley, senior Republican on the Senate Finance Committee, said at the time.
As a presidential candidate in 2008, Barack Obama said, “You’ve got a building in the Cayman Islands that supposedly houses 12,000 corporations. That’s either the biggest building or the biggest tax scam on record.”
Obama was speaking of Ugland House, a nondescript five-story office building that is the registered address for 18,857 entities, including two — Stanford SGGS Europe, Inc. and Black River EMEA Investors Fund — related to the nonprofit Stanford Hospital.
A Stanford spokesman did not respond to a request for comment.
While hospitals think globally, they make local bequests, too. The Cleveland Clinic, for example, has given $30,000 to the Rock and Roll Hall of Fame, and its most recent I.R.S. statement lists page after page of other gifts, including $5,000 to the Salvation Army, $7,500 to Shoes and Clothes for Kids, and $17,000 to the United Way of Cleveland.
The Mayo Clinic (with revenues totaling $4.83 billion in 2011) donated millions of dollars to charities, including $136,000 to the Cleveland Clinic Foundation, $25,000 to the Ronald McDonald House of Rochester, and $1,500 to the Salvation Army of Roseville.
But Mayo’s overseas investments were heftier: $1.35 million in Central America and the Caribbean; $1.73 million in East Asia and the Pacific; $141 million in Europe (including Iceland and Greenland); $27 million in North America outside the U.S.; $5.29 million in South America, and $19.6 million in South Asia. A Mayo spokesman did not respond to a request for comment.