Case Study : Health Law And Policy

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Essay Module 9
Intro to Health Law and Policy
Fall 2014
Nancy Vincent

TO: Hospital Board of Directors
FROM: Office of the General Counsel
RE: CEO Compensation

Per the CEO’s anticipated renewal of his contract, the CEO has provided this Office with data the CEO personally obtained concerning salaries of the CEOs of other hospitals in the area. The CEO has requested that he participate on the committee to determine his compensation package, and specifically to participate in determining his own fair market value. Both the data and the CEO’s request to be on the relevant committee are problematic. This Office recommends that the CEO’s requests be denied, and that alternative measures be taken.
The context for the issues presented is the effect of the CEO’s request upon the tax-exempt status of the Hospital. As a 501(c)(3) charitable organization, the Hospital must abide by basic requirements for the federal tax exemption by staying true to its charitable purpose. One of those requirements is that in order to be considered charitable, the Hospital cannot be seen to substantially benefit a private interest. There are two related prohibitions at work here: private inurement and private benefit. Private inurement is the more relevant prohibition, as it focuses on private benefits to those who are “insiders” (those who have a say in a hospital’s actions and decisions). The CEO would qualify as such an individual. A private benefit, by contrast, applies
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