Five takeaways from Fresnoland’s deep-dive into Valley Children’s Hospital’s finances

When public outcry flared in March over CEO Todd Suntrapak’s compensation package, Fresnoland began digging deeper into Valley Children’s Hospital’s finances. 

Turns out there was more to the story. Millions more.

Valley Children’s Hospital enriched itself more than ever before during the pandemic: profits, executive pay, federal funding and the hospital’s financial investment portfolio reached record-highs. 

Yet, the hospital’s direct community investment — required of nonprofit hospitals and inclusive of everything from subsidized care to affordable housing — remained stagnant over the last decade. On top of that, most of the hospital’s direct community investment over the last decade were donations to Valley Children’s Medical Group, a sister nonprofit to the hospital that operates under the Valley Children’s parent company.

A Fresnoland investigation spent more than a month analyzing Valley Children’s Hospital’s last decade of tax filings. Fresnoland also obtained and analyzed the hospital’s 2023 audited financial statements and interviewed health finance experts about both. 

Here are five points from Fresnoland’s deep-dive into Valley Children’s Hospital:

1. Valley Children’s Hospital’s direct community investment shocked experts

The fact that the hospital donated millions to its own associated medical group shocked experts. But even while counting those donations, experts were surprised by how limited the hospital’s direct community investment was when compared with its profits. 

Direct community investments typically come down to either charity care or subsidized health services, one expert said.  

Over the last decade, Valley Children's Hospital spent a yearly average of just $185,899 on charity care. Additionally, in the last decade, the hospital has not reported any amount in the subsidized health services category in tax filings.

During that same decade the hospital made over $1 billion in profit, and grew its cash, savings and financial investments to over $1.3 billion.

“Given how much money they have made each year and how much compensation these executives have considering their nonprofit status, I think the question the public has the right to ask is, ‘Can they do more to help the community?’” said Ge Bai, a health finance expert from Johns Hopkins. 

Additionally, the Lown Institute — a nonpartisan Massachusetts-based health policy firm — shared with Fresnoland benchmark averages for direct community investment 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 told Fresnoland. 

2. Many nonprofit hospitals don’t pay their ‘fair share’

But Valley Children’s is far from alone.

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,” meaning tax breaks nonprofit hospitals receive from the government are greater than their direct community investment.

Valley Children’s fair share deficit was $37 million in 2021 and about $40 million in 2022, according to the Lown Institute.

The Lown analysis also 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.

Saini said the categories the Lown Institute analyzed only categories with 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,” Saini said, “then you’d need to show more than just you’re doing good things in society.”

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 and shouldn’t count.

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 report’s tax-break calculations were flawed.

“That is Lown’s interpretation,” Arboleda wrote over email. “We don’t share that view.”

3. Reports on how the hospital spent taxpayer dollars are confidential, spokesperson says

Valley Children’s received about $70 million in federal pandemic relief funds. About $65 million went to the hospital, and another $4.7 million went to Valley Children’s Medical Group. 

The hospital and medical group were both required to file reports to the federal government detailing how they spent taxpayer dollars. When Fresnoland asked the hospital for the reports, spokesperson Zara Arboleda denied the request. 

“Even though it has to be filed with the federal government, the full document itself is kept confidential,” Arboleda wrote to Fresnoland.

The next day, Fresnoland filed a Freedom of Information Act request with a federal agency for the hospital’s federal relief expenditure reports.

4. Nonprofit hospitals increasingly behave like for-profit hospitals, expert says

It’s become more common for nonprofit hospitals to look for revenue sources outside of patient care, experts said. One big avenue is building out a financial investment portfolio. 

As of last fall, Valley Children’s Hospital had $1.3 billion in cash, savings and investment accounts. That includes more than $100 million in European and Central American/Caribbean investments. It also extends to venture capital investments in oil and gas companies and holdings spread across 10 hedge funds. 

“It’s actually not uncommon for hospitals to have a big investment portfolio,” said Ge Bai, a health finance expert from Johns Hopkins University. “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.”

Bai added that what matters is whether revenue from investments are used for the hospital’s operations or invested back into the community. 

“You can invest,” Bai said, “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.”

5. Experts say the regulation of nonprofit hospitals needs to be reformed

Part of why the hospital is able to claim donations to its medical group as a community benefit is because there’s nothing stopping executives from doing that. 

Experts told Fresnoland that IRS guidelines for the Form 990, which all nonprofit organizations have to file annually, are relatively broad and there’s a need for reform on the federal level.

Firstly, experts said that categories should be better-defined, so as to specifically rule out what could not be counted as a community benefit. One expert added that he would like to see the IRS require hospitals to report the value of their tax breaks, and also how much they recover from going after patients for unpaid bills through debt collection measures. 

Additionally, state and local governments can pass laws that mandate nonprofit hospitals to give back to the community, with required amounts tailored to their annual profit — similar to Oregon state lawmakers.