Three NPHS board members said in interviews that the 72-year-old Sabatini works every day and has been a benefit to the system, which serves mostly poor patients and has survived thanks to special state aid since 1993 and a 1997 bailout through a $24 million federally insured mortgage.
But experts on the role of boards in the nonprofit health-care sector said the NPHS structure was unusual and raised questions about the legitimacy of board oversight.
"You can't confuse the two roles," Charles Elson, a University of Delaware professor and a corporate-governance expert, said of the difference between a board of directors and management. "It makes it harder to exercise oversight if you're part of management," he said.
Sabatini, who said he has been chairman of the health system for 20 years, traced his role in management to 2004, when the Pennsylvania Department of Public Welfare provided a $4 million advance to help the system cover a surge in its medical-malpractice insurance premiums.
It was not a written condition, but "the state implied that they wanted a stronger management," Sabatini said.
Estelle Richman was head of the DPW then. "I reported to her. We made sure we kept her informed," Sabatini said.
Richman was unavailable to comment, said a spokesman for the U.S. Department of Housing and Urban Development, where Richman is a senior adviser.
The payments to Sabatini, who was described by several observers as the de facto CEO, started in 2005, when he received $140,500. In total, through 2010, Sabatini has received $980,641 in salary, according to the organization's tax returns.
In addition, Walmsley - who focuses on operations and finance, board members said - was paid $2.46 million over the same period.
DPW spokeswoman Carey Miller said the agency has no say over salaries of employees or board members.
In justifying the unusual payments to Sabatini, board members said they did not think they could ask so much of him without pay. "We needed his expertise," said Alan P. Hoffmann, president of Vitetta, a Philadelphia architecture and engineering firm.
Hoffmann was one of four non-employee board members to respond to queries from The Inquirer. Eight did not return calls, while Dominic Cermele, a longtime city official, retired president of Girard College, and another Fumo ally, said he wasn't "equipped to answer any of your questions about" corporate governance.
NPHS was formed out of St. Joseph's Hospital at 16th Street and Girard Avenue and Girard Medical Center at Eighth and Girard in a 1990 bankruptcy deal. The struggles continued, but it has regularly found political backing.
In the 2000s, Fumo helped bring back St. Joseph's nursing school, which had closed in 1977. He addressed the first graduating class in 2007, but the school closed again last December. Philadelphia Common Pleas Court Judge Eugene Maier, who is on the NPHS board, cited that effort as one of Fumo's "good works" in testimony at the politician's sentencing hearing.
In an interview last week, former Gov. Ed Rendell said the system has been worth saving because it takes care of the poor, is almost like a community center, and is a significant employer in that part of North Philadelphia.
"From those three counts, it would have been disastrous if the North Philadelphia Health System failed," said Rendell, who as mayor strongly supported the 1997 FHA-insured mortgage.
NPHS employs 1,200 people, including 700 to 800 who live in the area served by the system, Walmsley said.
The crux of NPHS's financial struggles is that 65 percent of St. Joseph's Hospital's revenue in the year ended June 30, 2011, came from Medicaid, health insurance for the poor that pays less than it costs to provide care.
That figure is the highest in the state, and because of that NPHS has received $47.7 million in "augmented waiver payments" during the last five years - money that no other hospital in the state qualifies for, DPW said.
Still, NPHS barely gets by.
The system "has continued to delay payment to vendors as a facet of cash-flow management," its audited statement for fiscal 2011 said.
The auditor's report for that year said: "The system has suffered recurring operating losses and has a net asset deficiency," two issues "that continue to raise substantial doubt about its ability to continue as a going concern."
The future does not look brighter, said William E. Aaronson, a professor and health-care expert at Temple University's Fox School of Business. With the "implementation of the Affordable Care Act, hospitals that have high Medicaid and Medicare loads are going to be even more stressed," he said.
Sabatini said he is aware that NPHS has to stop being dependent on the state. Seeking new opportunities to make that possible is a big part of what he does. "I continue to do all that kind of strategic planning, with George. George does all the operating stuff," he said.
The two have worked together for about 20 years.
That in itself was alarming to Larry Prybil, an expert in corporate governance in the nonprofit health-care sector and associate dean of the University of Kentucky College of Public Health. "Having term limits is the prevailing benchmark of effective governance today," said Prybil, referring to the number of years per term and the number of terms overall for a director.
Mixing the role of chairman and management in a nonprofit "almost crosses the line of propriety," said Aaronson.
"To not have that independent governance and oversight of a nonprofit means that the constituents, the stakeholders, those the board is supposed to represent, are not being represented," he said.
North Phila. Health's Board
Directors as of June 30, 2011.
Dominic Sabatini: Chairman, NPHS. Managing director, Penn's Landing Corp. (1980-03). Commissioner, Department of Licenses & Inspections (1973-80).
George J. Walmsley 3d: President & CEO of NPHS.
Ralph E. Blanks: Vice chairman, NPHS. Associate pastor, Vine Memorial Baptist Church in Philadelphia. Former president, Black Clergy of Philadelphia & Vicinity. Former member, Philadelphia School Board.
Gerri Walker: CEO, DiamondCutter L.L.C., a Philadelphia communications and management consulting firm. Chair of Philadelphia Commercial Development Corp. City representative and commerce director (1988-92).
Theodore Burden: President, NPHS medical staff.
Dominic Cermele: President, Girard College (2003-09); deputy finance director (1989-03), traffic court judge (1981-89).
Alba Collazo-Irwin: Deputy register of wills.
Ahmeenah Young: President, Pennsylvania Convention Center Authority.
Alan P. Hoffmann: President, Vitetta, a Philadelphia architecture and engineering firm.
State Sen. Shirley Kitchen: Kitchen said she had not attended board meetings for 12 years to avoid conflicts when she was trying win money for the system in Harrisburg. It was an oversight that she was still listed as a director, she said.
Eugene M. Maier: Philadelphia Common Pleas Court judge.
John W. Meacham: Administrator, St. Ignatius Nursing Home, Philadelphia.
Nitza Quinones-Alejandro: Philadelphia Common Pleas Court judge.
Sr. Mary Aquinas Szott: Member of the Felician Sisters of North America, which owned St. Joseph's Hospital until the late 1980s, when it filed for bankruptcy.
William Vanore: President, Regent Systems Inc., a computer consulting firm with offices in Bala Cynwyd and Dayton, Ohio.
SOURCES: NPHS and Inquirer research.
Contact Harold Brubaker
at 215-854-4651 or firstname.lastname@example.org.