Running head: NON PROFIT VERSUS FOR PROFIT HEALTHCARE ORGANIZATIONS

Non Profit versus For Profit Healthcare Organizations Regina Varnado, MSN Keller Graduate School of Management HSM541: Health Service Systems Professor Jackson

NON PROFIT VERSUS FOR PROFIT HEALTHCARE ORGANIZATIONS

Non Profit Healthcare Organization versus For Profit Healthcare Organization Characteristics of Nonprofit and For profit Organizations Nonprofit healthcare organizations represent 59% of the hospitals in the United States with most of them located in the Eastern, North Central and Pacific states. Nonprofit health care organizations usually have a large number of beds (200+) (AHA Hospital Statistics, 2008). Nonprofit organizations use funding from religious, fraternal order, charity or can be community based for operation. The revenue from patient care is a major source for operation. Nonprofit organizations capital development is mainly through debt financing (Barton, 2007). Nonprofit health care organizations sources of capital are: charitable donations, debt, retained earnings and governmental grants (Gray, 1986). Nonprofit organizations assets are reinvested back into public they serve to bring more services and updated equipment and procedures (Health First, 2013). The Nonprofit organizations operate with the tax-exempt status, which mean they do not pay federal, state, local and other taxes (Barton, 2007). The purpose of nonprofit health care organizations has legal obligation to fulfill a stated mission to provide services, teaching and research and it must maintain economic viability to do so (Gray, 1986) For profit health care organizations are usually owned by private investors or corporations. For profit health care organizations represent 18% of the hospitals in the United States today. For profit health care organizations are mostly located in the Southern and Mountain states. For profit organizations usually have a medium number of beds (50-199) (AHA Hospital Statistics, 2008). For profit health care organizations distribute the profit to the invested owners. For profit health care organizations has to pay federal, state, local and property taxes in full. The sources of capital for nonprofit health care organizations include: equity capital from investors, debt, retained earnings and return on equity payments from third party payers. The

NON PROFIT VERSUS FOR PROFIT HEALTHCARE ORGANIZATIONS

purpose of for profit health care organizations has legal obligations to enhance the wealth of shareholders within the boundaries of law and does so by providing services (Gray, 1986).

Improving financial and operational performance of nonprofit and for profit Nonprofit organizations are operated by a board of trustees for free or as community service and the decisions financial are based on the community they serve well-being (Health First, 2013). Nonprofit organizations can improve their financial and operational performance by ensuring the organization is operating within regulations and reporting to maintain tax exempt status, deliver on the obligation to the community, maintain budget, maintain relationships with donors and apply for grants. Nonprofit health care organizations should also they have tight control over budgets and planning for the future. For profit health care organizations are operated by the private owners which can be in or out of the community with the stakeholders interest foremost. The organization is operated with the intention of earning a profit and the profits are not put back into the area the organization serves. The profits are directed towards the investors that are usually individuals or large corporations (Health First, 2013). For profit healthcare organizations should have tight management structures and control systems, control on the use of health care staff and allied personnel and being prepared to respond to patient demands (Barton, 2007). For profit health care organizations can improve the financial and operational performance by offering services that will attract the insured and the wealthy so a profit can be made off the services offered and not offering services that are not going to make the organization an profit Provide high quality, up to date care with competent staff to attract and keep patients. The organization should also

NON PROFIT VERSUS FOR PROFIT HEALTHCARE ORGANIZATIONS

make sure all departments have checks and balance to ensure everyone is doing their part in order to receive reimbursement from insurers and third party payers. Criticism leveled at for profit healthcare organizations Not for profit health care organizations are criticized by the public because they believe the nonprofit organizations get more than they give back to the public. The citizens also believe that nonprofit organizations do not provide services that are not profitable but are needed by the community like they are should. The public would rather see the not for profit organizations: provide more care to the ones that cannot afford care, provide services that are vitally needed in the community such as immunization fairs, health fairs, substance abuse clinics, emergency services and burn units (Barton, 2007). For profit health care organizations are criticized mostly for focusing on sparing expenses at all cost and even at the cost of less than high quality care (Blizzard, 2002). Another criticism about for profit organizations are they usually does not like to take care of chronically ill patients and rather they go to nonprofit healthcare organizations (Best US Hospital, 2013). For profit healthcare organizations are also thought to charge more for their services and delivery low quality care compared to a not for profit healthcare organization but according to the Blue Cross study, the care delivered is not low quality and the cost is no different from not for profit (Smith, 2011).

NON PROFIT VERSUS FOR PROFIT HEALTHCARE ORGANIZATIONS

References AHA Hospital Statistics (2008). Nonprofit Community Hospitals. AHA Hospital Statistics. Retrieved from: http://www.nonprofithealthcare.org. Barton, P. (2007) Understanding the U.S. Health Services System, (4th ed.). Health Administration Press. Blizzard, R. (2002) For-Profit vs. Not-for-Profit: Two Paths, Same Outcome. GALLUP. Retrieved from: http://www.gallup.com. Gray, B. (1986). For Profit Enterprise in Healthcare. National Academy Press: Washington, D.C. Hall, M. (2011). For-Profit Conversion of Blue Cross Plans: Public Benefit or Public Harm? Annual Review of Public Health, 27(1), pp. 443-463. Health First (2013). What are not-for-profit/ community-minded hospitals? Retrieved from: http://www.health-first.org. The Best US Hospitals (2013). For Profit Hospitals. The Best US Hospitals. Retrieved from: http://www.bestushospitals.com/for-profit-hospitals.