Checking Up On Health: May 10, 2021

Nonprofit vs. for-profit hospitals.

Which would you prefer? Do you even know the difference?

Let’s test your knowledge.

A hospital system’s reports gross earnings of more than $3.3 billion. Its president earned more than $4.8 million.

For-profit or non-profit?

In fact, it’s Northside Hospital, a nonprofit hospital whose IRS 990 form from 2017 notes: “In furtherance of its charitable mission, Northside invested in the continued growth, expansion, and increased access to these vital program services.”

Let’s look at another. This hospital reported gross earnings of $1.3 billion and paid its president more than $2.4 million.  For profit or non-profit?

That’s from the 2018 IRS 990 form for Wellstar Kennestone Hospital – another nonprofit hospital.

So what is the difference between the two kinds of hospitals? A non-profit hospital is a hospital that – while it does appear to pay well – does not make profits for owners of the hospital from the funds collected for patient services. The “profits” – the fees for service above the cost of service – are reinvested in the hospital. These hospitals are tax-exempt. They pay no property tax, no state or federal income tax, and no sales tax.

As put by the Georgia Association of Community Hospitals, which represents the nonprofit hospitals: “Community hospitals re-invest every dollar they make into its staff, facilities, research, training, and technology.”

And they like the tax structure just the way it is. From the website:

One of the most important ways the Georgia Alliance for Community Hospitals supports our members is by working with elected officials at all levels of government to implement policies that ensure access to quality care for patients while preserving a tax and regulatory environment in which not-for-profit hospitals can thrive.

For-profit hospitals, on the other hand, are private investor- or shareholder-owned facilities whose goal is to produce profits. Some of the largest for-profit hospital chains are Hospital Corporation of America (HCA), Tenet and HealthSouth. HCA recently announced the sale of four Georgia hospitals, leaving five HCA-owned hospitals in the state.

HCA’s annual report says it is “committed to providing the communities we serve with high quality, cost-effective health care while growing our business and creating long-term value for our stockholders. We strive to be the provider system of choice in the communities we serve and to support our operations with unique enterprise capabilities and best in class economies of scale.”

A George Washington University HealthcareMBA blog post reports, “As one might expect, nonprofit hospitals on average provide more uncompensated care than for-profit hospitals do. Contrary to what we might expect, however, for-profit hospitals tend to serve lower-income populations, while nonprofit hospitals tend to be located in communities with less poverty, higher incomes, and fewer uninsured patients.”

The article adds:

One notable difference between nonprofit and for-profit hospitals is that for-profits allocate more resources to advertising and marketing. Dr. David Himmelstein, the co-founder of an organization that advocates a universal, single-payer health system in the U.S, argues that these are wasteful expenditures that divert patient dollars from things like equipment and training that could improve quality of care. He further argues that marketing is wasteful because for-profit hospitals tend to be located in areas where there are few healthcare options, so patients have little choice in where to get care.

Since 2019, Georgia law has sought to provide more transparency from hospitals, requiring nonprofits to report details including property holdings and salaries and fringe benefits of the 10 highest-paid administrative positions.

Which is better?

It’s not a bad thing that for-profit hospitals seek to satisfy their shareholders. Much like any other business, free enterprise offers an opportunity to compete, and one beats the competition by offering consumers (i.e., patients) a better product than others, or by offering something unique. In that case, a rising tide lifts all boats – when boats are allowed to operate without being chained, that is, by regulatory hurdles. Many for-profit hospitals offer a specialty service – such as ambulatory service centers – and often come under fire for not having to deal with the patient influx and cost of emergency procedures and emergency departments, for example.

Nonprofit hospitals must “reinvest” their returns; those funds often provide superior facilities, equipment, aesthetics and salaries. Knowing what each provides – and whether they do it well, with quality and affordability – should be a product of transparency.

According to 2019 Kaiser Family Foundation statistics, about 25% of Georgia’s hospitals were government owned, about 59% were nonprofit and about 16% were for-profit. Across the United States, about 25% were for-profit and 57% were nonprofit. Nevada had the highest percentage of for-profit hospitals (54%), followed by Texas (52%) and Florida (48%). Given financial fallout from the pandemic and recent hospital sales, numbers may have changed significantly since then.

Compiled by Benita Dodd, vice president of the Georgia Public Policy Foundation.

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