Nonprofit vs. for-profit
Because of events such as last year's Moses Cone/Blue Cross Blue Shield standoff over reimbursement rates and the news that the aggressively growing nonprofit hospital company Novant Health might be buying a local medical practice, questions arise about whether nonprofit hospitals really are nonprofit.
Paul Levy tackles the question at his Running a Hospital blog. He is president and CEO of Beth Israel Deaconess Medical Center in Boston. He links to a Wall Street Journal article (only a preview is freely available) as well as reader comments. Levy writes:
In reviewing this issue, it seems to me that there is not always a bright line between the business behavior of a non-profit and a for-profit company. Both need to operate in the black to carry out their purpose. Both need to determine how to compete in a marketplace to achieve that. The strategies employed to do that might look quite similar. Both need to attract qualified people in both supervisory and line positions. The salaries and benefits offered, therefore, might be somewhat similar. Both depend on the vigilance of a Board of Directors to monitor management's performance and behavior. So the structure and functions of the boards overlap in several ways (but not totally, given the pertinent legal requirements). And, as a final level of control, both have regulators to ensure that appropriate community standards are maintained and enforced.But there is a fundamental difference. The non-profit does not have shareholders who benefit financially from its operations. Its fundamental constituency is the community it serves. For a small community hospital, it is literally the local community. For an academic medical center like BIDMC, it is the local community, but it is also a regional, national, and indeed international community that benefits from the research and educational programs of the hospital.
Is this a difference without a distinction? I think not. I know that our Board and I would be making very different decisions about patient care, research, and training expenditures if we operated under a for-profit rubric. While we always have to be prudent about which services we offer, many more areas that do not generate a profit or that result in perpetual losses would likely be cut or eliminated if we were not a non-profit. As a matter of strict business, many of these could be jettisoned and provided by others outside of our hospital. But we believe that we owe to our patients and to the nurses and doctors who we are training to offer these as part of our public service mission.
Nonprofits have to walk a line, which may or may not be fine, between offering good quantities of charity care (and care for which Medicare or other reimbursements may not cover all costs) and staying in business. Those without endowments or sizable cash reserves have to modernize, renovate or expand using current revenue. As Levy indicates, the distinctions aren't always black and white, even if the missions of nonprofits and for-profits remain different in significant ways.