July, 1998
This article was written by the Consumers Union Southwest Regional Office.
Nonprofit and for-profit health organizations operate from contrasting business philosophies. As one critic of for-profit ownership in health insurance stated, "the major differences between for-profit and nonprofit health care plans lie in purpose, values, attitude and behavior: a for-profit plan provides a service so it can make a profit; a nonprofit plan makes a profit so it can provide a service."26
The same argument applies to hospitals. For-profit hospitals provide a service to make a profit which is returned first to headquarters and then to their shareholders. Nonprofit hospitals exist first to provide a service and second to accumulate assets which are subsequently returned to the hospital's community in the form of additional services.
According to Robert Kuttner, writing in the New England Journal of Medicine, nonprofit hospitals "embrace(s) a social ethic, serving uninsured patients, taking Medicaid losses, not insisting that every admission or procedure be profitable, and spending money on research, teaching and public health as part of a broader mission of service to the community."27
For-profit hospitals are legally accountable first to their shareholders, who expect a profit on their investment. They can use aggressive tactics to improve their position in a particular market, sometimes at the expense of community services.
According to an article in the New York Times, for example, Columbia/HCA has engaged in competitive practices that include, "in your face marketing, hospital takeovers, cost-cutting and layoffs, volume purchasing, complex pricing strategies and large monetary incentives for managers who meet financial targets." 28
The last point is perhaps the most controversial. The New York Times found that Columbia/ HCA applied intense pressure on its managers to raise profits by cutting costs and increasing patient revenues in return for large bonuses.29 While Columbia has recently backed away from such tactics in the wake of widespread government investigations, they are not the only hospital organization to cut staff and services when profits are at stake.
Nonprofit hospitals, by contrast, are not required to return earnings to shareholders, giving them greater flexibility to provide less profitable, but critical services.
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The major differences between for-profit and nonprofit health care plans lie in purpose, values, attitude and behavior: a for-profit plan provides a service so it can make a profit; a nonprofit plan makes a profit so it can provide a service. |
Nonprofit and public hospitals provide considerably more uncompensated care than their for-profit counterparts in Texas. Although nonprofit hospitals account for fewer than a third of all Texas hospitals, they provided $1.22 billion in uncompensated care or 34 percent of the total amount of uncompensated care in Texas in 1996.
By contrast, for-profit hospitals account for more than a third of hospitals but provided only $610 million in uncompensated care or 17.1 percent. Public hospitals provided the remainder, $1.76 billion or 48.9 percent.30 In addition, nonprofit hospitals generally provide services to Medicaid and Medicare recipients which may be less profitable than services for privately insured patients.
Communities also expect nonprofit hospitals to operate vital, yet costly services like emergency centers and burn units and to provide for research and education. Nationwide, private nonprofit hospitals provide 74 percent of the neo-natal intensive care units, 63 percent of the long-term care units, 76 percent of the alcohol/drug abuse units, and 61 percent of the burn units.31 Public attitudes toward for-profit and nonprofit hospital ownership and services reflect these differences. According to a survey by the Kaiser Family Foundation, Americans believe that nonprofit hospitals are more beneficial to the community than for-profits by a margin of 61 to 23 percent, and that "the trend to for-profit health care is 'bad' for the country."32
More importantly, Texas law mandates that nonprofit hospitals provide a specified amount of charity care and community benefits. In 1993, the 73 rd Texas Legislature enacted a law requiring nonprofit hospitals to provide community benefits at least as great as the local and state tax exemptions they receive. Specifically, the law requires that hospitals design community benefit plans that assess community needs for charity care and explain how the hospital will help meet those needs. It also mandates that nonprofit hospitals provide specified levels of charity care to the poor and medically indigent.33 This law does not apply to for-profit hospitals.
The importance of this mandated safety net has grown and will continue to grow in the future as more Texans fall into the category of uninsured and underinsured. Texas already suffers from one of the highest rates of uninsured individuals in the U.S., 26.7 percent in 1997. As the number of nonprofit hospitals shrinks, an increasing share of the uninsured population will turn to the already overburdened public health care system.34
