July, 1998
This article was written by the Consumers Union Southwest Regional Office.
Nonprofit hospitals most commonly convert to for-profit status through either a direct sale or a joint venture agreement with a for-profit partner. In a direct sale a nonprofit hospital sells its assets, including the hospital building itself and its name, to a for-profit buyer for cash. If the nonprofit hospital had bond or other debt, the buyer will often pay off the debt, then the nonprofit board will set aside the remaining purchase price in a charitable entity.
In a joint venture agreement a nonprofit hospital contributes its assets, including the building and name, to the venture in exchange for an ownership interest in the new partnership. The for-profit corporation also contributes assets or an amount of capital to the venture in exchange for an ownership interest in the partnership. The non-profit may own anywhere from 10 percent to 90 percent of the new corporation depending on the deal, but many agreements, particularly Columbia/HCA agreements, create a 50-50 partnership. 35
Many for-profit corporations, including Columbia/HCA, view joint ventures with non-profit hospitals as a means to increase market share, and thus profits, with a minimal investment. By only purchasing a 50 percent interest in a hospital, for example, a for-profit corporation spends only half the capital it would have needed to directly buy a hospital and will often become the managing partner and "own" the hospital.36
