More and more, the lines between for-profit and nonprofit hospitals are blurring.
Sometimes a nonprofit is an independent rural hospital and sometimes it’s part of an academic medical center, with billions of dollars in endowments and assets and giant venture arms that launch devices and drugs using their own staff. For-profits, on the other hand, operate just like other traditional companies outside of healthcare.
While nonprofits don’t answer to shareholders, they may not be that different from their money-making counterparts these days.
So what truly distinguishes for-profit and nonprofit care?
Logistics. According to the American Hospital Association, there are 6,093 hospitals in the US, 2,978 of which are nonprofits and 1,214 for-profits. The biggest difference—don’t yawn—is probably the paperwork.
For-profits, like in any industry, can be either privately or publicly owned. Systems like Nashville-based HCA Healthcare; Dallas-based Tenet Healthcare; Franklin, Tennessee-based Community Health Systems; and King of Prussia, Pennsylvania-based Universal Health Services are all publicly traded. That means they have the same rules and paperwork of typical public companies, like SEC disclosures, earnings reports, and shareholder meetings.
Other systems are privately owned and operated, like Brentwood, Tennessee-based Lifepoint Health, owned by private equity firm Apollo Global Management, or the infamous Dallas-based Steward Healthcare. These hospitals are treated more like traditional private companies run by their owners.
“On the for-profit side, it’s about maximizing shareholder value, being profitable, and getting return on investment,” Rahul Singh, leader of consultant company West Monroe’s healthcare provider practice, told us.
From a “pure care delivery perspective,” he added, there’s more focus on markets and procedures that return the most value to investors.
Recent research from the University of Pennsylvania found that less staffing due to cost cutting was tied to worse patient outcomes at for-profit hospitals. The Association of American Medical Colleges also found last year that nonprofits were more likely to offer unprofitable services, like psychiatrics.
“That’s what a for-profit company does, regardless of whether it’s in healthcare or not,” he said.
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It’s giving strict. Nonprofits have different rules, though.
When you think of nonprofit health systems, Chicago-based CommonSpirit Health, Oakland-based Kaiser Permanente, St. Louis-based Ascension, and Oak Brook, Illinois-based Advocate Health Care likely come to mind. There are also systems connected to universities, like Northwestern Medicine in Chicago, Cedars-Sinai in Los Angeles, and NewYork-Presbyterian.
These systems are meant to be mission-driven and are, therefore, tax exempt. To achieve this status, they must meet the IRS’s Community Benefit Standard reporting requirements, proving they benefit their local communities, don’t enhance the wealth of individuals or shareholders, and don’t intervene in political campaigns. (Though experts say that the definition of “community benefits” is broad, and a clearer definition may be helpful.)
Under this tax structure, they can also raise funding through bonds, which is a common way to pursue new projects outside of operational revenue or philanthropic donations.
These organizations are “more focused on making sure that everyone has access to healthcare, as opposed to trying to maximize profit from healthcare,” Singh said.
Feeling charitable? Industry experts, however, have begun questioning if nonprofits always act like charities. Health policy research organization KFF, for example, reported last year that some nonprofit systems own for-profit hospitals in other countries or operate for-profit insurance companies.
Others, like Northwell Health, also have a venture capital arm or run a film studio. KFF found that in 2022 most nonprofits generally had enough cash on hand and that only 9% of the 274 hospitals and health systems surveyed were in a financially “vulnerable” or “highly vulnerable” state.
One could argue it’s hard to operate a hospital in rural areas, where there are more nonprofit facilities, as low reimbursement rates have long challenged providers and Medicaid cuts are on their way.
But those patients still need care. Singh said other areas of revenue, like venture arms, are one method to continue providing care to patients in underserved communities. “That’s one way for [nonprofit hospitals] to survive,” he added.