This document discusses the attributes, observations, trends, and key findings regarding for-profit (FP) and not-for-profit (NFP) health organizations. It finds that ownership status determines how profits are distributed and where hospitals locate, which influences their behavior and performance. Environmental and financial factors are causing some NFPs to become more commercial and potentially convert to FP status. The document concludes that while ownership affects certain outcomes, both FP and NFP hospitals can exist and make profits, but they distribute and use those profits differently according to their ownership model and mission.

1. For Profit (FP) vs. Not For Profit (NFP) Health Organizations Andrew Helicher HPA 520 November 4, 2009

3. Observations

4. Trends

6. Observations

7. Trends

10. Incubators of innovation: develop services without existing markets

11. Positive public perception: mission over margin

12. Limited funding sources for capital investments

13. Slower to adapt to market changes to serve public

14. Unable to pay for top managerial ability (Fair Market Value) Schlesinger and Gray, 2006

17. Negative public perception: margin over mission

18. Exploit Medicare reimbursement loopholes

19. Cannot accept donations (only 3.6% of NFP revenue)2 Sloan, 1998 Frank and Salkever, 2000

21. Observations

22. Trends

23. Key Findings6

24. Governance 7 Behavior (CEO Turnover) Stakeholders Governing Board Mission Investors FP Business People Economic Viability Low Income Community FPNFP Community Leaders Quality of Care High Admin Expenses Physicians FPNFP Physicians / Nurses Donors NFP Foundation Members Community Benefit High charity care Churchs NFP Religious Leaders Eldenberg, Hermalin, Weisbach & Wosinska, 2001

26. More insured populationsSloan, 1998

28. Observations

29. Trends

30. Key Findings9

31. Ownership Trend – NFP to FP 10 19971 20072 ↑1% ↓2% - Public - For Profit - Not For Profit Castaneda & Falaschetti, 2008 AHA, 2009

33. Medicare RPS to PPS

34. Growth of Managed Care

35. Price competition

36. Outpatient growth

37. Shrinking demand

38. Rising uninsured

39. Uncompensated care

40. Financial concerns:

41. Exhausted sources

42. Want cheaper WACC

43. Culture: business-oriented hospital board members

44. Don’t want to merge with local competitorsSloan, 1998 Cutler & Horwitz, 2000

45. NFP Excesses or Necessities? Carreyrou & Martinez, 2008 Cleverly, 2008 12

47. Observations

48. Trends

49. Key Findings13

51. Ownership status affects location choice, which influences hospital behavior and performance

52. Ownership status determines hospital board composition, definition of mission, and resulting behavior

54. References 16 Cleverly, W. (2008) Not-For-Profit Hospitals: Still a Community Value. Healthcare Financial Management. June 2008. Carryrou, J. & Martinez, B. (2008) Nonprofit Hospitals, Once For the Poor, Strike It Rich. The Wall Street Journal. April 8, 2008. American Hospital Association (2009) Fast Facts on American Hospitals. Retrieved from http://www.aha.org/aha/resource-center/Statistics-and-Studies/fast-facts.html. April 13, 2009. Healthcare Financial Management Association (2009) Comments on Attributes of Tax-Exempt Healthcare Providers. Retrieved from http://www.hfma.org/library/compliance/taxexempt/400662.htm. June 18, 2009. Eldenburg, L., Hermalin, B., Weisbach, M., Wosinka, M. (2001) Hospital Governance, Performance Objectives, and Organizational Form. National Bureau of Economic Research. Working Paper 8201. April 2001. Falaschetti, D., & Castaneda, M. (2008) Does Hospital’s Profit Status Affect its Operational Scope? Springer Science and Business Media, LLC. October 5, 2008. Sloan, F. (1998) Commercialism in Nonprofit Hospitals. Journal of Policy Analysis and Management, Vol. 17, No. 2. Spring, 1998. Schlesinger, M. & Gray, B. (2006) How Nonprofits Matter in American Medicine, and What to Do About It. Health Affairs, web exclusive. June 20, 2006. Cutler, D. (2000) The Changing Hospital Industry. Chicago: University of Chicago Press.

55. Meta-Analysis Studies Supporting FP or NFP Performance (Hospitals) Schlesinger & Gray, 2006 17