Non Profit Hospitals: Are they becoming too focused on maximizing profits?

Within our healthcare system, there are
three types of hospitals which provide services for their surrounding communities. There are non-profit hospitals, for-profit hospitals, and government funded hospitals. The basic difference between these entities is that for profit hospitals strive to serve patients while still maximizing revenue for their shareholders, while non-profit hospitals are said to focus on providing charitable care to their community, and government funded hospitals also focus on serving the community through governmental funds. Through this network of facilities, most of the people within our country receive the proper care that they demand. While this system has worked well for many years, many non-profit hospitals are currently being scrutinized and accused of diverting from their main focus and instead making money more of a priority. If this were to be the case, this could potentially cause a plethora of problems because then these hospitals would be receiving tax breaks under the false pretense that their main focus is to serve the community rather than to make money.

There was a recent article posted in the Wall Street Journal that speaks about the recent trend in non profit hospitals in terms of revenues. As seen on the graph on the upper right, they show that hospitals have very drastically improved their net income, from $544 million dollars in 2001 to $4.27 billion dollars in 2006. They highlight the success of non profit hospitals such as Northwestern Memorial Hospital in Chicago, Cleveland Clinic, University of Pittsburg Medical Center, University of California at San Francisco Medical Center as well as a Catholic Healthcare West ( a system of hospitals in the San Francisco area). The authors point out that much of the income of these facilities has been dedicated to the renovation of their buildings, large payments to CEOs, and acquiring state of the art equipment, rather than on charitable care. While some of these expenses might seem somewhat deviated from the main purpose of serving those in need, I believe that we cannot be quick to judge all of these hospitals for spending the amount of money that they do in these areas without looking at the big picture. Non profit hospitals have always had to compete with for profit hospitals. As one of the writers for the Health Care Blog, Maggie Mahar (pictured left), stated in her blog post titled "Do non profit hospitals deserve their tax breaks?", non profit hospitals that are surrounded by a healthy mix of for profit hospitals are bound to act like for profit hospitals because they have to fight in the same market for the same patients. Although their main purpose is not to maximize income gains, money is necessary to run a hospital. It is no surprise that these hospitals mentioned above are paying money to renovate their facilities or to bring in state of the art equipment, because aesthetics and appearance of success is one of the ways in which hospitals can draw patients into their doors. While I am not condoning the focus of profit maximizing in non-profit hospitals, I am saying that perhaps a closer look at their total activity as a whole might be more beneficial and will give us a better understanding as to whether these hospitals are adhering to their primary mission of serving the community in need of care.

Because of all the fire that non profit hospitals have been receiving, the Internal Revenue Service has been very proactive in trying to investigate these cases and make sure all hospitals are complying with the community benefit standards that are required to qualify as a tax-exempt charity under section 501. Recently a study was done to show what the average activity was for most of the non profit hospitals in the United States. They were able to receive data from four hundred and eighty seven different non profit hospitals. I found it very interesting that the study found that these facilities were serving an average of 46 percent of people with insurance, 46 percent of people under government plans such as Medicaid and Medicare, and 7 percent with no insurance. I feel like these numbers really do show that on average, non profit hospitals really are helping a large part of the population who is in need. However, I do believe that Maggie does pose a good point when she say that perhaps the IRS should put a minimum requirement on charitable care in order for these non-profits to quality for tax exemptions, because at least we would then not doubt that they are providing at least a sufficient amount of help to the communities in need which they strive to serve. This would serve as a way to ensure that all of the money that our government spends on healthcare is being put to good use, and perhaps lead us into a future with a more efficient healthcare system.