What Makes A Non-Profit Hospital?

What Makes A Non-Profit Hospital?

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What are non-profit hospitals and what is the community benefit standard?

Recently, several news outlets including ProPublicaKaiser Health News, and Wall Street Journal have published stories on non-profit hospitals’ medical debt collection practices and the effects on low income patients. These news stories prompted me to take a closer look at non-profit hospitals, their tax-exempt status, the community benefits they must fulfill to qualify for it, and the impact on care.

This is the first piece of two posts that consider the requirements that non-profit hospitals need to fulfill to qualify for their tax-exempt status and the impact of these standards on non-profit hospitals and the communities they seek to serve.

Has the definition of a non-profit hospital evolved over time?

Short answer: yes.

To date, non-profit hospitals have significantly benefited from their tax-exempt status, saving $24.6 billion in taxes in 2011. Originally, hospitals were granted tax-exempt status because of affiliations with religious institutions and for serving a charitable purpose. It wasn’t necessarily related to medical care. However, in 1956, the Internal Revenue Service (IRS) implemented the charity care standard requiring hospitals to offer uncompensated care to patients unable to pay in order to qualify as a charitable organization under Internal Revenue Code 501c3.

Many believed charity care would no longer be necessary after the implementation of Medicare and Medicaid in 1965. Policymakers assumed the two programs would ensure insurance coverage for most people, obviating the need for a charity care standard. This wasn’t the case, and over the next decade, two events led to the elimination of the charity care standard and the introduction of its successor, the community benefit standard, in 1969.

First, the House of Representatives released a report citing concerns about the execution of the charity care standard and its effectiveness. Second, a hospital that did not provide free or discounted health care mounted a legal challenge. The hospital asserted that, because it had an emergency room open to all community members, it was already providing a charitable service and should qualify for non-profit, or 501c3, status. The courts agreed with the hospital, stating that the provision of an open-access emergency room promoted the health of the community. This fulfilled a charitable purpose according to its legal definition. Ultimately, the IRS agreed with the court’s decision and deemed it necessary to change the charity care standard to accommodate this decision.

Consequently, the IRS issued Ruling 69-545, introducing the community benefit standard. From its implementation and onwards instead of being judged solely on the provision of free or discounted care, a hospital’s 501c3 status would be based on whether it “promoted the health of a broad class of individuals in the community,” including but not limited to just providing free or discounted care.

In 2010, additional requirements were included in the community benefit standard. Non-profit hospitals are now required to perform a community health needs assessment every three years and have both an accessible Financial Assistance Policy and Emergency Medical Care Policy (a charge limit for people who qualify for financial assistance and a billings) and a collections system that determines if individuals are eligible for financial assistance prior to engaging in extraordinary collection actions (applies to all emergency and medically necessary care).

What does non-profit status mean for hospitals?

Short answer: tax-exempt with charity donations required.

Most hospitals in the United States are recognized as charitable organizations, with 78 percent qualifying for 501c3 status. This means they are exempt from most taxes and benefit from tax-deductible charity donations and tax-exempt bond financing but they must meet general Internal Revenue Code requirements, including the community benefit standard aimed at improving the health of the surrounding community.

A variety of activities qualify as community benefits. Some examples are charity care, unreimbursed costs through means-tested programs (Medicaid, Medicare, CHIP, etc.), unreimbursed health professions education, unfunded research, and cash and in-kind contributions for community benefits. Hospitals must submit IRS Form 990 Schedule H annually to demonstrate their community benefit expenditures and maintain their 501c3 designations.

Are non-profit hospitals behaving like their for-profit counterparts?

Short answer: often times, yes.

Seven of the ten most profitable hospitals in the country are non-profits. Many of these exhibit for-profit characteristics such as being part of a larger hospital system, being located in urban areas, and not having a teaching program.

But these aren’t the only features of non-profit hospitals that resemble for-profits.study conducted by the Kellogg School of Management found that non-profits regularly behaved like for-profits after financial shocks. In response to financial crises, non-profits cut back on unprofitable services to offset losses instead of increasing prices. This is not what we expect; the study authors argue that we should expect them to do the latter — forgoing financial gain by starting with lower prices with room to increase in times of financial stress. That they don’t suggests that non-profits are already maximizing profits, similar to for-profit hospitals.

While it is unusual for non-profit hospitals to experience large financial profits, it does happen. The question is whether these gains are then reinvested into the hospital’s charity care and community health and wellbeing initiatives.

How much of a non-profit hospital’s revenue goes back into care and its community?

Short answer: some.

Herring, et al. found that, on average, 7.6 percent of non-profit hospitals’ 2012 total expenses were community benefit expenditures, 3 percent were unreimbursed Medicaid costs, and about 2 percent were charity care. (These findings are consistent with past studies.)

In some cases, non-profit hospitals receive tax benefits that far outweigh their community benefit investments. For example, in fiscal year 2011-2012, the University of Pennsylvania Medical Center made approximately $1 billion in profits, spent less than $20 million on charity care, and received $200 million in tax benefits. Cases like these have increased public scrutiny on hospitals’ non-profit status and whether current 501c3 requirements go far enough to ensure that hospitals provide sufficient charity care and community benefits.

Non-profit hospitals maintain their tax exempt status through the fulfillment of the community benefits standard. In the next piece we will look at the impact of these standards on the hospitals and the communities they serve.

 

WHAT TO DO WHEN CONVERTING A HOSPITAL FROM NONPROFIT TO INVESTOR-OWNED

https://www.healthleadersmedia.com/strategy/what-do-when-converting-hospital-nonprofit-investor-owned

While perhaps not as controversial as it once was, the ‘conversion’ of a nonprofit hospital to a for-profit venture can raise questions and spark unhelpful rumors.


KEY TAKEAWAYS

There may be an opportunity to highlight increased revenues for the benefit of local government, since investor-owned hospitals pay taxes.

Remember: Every hospital, regardless of its tax status, must bring in more dollars than it spends in order to be financially healthy and reinvest.

In most communities, the conversion of a hospital from a not-for-profit to an investor-owned enterprise no longer stirs the heated debate that it did decades ago. Instead, you’re much more likely today to see not-for-profit and investor-owned hospital organizations working in partnership.

Renowned not-for-profit health systems such as Duke Health and the Cleveland Clinic have formed strong affiliations with investor-owned hospital companies. In these and other partnerships, not-for-profits and investor-owned organizations are working together to strengthen hospitals, invest in communities, and serve patients.

In fact, the issues facing investor-owned hospital systems during a partnership are the same as those faced by not-for-profit health systems during a partnership discussion: Local control and governance, cultural compatibility, charity care support, and commitment to local investment are leading hot buttons for both.

Still, the “conversion” of a not-for-profit to an investor-owned organization can represent a change that can raise questions and ignite unhelpful rumors.

To help you be prepared, start by answering these basic questions: What’s the difference? How are not-for-profit and for-profit (investor-owned) hospitals different from one another?

  • Taxes: First, a (very) broad definition: “Not-for-profit” and “for profit” are tax-related designations. A not-for-profit hospital does not pay certain taxes, including those on property used for care, income, and sales. How- ever, it usually does pay payroll and other federal employee taxes. A for- profit hospital pays property, sales, and income taxes as well as payroll taxes. Not-for-profits sometimes make payments in lieu of taxes to help offset the costs of providing important community services, such as police and fire coverage.
  • Capital: Not-for-profit and investor-owned hospitals are also differentiated by where they get capital to invest in their facilities for infrastructure improvements, new equipment, staff, and the like. Not-for-profit hospitals usually go to the bond market for capital. Investor-owned hospitals go to the public stock market, the bond market, or investment groups for capital.
  • Analysts: Now for a word about financial ratings. Both types of organizations have outsiders judging the hospital’s financial performance. To help investors monitor their portfolios and make buying and selling decisions, not-for-profits are graded by credit rating agencies, such as Moody’s Investors Services and Standard & Poor’s. Publicly traded, investor-owned hospital stocks are watched by analysts and valued daily in stock exchanges.
  • Ownership: Who “owns” the hospital after such a sale is an important question and can reflect a community’s concerns about having a future voice in the care provided at its hospital. The answer can be complicated and inconsistent from hospital to hospital and community to community.

Here’s an overview: Independent, not-for-profit hospitals are, in a sense, owned by the communities they serve. The boards are usually comprised of local leaders and physicians. Excess revenues—profits—are fully reinvested into the community’s care after debt payments, payroll, and other expenses. Hospitals that join a regional or national not-for-profit health system, however, may or may not have a local board with a say in the direction of the facility and may or may not share their profits with the system. (In fact, if your local hospital is in financial trouble, the money flows into your hospital, not out of it!)

Investor-owned hospitals are, as you might guess by the name, owned by investors, who can be private individuals or stockholders. Investors traditionally benefit as the value of the company’s hospitals increases over time, through effective operations and local investments, and as the company overall grows by adding more hospitals.

Adding to this complexity is the trend for hospitals to pursue joint venture partnerships where ownership is shared by two or more organizations, including the “seller.” These partnerships call for strong and trusting relationships by every party. Communications is key to success.

Familiarize yourselves with these terms and issues as you move through a partnership. Be prepared for some myth busting.

That’s where the fundamental structural differences end. The driving forces of both organizations, however, are precisely the same:

  • No matter your tax status, every hospital must take in more dollars than it spends to be financially healthy and to reinvest in the care it provides.
  • Every hospital must offer quality care, provide current medical equipment and facilities, and support a trained staff to attract (and keep) patients  and serve the needs of physicians, payers, and others.

Now, consider some specific questions you may hear related to the structure of a not-for-profit to investor-owned conversion.

WHAT HAPPENS TO THE PROCEEDS OF THE SALE?

When there are funds left over from a sale, they are often referred to as the proceeds. These proceeds exist once the hospital’s debt and any other obligations (e.g., a pension fund) have been paid.

The answer as to what happens to those dollars depends on the ownership structure of the selling organization and the terms of the transaction. Here are a few scenarios:

  • The sale of a stand-alone, not-for-profit community hospital to an investor-owned company may lead to the creation of a community foundation. The creation of the foundation—including its board and mission—may be directed by your state attorney general’s office, and the proceeds from the sale will fund it.
  • When two not-for-profits merge, it is rare that there are proceeds. Instead, the common practice is for all assets from both organizations to combine for the good of the new system.
  • From the sale of a hospital owned by a religious organization, the remaining proceeds will likely return to that order or denomination.
  • When a government-owned hospital is sold, money left over may return to the city’s or county’s coffers, which may deposit it into the government’s general operating fund or create a new organization for meeting the charitable healthcare needs of the community.

WILL CHARITY CARE CONTINUE AT ITS CURRENT LEVEL?

This is really a question of community commitment and may be an indicator of how much the community-based culture is or is not going to change under the new ownership. In most cases, a commitment to either a specific level of charity care or a guarantee to continue the hospital’s existing charitable mission and policy is written into the deal documents. Expect the question and know the answer.

HOW MUCH MONEY IN LOCAL TAXES WILL THE NEW HOSPITAL OWNER PAY?

An investor-owned hospital pays taxes that benefit local government. This question is an opportunity to highlight the added contribution as a distinct benefit of investor-owned partnerships.

In many cases, the fire department, police force, schools, parks, and other community assets will benefit on an annual basis from an investor-owned partner paying state and local property and sales taxes.

One cautionary note: In some cases, new hospital owners may seek appropriate tax incentives when entering a new community and investing in a hospital. Be sure you understand the local government strategic thinking before you answer the tax question.

 

 

 

 

Bruising labor battles put Kaiser Permanente’s reputation on the line

Bruising labor battles put Kaiser Permanente’s reputation on the line

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The ongoing labor battles have undermined the health giant’s once-golden reputation as a model of cost-effective care that caters to satisfied patients — which it calls “members” — and is exposing it to new scrutiny from politicians and health policy analysts.

Kaiser Permanente, which just narrowly averted one massive strike, is facing another one Monday.

The ongoing labor battles have undermined the health giant’s once-golden reputation as a model of cost-effective care that caters to satisfied patients — which it calls “members” — and is exposing it to new scrutiny from politicians and health policy analysts.

As the labor disputes have played out loudly, ricocheting off the bargaining table and into the public realm, some critics believe that the nonprofit health system is becoming more like its for-profit counterparts and is no longer living up to its foundational ideals.

Compensation for CEO Bernard Tyson topped $16 million in 2017, making him the highest-paid nonprofit health system executive in the nation. The organization also is building a $900 million flagship headquarters in Oakland. And it bid up to $295 million to become the Golden State Warriors’ official health care provider, the San Francisco Chronicle reported. The deal gave the health system naming rights for the shopping and restaurant complex surrounding the team’s new arena in San Francisco, which it has dubbed “Thrive City.”

The organization reported $2.5 billion in net income in 2018 and its health plan sits on about $37.6 billion in reserves.

Against that backdrop of wealth, more than 80,000 employees were poised to strike last month over salaries, retirement benefits and concerns over outsourcing and subcontracting. Nearly 4,000 members of its mental health staff in California are threatening to walk out Monday over the long wait times their patients face for appointments.

“Kaiser’s primary mission, based on their nonprofit status, is to serve a charitable mission,” said Ge Bai, associate professor of accounting and health policy at Johns Hopkins University. “The question is, do they need such an excessive, fancy flagship space? Or should they save money to help the poor and increase employee salaries?”

Lawmakers in California, Kaiser Permanente’s home state, recently targeted it with a new financial transparency law aimed at determining why its premiums continue to increase.

There’s a growing suspicion “that these nonprofit hospitals are not here purely for charitable missions, but instead are working to expand market share,” Bai said.

The scrutiny marks a disorienting role-reversal for Kaiser, an integrated system that acts as both health insurer and medical provider, serving 12.3 million patients and operating 39 hospitals across eight states and the District of Columbia. The bulk of its presence is in California. (Kaiser Health News, which produces California Healthline, is not affiliated with Kaiser Permanente.)

Many health systems have tried to imitate its model for delivering affordable health care, which features teams of salaried doctors and health professionals who work together closely, and charges few if any extraneous patient fees. It emphasizes caring and community with slogans like “Health isn’t an industry. It’s a cause,” and “We’re all in this together. And together, we thrive.”

Praised by President Barack Obama for its efficiency and high-quality care, the health maintenance organization has tried to set itself apart from its profit-hungry, fee-for-service counterparts.

Now, its current practices — financial and medical — are getting a more critical look.

As a nonprofit, Kaiser doesn’t have to pay local property and sales taxes, state income taxes and federal corporate taxes, in exchange for providing “charity care and community benefits” — although the federal government doesn’t specify how much.

As a percentage of its total spending, Kaiser Permanente’s charity care spending has decreased from 1.29% in 2012 to 0.8% in 2017. Other hospitals in California have exhibited a similar decrease, saying there are fewer uninsured patients who need help since the Affordable Care Act expanded insurance coverage.

CEO Tyson told California Healthline that he limits operating income to about 2% of revenue, which pays for things like capital improvements, community benefit programs and “the running of the company.”

“The idea we’re trying to maximize profit is a false premise,” he said.

The organization is different from many other health systems because of its integrated model, so comparisons are not perfect, but its operating margins were smaller and more stable than other large nonprofit hospital groups in California. AdventHealth’s operating margin was 7.15% in 2018, while Dignity Health had losses in 2016 and 2017.

Tyson said that executive compensation is a “hotspot” for any company in a labor dispute. “In no way would I try to justify it or argue against it,” he said of his salary. In addition to his generous compensation, the health plan paid 35 other executives more than $1 million each in 2017, according to its tax filings.

Even its board members are well-compensated. In 2017, 13 directors each received between $129,000 and $273,000 for what its tax filings say is five to 10 hours of work a week.

And that $37.6 billion in reserves? It’s about 17 times more than the health plan is required by the state to maintain, according to the California Department of Managed Health Care.

Kaiser Permanente said it doesn’t consider its reserves excessive because state regulations don’t account for its integrated model. These reserves represent the value of its hospitals and hundreds of medical offices in California, plus the information technology they rely on, it said.

Kaiser Permanente said its new headquarters will save at least $60 million a year in operating costs because it will bring all of its Oakland staffers under one roof. It justified the partnership with the Warriors by noting it spans 20 years and includes a community gathering space that will provide health services for both members and the public.

Kaiser has a right to defend its spending, but “it’s hard to imagine a nearly $300 million sponsorship being justifiable,” said Michael Rozier, an assistant professor at St. Louis University who studies nonprofit hospitals.

The Service Employees International Union-United Healthcare Workers West was about to strike in October before reaching an agreement with Kaiser Permanente.

Democratic presidential candidates Kamala HarrisBernie SandersElizabeth Warren and Pete Buttigieg, as well as 132 elected California officials, supported the cause.

California legislators this year adopted a bill sponsored by SEIU California that will require the health system to report its financial data to the state by facility, as opposed to reporting aggregated data from its Northern and Southern California regions, as it currently does. This data must include expenses, revenues by payer and the reasons for premium increases.

Other hospitals already report financial data this way, but the California legislature granted Kaiser Permanente an exemption when reporting began in the 1970s because it is an integrated system. This created a financial “black hole” said state Sen. Richard Pan (D-Sacramento), the bill’s author.

“They’re the biggest game in town,” said Anthony Wright, executive director of the consumer group Health Access California. “With great power comes great responsibility and a need for transparency.”

Patient care, too, is under scrutiny.

California’s Department of Managed Health Care fined the organization $4 million over mental health wait times in 2013, and in 2017 hammered out an agreement with it to hire an outside consultant to help improve access to care. The department said Kaiser Permanente has so far met all the requirements of the settlement.

But according to the National Union of Healthcare Workers, which is planning Monday’s walkout, wait times have just gotten worse.

Tyson said mental health care delivery is a national issue — “not unique to Kaiser Permanente.” He said the system is actively hiring more staff, contracting with outside providers and looking into using technology to broaden access to treatment.

At a mid-October union rally in Oakland, therapists said the health system’s billions in profits should allow it to hire more than one mental health clinician for every 3,000 members, which the union says is the current ratio.

Ann Rivello, 50, who has worked periodically at Kaiser Permanente Redwood City Medical Center since 2000, said therapists are so busy they struggle to take bathroom breaks and patients wait about two months between appointments for individual therapy.

“Just take $100 million that they’re putting into the new ‘Thrive City’ over there with the Warriors,” she said. “Why can’t they just give it to mental health?”

 

 

 

Top 5 Differences Between NFPs and For-Profit Hospitals

https://www.healthleadersmedia.com/finance/top-5-differences-between-nfps-and-profit-hospitals

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Although nonprofit and for-profit hospitals are fundamentally similar, there are significant cultural and operational differences, such as strategic approaches to scale and operational discipline.

All hospitals serve patients, employ physicians and nurses, and operate in tightly regulated frameworks for clinical services. For-profit hospitals add a unique element to the mix: generating return for investors.

This additional ingredient gives the organizational culture at for-profits a subtly but significantly different flavor than the atmosphere at their nonprofit counterparts, says Yvette Doran, chief operating officer at Saint Thomas Medical Partners in Nashville, TN.

“When I think of the differences, culture is at the top of my list. The culture at for-profits is business-driven. The culture at nonprofits is service-driven,” she says.

Doran says the differences between for-profits and nonprofits reflect cultural nuances rather than cultural divides. “Good hospitals need both. Without the business aspects on one hand, and the service aspects on the other, you can’t function well.”

There are five primary differences between for-profit and nonprofit hospitals.

1. Tax Status

The most obvious difference between nonprofit and for-profit hospitals is tax status, and it has a major impact financially on hospitals and the communities they serve.

Hospital payment of local and state taxes is a significant benefit for municipal and state governments, says Gary D. Willis, CPA, a former for-profit health system CFO who currently serves as CFO at Amedisys Inc., a home health, hospice, and personal care company in Baton Rouge, LA. The taxes that for-profit hospitals pay support “local schools, development of roads, recruitment of business and industry, and other needed services,” he says.

The financial burden of paying taxes influences corporate culture—emphasizing cost consciousness and operational discipline, says Andrew Slusser, senior vice president at Brentwood, TN-based RCCH Healthcare Partners.

“For-profit hospitals generally have to be more cost-efficient because of the financial hurdles they have to clear: sales taxes, property taxes, all the taxes nonprofits don’t have to worry about,” he says.

“One of the initiatives we’ve had success with—in both new and existing hospitals—is to conduct an Operations Assessment Team survey. It’s in essence a deep dive into all operational costs to see where efficiencies may have been missed before. We often discover we’re able to eliminate duplicative costs, stop doing work that’s no longer adding value, or in some cases actually do more with less,” Slusser says.

2. Operational Discipline

With positive financial performance among the primary goals of shareholders and the top executive leadership, operational discipline is one of the distinguishing characteristics of for-profit hospitals, says Neville Zar, senior vice president of revenue operations at Boston-based Steward Health Care System, a for-profit that includes 3,500 physicians and 18 hospital campuses in four states.

At Steward, we believe we’ve done a good job establishing operational discipline. It means accountability. It means predictability. It means responsibility. It’s like hygiene. You wake up, brush your teeth, and this is part of what you do every day.”

A revenue-cycle dashboard report is circulated at Steward every Monday morning at 7 a.m., including point-of-service cash collections, patient coverage eligibility for government programs such as Medicaid, and productivity metrics, he says. “There’s predictability with that.”

A high level of accountability fuels operational discipline at Steward and other for-profits, Zar says.

There is no ignoring the financial numbers at Steward, which installed wide-screen TVs in most business offices four years ago to post financial performance information in real-time. “There are updates every 15 minutes. You can’t hide in your cube,” he says. “There was a 15% to 20% improvement in efficiency after those TVs went up.”

3. Financial Pressure

Accountability for financial performance flows from the top of for-profit health systems and hospitals, says Dick Escue, senior vice president and chief information officer at the Hawaii Medical Service Association in Honolulu.

Escue worked for many years at a rehabilitation services organization that for-profit Kindred Healthcare of Louisville, Kentucky, acquired in 2011. “We were a publicly traded company. At a high level, quarterly, our CEO and CFO were going to New York to report to analysts. You never want to go there and disappoint. … You’re not going to keep your job as the CEO or CFO of a publicly traded company if you produce results that disappoint.”

Finance team members at for-profits must be willing to push themselves to meet performance goals, Zar says.

“Steward is a very driven organization. It’s not 9-to-5 hours. Everybody in healthcare works hard, but we work really hard. We’re driven by each quarter, by each month. People will work the weekend at the end of the month or the end of the quarter to put in the extra hours to make sure we meet our targets. There’s a lot of focus on the financial results, from the senior executives to the worker bees. We’re not ashamed of it.”

“Cash blitzes” are one method Steward’s revenue cycle team uses to boost revenue when financial performance slips, he says. Based on information gathered during team meetings at the hospital level, the revenue cycle staff focuses a cash blitz on efforts that have a high likelihood of generating cash collections, including tackling high-balance accounts and addressing payment delays linked to claims processing such as clinical documentation queries from payers.

For-profit hospitals routinely utilize monetary incentives in the compensation packages of the C-Suite leadership, says Brian B. Sanderson, managing principal of healthcare services at Oak Brook, IL–based Crowe Horwath LLP.

“The compensation structures in the for-profits tend to be much more incentive-based than compensation at not-for-profits,” he says. “Senior executive compensation is tied to similar elements as found in other for-profit environments, including stock price and margin on operations.”

In contrast to offering generous incentives that reward robust financial performance, for-profits do not hesitate to cut costs in lean times, Escue says.

“The rigor around spending, whether it’s capital spending, operating spending, or payroll, is more intense at for-profits. The things that got cut when I worked in the back office of a for-profit were overhead. There was constant pressure to reduce overhead,” he says. “Contractors and consultants are let go, at least temporarily. Hiring is frozen, with budgeted openings going unfilled. Any other budgeted, but not committed, spending is frozen.”

4. Scale

The for-profit hospital sector is highly concentrated.

There are 4,862 community hospitals in the country, according to the American Hospital Association. Nongovernmental not-for-profit hospitals account for the largest number of facilities at 2,845. There are 1,034 for-profit hospitals, and 983 state and local government hospitals.

In 2016, the country’s for-profit hospital trade association, the Washington, DC–based Federation of American Hospitals, represented a dozen health systems that owned about 635 hospitals. Four of the FAH health systems accounted for about 520 hospitals: Franklin, TN-based Community Hospital Systems (CHS); Nashville-based Hospital Corporation of America; Brentwood, TN–based LifePoint Health; and Dallas-based Tenet Healthcare Corporation.

Scale generates several operational benefits at for-profit hospitals.

“Scale is critically important,” says Julie Soekoro, CFO at Grandview Medical Center, a CHS-owned, 372-bed hospital in Birmingham, Alabama. “What we benefit from at Grandview is access to resources and expertise. I really don’t use consultants at Grandview because we have corporate expertise for challenges like ICD-10 coding. That is a tremendous benefit.”

Grandview also benefits from the best practices that have been shared and standardized across the 146 CHS hospitals. “Best practices can have a direct impact on value,” Soekoro says. “The infrastructure is there. For-profits are well-positioned for the consolidated healthcare market of the future… You can add a lot of individual hospitals without having to add expertise at the corporate office.”

The High Reliability and Safety program at CHS is an example of how standardizing best practices across the health system’s hospitals has generated significant performance gains, she says.

“A few years ago, CHS embarked on a journey to institute a culture of high reliability at the hospitals. The hospitals and affiliated organizations have worked to establish safety as a ‘core value.’ At Grandview, we have hard-wired a number of initiatives, including daily safety huddles and multiple evidence-based, best-practice error prevention methods.”

Scale also plays a crucial role in one of the most significant advantages of for-profit hospitals relative to their nonprofit counterparts: access to capital.

Ready access to capital gives for-profits the ability to move faster than their nonprofit counterparts, Sanderson says. “They’re finding that their access to capital is a linchpin for them. … When a for-profit has better access to capital, it can make decisions rapidly and make investments rapidly. Many not-for-profits don’t have that luxury.”

5. Competitive Edge

There are valuable lessons for nonprofits to draw from the for-profit business model as the healthcare industry shifts from volume to value.

When healthcare providers negotiate managed care contracts, for-profits have a bargaining advantage over nonprofits, Doran says. “In managed care contracts, for profits look for leverage and nonprofits look for partnership opportunities. The appetite for aggressive negotiations is much more palatable among for-profits.”