A 11 minute read
Hospital sign
July 21, 2020

In recent years, the number of for-profit hospitals has seen a notable increase, and more and more non-profit hospitals are inquiring as to how they can transition to an investor-owned financial model. While it was previously believed that nonprofit hospitals maintained a firm advantage over for-profit hospitals, potentially indicated by the 3:1 non-profit to for-profit ratio in the U.S. currently, the tides seem to be turning. So, what is making the grass seem so much greener under the for-profit model? How different are these two ownership types?

What is a non-profit hospital?

Non-profit (also known as not-for-profit or NFP) hospitals qualify as charities according to the IRS, meaning they are not required to pay property tax, state or federal income tax, or sales tax. In exchange for this tax-free existence, non-profit hospitals are expected to distribute any additional capital back into their surrounding communities. Because of this, however, non-profit hospitals face regular scrutiny by healthcare policymakers concerned with whether the facilities actually follow through and contribute to their communities in a meaningful way that justifies the generous tax exemptions they receive.

What is a for-profit hospital?

For-profit hospitals, on the other hand, are investor-owned. Unlike non-profit hospitals, these facilities aim to make profits for their shareholders. Some of the largest for-profit hospital chains in the U.S. include Hospital Corporation of America, Tenet, and HealthSouth. For-profit facilities like these are generally the highest-billing hospitals in the country.

How do non-profit and for-profit hospital operations compare?

When it comes to day-to-day functions, it can be hard to differentiate the two ownership types. From a physician  standpoint, the two operate similarly, generally relying on standard corporate hierarchies for organizational structure. One marked difference is that, more commonly than non-profit hospitals, for-profit hospitals use varying portions of available budget for marketing and advertising initiatives.

The concept of hospital advertising raises many ethical questions among industry experts. Some say these funds can, instead, be better used to improve patient experience or quality of care. Others question the benefits of advertising at all, as many for-profit hospitals exist in areas where there are few competing hospitals from which to choose.

Another key difference between the two hospital ownership types is, on average, non-profit hospitals tend to provide more uncompensated care than for-profit hospitals, which is a heavy financial burden for these facilities to bear. That being said, for-profit hospitals tend to serve lower-income populations, while non-profit hospitals are generally found in communities with higher average incomes and fewer under- and uninsured patients.

Looking deeper into the uncompensated care disparity, Definitive Healthcare data  is able to offer some insights.

Top 10 non-profit hospitals by highest bad debt to net patient revenue ratios

Rank

Definitive ID

Hospital Name

State

Bad Debt to Net Patient Revenue Ratio

1

4153

Hendrick Medical Center

TX

211.50%

2

1636

Southeastern KY Medical Center

KY

127.90%

3

426

Sherman Oaks Hospital

CA

125.70%

4

777090

Arizona General Hospital - Laveen

AZ

92.90%

5

3848

CHRISTUS Spohn Hospital Beeville

TX

82.40%

6

4057

CHRISTUS Spohn Hospital Alice

TX

73.80%

7

4066

CHRISTUS Spohn Hospital Kleberg

TX

66.90%

8

3929

Methodist Richardson Medical Center

TX

66.00%

9

3010

FirstHealth Montgomery Memorial Hospital

NC

63.80%

10

3982

CHRISTUS Good Shepherd Medical Center - Longview

TX

63.80%

Fig. 1 Data from Definitive Healthcare’s Hospitals & IDNs database. Annual Medicare Data is from the Centers for Medicare and Medicaid Services (CMS) Medicare Standard Analytical Files (SAF). Complete calendar year data is projected to be released each fall by the CMS. The most recent annual Medicare data is from calendar year 2018; 2019 data is scheduled to be released in fall 2020. Accessed July 2020.

Top 10 for-profit hospitals by highest bad debt to net patient revenue ratios

Rank

Definitive ID

Hospital Name

State

Bad Debt to Net Patient Revenue Ratio

1

3913

Dallas Regional Medical Center

TX

176.10%

2

829

Lehigh Regional Medical Center

FL

146.70%

3

972395

Crockett Medical Center

TX

125.40%

4

575750

Crescent Medical Center Lancaster

TX

103.50%

5

551805

Florence Hospital

AZ

102.40%

6

1043

Polk Medical Center

GA

94.50%

7

6108

Jenkins County Medical Center

GA

87.80%

8

48

Vaughan Regional Medical Center

AL

79.80%

9

3785

Lauderdale Community Hospital

TN

78.40%

10

3950

Ennis Regional Medical Center

TX

76.50%

Fig. 2 Data from Definitive Healthcare’s Hospitals & IDNs database. Annual Medicare Data is from the Centers for Medicare and Medicaid Services (CMS) Medicare Standard Analytical Files (SAF). Complete calendar year data is projected to be released each fall by the CMS. The most recent annual Medicare data is from calendar year 2018; 2019 data is scheduled to be released in fall 2020. Accessed July 2020.

The highest bad debt to net patient revenue ratio for non-profit and for-profit hospitals are 211.5 percent and 176.1 percent, respectively. This alone aligns with what which would be suspected about the two ownership types and their disproportionate levels of uncompensated care. However, the more we descend down the two lists above, the smaller the differences get.

The second highest ratio out of the two is a for-profit hospital in FL that boasts a 146 percent bad debt to net patient revenue ratio. From there on, the numbers either compare reasonably or actually show for-profit facilities to have higher bad debt ratios. Based on these two data sets, it is not clear that one model or the other struggles more with uncompensated care overages, leaving this debate point in a bit of a limbo.

Learn more

Want to learn more about uncompensated care and how significant the impact of bad debt can be? Read our blog, Balancing Uncompensated Care and Hospital Bad Debt.

Or, watch this webinar replay to learn how the healthcare market has evolved to meet new industry demands consequent of the COVID-19 outbreak.


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