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.
Top 10 non-profit hospitals by highest bad debt to net patient revenue ratios
Bad Debt to Net Patient Revenue Ratio
Hendrick Medical Center
Southeastern KY Medical Center
Sherman Oaks Hospital
Arizona General Hospital - Laveen
CHRISTUS Spohn Hospital Beeville
CHRISTUS Spohn Hospital Alice
CHRISTUS Spohn Hospital Kleberg
Methodist Richardson Medical Center
FirstHealth Montgomery Memorial Hospital
CHRISTUS Good Shepherd Medical Center - Longview
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
Bad Debt to Net Patient Revenue Ratio
Dallas Regional Medical Center
Lehigh Regional Medical Center
Crockett Medical Center
Crescent Medical Center Lancaster
Polk Medical Center
Jenkins County Medical Center
Vaughan Regional Medical Center
Lauderdale Community Hospital
Ennis Regional Medical Center
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.