Profit vs. Non-Profit Health Institutions

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Profit vs. Non-Profit Health Institutions

  1. 1. For Profit (FP) vs. Not For Profit (NFP) Health Organizations<br />Andrew Helicher<br />HPA 520<br />November 4, 2009<br />
  2. 2. Agenda<br /><ul><li>Attributes
  3. 3. Observations
  4. 4. Trends
  5. 5. Key Findings</li></ul>2<br /><ul><li>Attributes
  6. 6. Observations
  7. 7. Trends
  8. 8. Key Findings</li></li></ul><li>Key Attributes<br />Culter, 2000<br />American Hospital Association, 2010<br />3<br />
  9. 9. NFP Strengths and Weaknesses<br />4<br />Strengths<br />Weaknesses<br /><ul><li>More willing to locate in underserved areas
  10. 10. Incubators of innovation: develop services without existing markets
  11. 11. Positive public perception: mission over margin
  12. 12. Limited funding sources for capital investments
  13. 13. Slower to adapt to market changes to serve public
  14. 14. Unable to pay for top managerial ability</li></ul> (Fair Market Value)<br />Schlesinger and Gray, 2006<br />
  15. 15. FP Strengths and Weaknesses<br />5<br />Strengths<br />Weaknesses<br /><ul><li>Access to equity financing  lower WACC (0.5%-1%)1
  16. 16. Able to afford top managerial talent</li></ul> (more efficient)<br /><ul><li>Able to enter or exit markets more quickly
  17. 17. Negative public perception: margin over mission
  18. 18. Exploit Medicare reimbursement loopholes
  19. 19. Cannot accept donations</li></ul> (only 3.6% of NFP revenue)2<br />Sloan, 1998<br />Frank and Salkever, 2000<br />
  20. 20. Agenda<br /><ul><li>Attributes
  21. 21. Observations
  22. 22. Trends
  23. 23. Key Findings</li></ul>6<br />
  24. 24. Governance<br />7<br />Behavior<br />(CEO Turnover)<br />Stakeholders<br />Governing Board<br />Mission<br />Investors<br />FP<br />Business People<br />Economic Viability<br />Low Income<br />Community<br />FPNFP<br />Community Leaders<br />Quality of Care<br />High Admin Expenses<br />Physicians<br />FPNFP<br />Physicians / Nurses<br />Donors<br />NFP<br />Foundation Members<br />Community Benefit<br />High charity care<br />Churchs<br />NFP<br />Religious Leaders<br />Eldenberg, Hermalin, Weisbach & Wosinska, 2001<br />
  25. 25. Impact of Ownership<br />8<br />Net Income % of Revenue<br />Charity Care % of Revenue<br />Ownership Status  Location Choice Performance<br /><ul><li>Better reimbursement policies
  26. 26. More insured populations</li></ul>Sloan, 1998<br />
  27. 27. Agenda<br /><ul><li>Attributes
  28. 28. Observations
  29. 29. Trends
  30. 30. Key Findings</li></ul>9<br />
  31. 31. Ownership Trend – NFP to FP<br />10<br />19971<br />20072<br />↑1%<br />↓2%<br />- Public<br />- For Profit<br />- Not For Profit<br />Castaneda & Falaschetti, 2008<br />AHA, 2009<br />
  32. 32. Conversion and Commercialization Factors<br />11<br />Environmental Factors<br />Internal Factors<br /><ul><li>Reimbursement changes
  33. 33. Medicare RPS to PPS
  34. 34. Growth of Managed Care
  35. 35. Price competition
  36. 36. Outpatient growth
  37. 37. Shrinking demand
  38. 38. Rising uninsured
  39. 39. Uncompensated care
  40. 40. Financial concerns:
  41. 41. Exhausted sources
  42. 42. Want cheaper WACC
  43. 43. Culture: business-oriented hospital board members
  44. 44. Don’t want to merge with local competitors</li></ul>Sloan, 1998<br />Cutler & Horwitz, 2000<br />
  45. 45. NFP Excesses or Necessities?<br />Carreyrou & Martinez, 2008<br />Cleverly, 2008<br />12<br />
  46. 46. Agenda<br /><ul><li>Attributes
  47. 47. Observations
  48. 48. Trends
  49. 49. Key Findings</li></ul>13<br />
  50. 50. Key Findings<br />14<br /><ul><li>Ownership status determines distribution of profits, not existence or absence of them
  51. 51. Ownership status affects location choice, which influences hospital behavior and performance
  52. 52. Ownership status determines hospital board composition, definition of mission, and resulting behavior
  53. 53. Environmental, financial, and organizational factors cause NFPs to become more commercial and potentially convert to FP status</li></li></ul><li>Questions?<br />
  54. 54. References<br />16<br />Cleverly, W. (2008) Not-For-Profit Hospitals: Still a Community Value. Healthcare Financial Management. June 2008.<br />Carryrou, J. & Martinez, B. (2008) Nonprofit Hospitals, Once For the Poor, Strike It Rich. The Wall Street Journal. April 8, 2008.<br />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. <br />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. <br />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. <br />Falaschetti, D., & Castaneda, M. (2008) Does Hospital’s Profit Status Affect its Operational Scope? Springer Science and Business Media, LLC. October 5, 2008. <br />Sloan, F. (1998) Commercialism in Nonprofit Hospitals. Journal of Policy Analysis and Management, Vol. 17, No. 2. Spring, 1998. <br />Schlesinger, M. & Gray, B. (2006) How Nonprofits Matter in American Medicine, and What to Do About It. Health Affairs, web exclusive. June 20, 2006. <br />Cutler, D. (2000) The Changing Hospital Industry. Chicago: University of Chicago Press.<br />
  55. 55. Meta-Analysis<br />Studies Supporting FP or NFP Performance (Hospitals)<br />Schlesinger & Gray, 2006<br />17<br />

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