Not-for-profit facilities are tax-exempt organizations that are required to reinvest their profits in improvements of services and the surrounding community. For-profit facilities are investor-owned organizations that return profits to their owners and pay taxes.
For-profit facilities are investor-owned and are able to keep their profits, while not-for-profit facilities are tax-exempt facilities that are required to provide uncompensated care and other community benefits.
Some not-for-profit hospitals are the most profitable in the US and receive $100+ million in profits each year, but do not provide significantly more uncompensated care than for-profit hospitals.
There is no significant difference in the quality of care in for-profit vs. not-for-profit hospitals and clinics, but not-for-profit nursing homes have a significantly better quality of care.
Differing funding streams
Not-for-profit hospitals are required to provide uncompensated care to uninsured or underinsured patients and other community benefits in exchange for tax-exempt status. After the passage of the ACA, not-for-profit hospitals have been required to conduct community health needs assessments and community health improvement plans to address important needs in their communities. In 2019, there were 2,946 not-for-profit hospitals in the U.S.
For-profit hospitals are investor-owned, so investors keep all of their profits. Some for-profit hospitals are physician-owned, part of large chains or owned by publicly traded companies. In 2019, there were 1,233 for-profit hospitals in the U.S.
The most obvious financial incentive for these hospitals is federal, state and local tax exemption in exchange for providing community benefits. Most states do not specify the amount of uncompensated care that hospitals must provide, so there is significant variability in the amount of financial assistance that they provide patients with.
All profits earned in for-profit facilities are given to investors to do as they wish. For-profits are not required to reinvest profits back into the community and they do pay federal, state and local taxes. For-profit hospitals heavily rely on expensive specialty care to improve their profit margins from care that they provide at a loss, such as emergency care. The Covid-19 pandemic has particularly affected for-profit hospitals because of the widespread cancellations of elective surgeries and other specialty care that make up a majority of their incoming funds.
In a 2016 Health Affairs report, seven of the 10 most profitable hospitals were not-for-profit hospitals that had profits of more than $163 million each. In 2020, some of the wealthiest hospitals and health systems, including NYU Langone Health, Mayo Clinic, Baylor Scott & White Health and UPMC, ended up with several hundred million dollar surpluses each after receiving the CARES Act federal bailout funds and providing high levels of expensive acute care. These profit surpluses are not uniform across NFP hospitals. A small number of NFP hospitals see large profits and received substantial bailout funds, while the 3,000 other NFP hospitals have negative bottom lines and received little federal grant funding to combat the pandemic.
Proponents of not-for-profit hospitals cite the uncompensated care provided to communities as a sufficient financial trade-off for their tax-exempt status, but for-profit hospitals also provide significant levels of uncompensated care.
Researchers at Harvard T. Chan School of Public Health found that there is no significant difference in uncompensated care as a percent of total expenses. In this study, small for-profit hospitals spent less than small not-for-profit hospitals on uncompensated care, but large for-profit hospitals spent more in uncompensated care than large not-for-profit hospitals. The study also found that there was no difference in uncompensated care expenses in not-for-profit and for-profit hospitals within communities of various income levels, so all hospitals spent similar amounts in uncompensated care costs in low-income locations and similar amounts in uncompensated care costs in high-income locations.
Proponents of for-profit facilities argue that for-profit facilities can provide more efficient care because they have to compete with not-for-profit and public facilities to maximize their profits. Research shows mixed results, but for-profit hospitals do not outperform not-for-profit hospitals and quality of care is not significantly linked to profit status, but sometimes is favored towards not-for-profit hospitals.
Quality of care has been linked to hospitals with strong financial performance, so there may be too many variables affecting quality of care to have a definitive answer if hospital ownership and profit status affect care quality. When looking at the different types of facilities, there seem to be some differences in quality in for-profit vs. not-for-profit nursing homes.
For-profit nursing homes have lower staffing levels, higher incidences of harm to patients and poorer performance on CMS quality metrics than not-for-profit nursing homes. For-profit nursing homes also devote fewer resources to direct patient care, creating poorer quality of care for patients. Not-for-profit nursing homes performed better on most quality measures, had lower hospitalization rates, had fewer residents on antipsychotic drugs and physical restraints, and a lower prevalence of pressure ulcers, compared to for-profit nursing homes.
Outside the Huddle
Charity Care: Do Nonprofit Hospitals Give More than For-Profit Hospitals? – Journal of General Internal Medicine | Journal of General Internal Medicine