For-profit and not-for-profit hospitals: financial information review

Health Finance

A Comparison of Healthcare Organizations

Based on an examination of total assets, liabilities, equity, and annual revenue the largest of the three examined institutions is Sakasegawa Memorial Hospital. With total assets approaching six-hundred million dollars and liabilities kept at approximately five-eighths of asserts (three-hundred-and-seventy-five million), the hospital has a substantial cushion that leaves the reasons for its slowed growth rather difficult to account for. Fund growth is also being accomplished with a great deal of success, with significant gains in terms of absolute value and in terms of percentage of total fund value showing for the past few years, and all of these factors taken together show Sakasegawa to be significantly larger than the for-profit Kindred Hospital, which is the second largest organization by the same measures. Northern Illinois Medical Center, the non-profit organization examined as a part of this healthcare organization comparison, is approximately half the size of Sakasegawa as indicated by measures of assets and liabilities.

In terms of both absolute debt and the ratio of debt to earnings/revenue, the for-profit Kindred Hospital organization has the lowest level of debt and appears to carry the least risk for investors/contributors, as well. The absolute level of debt and running liabilities of the non-profit Northern Illinois Medical Center are fairly low, and in addition to being much lower in absolute terms than the same amounts found at the Sakasegawa Memorial Hospital, Northern Illinois also has a much better debt-to-asset ratio than the much larger Sakasegawa organization. This could potentially be a major reason in the growing reluctance or "contributor fatigue" that has been noted amongst those that have contributed to Sakasegawa in the past, as its current debt load seems to suggest that long-term and sustained growth requires a major turnaround in the organization's management.

In terms of actual positive cash flow on an annual basis, the non-profit Northern Illinois Medial Center is the only one of the three organizations that has been able to consistently demonstrate reliability for truly making money. This is most likely due in large part to the fact that a great deal of the organization's revenue comes from government payment for services through Medicare and Medicaid, and payment is very reliable from this source. This is somewhat ironic as this facility is, as stated, a non-profit that by law uses this positive cash flow only to increase the security and long-term operational capabilities of the medical center. The for-profit Kindred Hospital has only recently begun to turn a profit, and the profit earned in the last year for which data is available is still quite slim. The largest organization, Sakasegawa Memorial Hospital, actually shows a significant operating loss, finally providing a clear reason for the growing reluctance of contributors to this organization to continue funding the hospital's operations.

All three organizations receive money from sources other than direct patient revenue, and are in fact dependent on these alternative sources of revenue for continuing operations. Government payment for services is a major source of revenue for the Northern Illinois Medical Center, and investments make up at least some amount of revenue for all three organizations. The single largest line item of revenue other than direct patient revenue for Saskasegawa Memorial Hospital is the sale of assets, however, and though there are additional assets that the organization can sell this cannot be kept up in perpetuity; either other investments need to be made to increase revenue or operating expenses need to somehow be reduced in order to ensure the long-term viability of this organization. The sale of assets and investments also contributed to Kindred Hospital's revenue to a degree that will almost certainly not be sustainable in the long-term.

There are some obvious difference in the structure of non-profit and for profit organizations that have a definite impact on how these organizations operate and on their profitability and overall cash flow. The balance sheets and other records for the Northern Illinois Medical Center are far simpler than for either of the other two organizations; though they are held accountable for accurate and comprehensive reporting of assets, liabilities, revenues and expenditures, the organization appears to be engaged in fewer overall financial interactions and is certainly involved in fewer broad classes of such transactions. In addition, while almost all healthcare organizations serve Medicare and Medicaid patients and bill the appropriate government offices for these services, such transactions make up the vast majority of Northern Illinois' revenue stream, meaning there is simply less administrative and financial work necessary for the company to complete. This is a definite factor in its apparently simplified structure.