Healthcare Institutions Financial Environments Paper

Healthcare institutions: Nonprofit, for-profit, and government-administered

"Three types of entities -- nonprofit, for-profit, and government" exist within the American healthcare industry (Horowitz 2015). All available evidence indicates that this status affects the business model choice of all of these institutions. "In this econometric analysis of American Hospital Association data for every U.S. urban, acute care hospital (1988 -- 2000), more than thirty services were categorized as relatively profitable, unprofitable, or variable. For-profits are most likely to offer relatively profitable medical services; government hospitals are most likely to offer relatively unprofitable services; nonprofits often fall in the middle" (Horowitz 2015). Thus it is important to understand how these various organizations view profitability, given its material effect upon how they allocate resources and impact patient care.

Not-for-profit healthcare institutions like the Mayo Clinic are dependent upon donors, government funding, foundations, and also from revenue from activities. Unlike for-profit institutions they are not beholden to shareholders to make a profit, however, and their mission statements primarily define their roles as aiding patients through care, research, the training of doctors or other services. The Mayo Clinic also runs a successful website which provides online, peer-reviewed, empirically validated research on a variety of health conditions and treatments. It has a service-based function which is rooted in serving patient needs and also extends to the wider community.

A number of institutions advertise their non-profit status on their websites. For example, Aurora Healthcare advertises that because it provides "health care to the

Nonprofit status exempts the organization from income, sales, and some property taxes as well as makes it eligible to receive donations and government grants; in exchange it demands that serving others vs. profit-making is the focus of the institution. Aurora states that "we are the state's largest provider of charity care providing more than $25 million in community outreach and free preventive services" ("Aurora's role as a not-for-profit organization," 2015). Not-for profit hospitals are more likely to treat less profitable patients, such as Medicaid and Medicare recipients and are more likely to offer less profitable services. For example, for-profit institutions are less likely to offer psychiatric care (which is less profitable and less likely to be reimbursed) versus open heart surgery, which is extremely profitable (Horowitz 2015).
The distinction between nonprofit and for-profit is not confined to hospitals themselves but can also be seen in the distinctions between insurance companies. For example, Kaiser Permanente, a health insurance company, is another popular not-for-profit organization and is ranked number one in a survey of best integrated providers according to Consumer Reports. Kaiser is both an insurance provider as well as a research organization and is the author of a number of reports and informative works on its website, offering information for healthcare consumers. This model of trust and commitment to disseminating information to the public may be why overall, not-for-profit entities fared better in the service than their for-profit counterparts in a survey of satisfaction of healthcare insurance companies (New 2012).

Critics allege because the critical difference between for-profit and not-for-profit entities is that for-profit hospitals are beholden to shareholders and have a responsibility to make a profit that the for-profit entities are less likely to put patient needs first. "For-profit hospitals are more likely…