Healthcare Institutions: Different Sources of Funding

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 public -- which the federal government considers an 'essential community service' and because it "re-invest[s] all of our net income in the communities we serve, rather than distributing it to individual owners or shareholders" it is a not-for-profit institution ("Aurora's role as a not-for-profit organization," 2015).

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 than other types to decide which medical services to offer based on service profitability… For-profits may distribute accounting profits to shareholders, whereas government and nonprofit hospitals enjoy income and property tax exemptions" (Horowitz 2015) However "for-profit hospitals pay property and income taxes while nonprofit hospitals don't," which could be viewed as giving back to the community, and because "for-profit hospitals have avenues for raising capital that nonprofits don't have," the "ability to access capital is important for hospitals looking to upgrade facilities or buy costly medical equipment or information technology systems" can be useful (Becker 2014).

Examples of for-profit healthcare institutions include Methodist Hospital. Rather than its charitable services, Methodist Hospital specifically markets itself as a 'high tech' organization: "With a 50-year track record of success and experience, Methodist Hospital must grow to meet the increasing demand for services. This landmark expansion project includes significant upgrades in areas including cancer and heart services, obstetrics, general surgery, neurosurgery, emergency care and pediatric services" ("Methodist Hospital" 2015). These are all more profitable fields of specialty according to Horowitz (2015).

The same is true of Edinburg Regional Hospital: it also specializes in cardiac care and emergency services, both of which are higher-profit treatment types than not-for-profit hospitals. A similar pattern in regards to health insurance at for-profit vs. not-for-profit institutions in terms of addressing patient needs vs. profits can be found when comparing not-for-profits such as Kaiser Permanente vs. for-profit entities such as Aetna.

Not only is customer satisfaction higher with not-for-profits but "nonprofit health plans are more likely to offer a lower premium than for-profit health plans" and "nonprofit plans are more likely to have superior out-of-pocket cost protections than for-profit plans" (Coleman 2013). Government healthcare entities include hospitals such as the government-run VA hospital network. VA hospitals in recent years have been subject to intense criticism for long wait times and poor medical care.

For example, "administrators at the Phoenix VA kept a secret, separate waiting list for treating veterans, in order to pretend that they were meeting the VA's timeliness targets, one that they later tried to cover up" and "VA employees in Fort Collins, Colorado cooked the books to hide long wait times" (Roy 2014). Like not-for-profit institutions, government-run facilities are not subjected to the needs of shareholders to make a profit.

They are not separate institutions, however, but are rather part of the government itself and are administered by the Department of Veteran's Affairs in the case of the VA system. Although most health insurance plans, including those available on the federal exchange, are disseminated by not-for-profit and for-profit entities, there are also government healthcare insurance programs in the form of Medicare, the insurance company for Americans over the age of 65, which is a federally-administered program and Medicaid, for individuals living in poverty.

Medicaid receives some federal funding but is administered by the state and varies in its requirements on a state-by-state basis. Both programs have been criticized.