Healthcare Organization Ownership, Governance, and Management

Introduction to Healthcare Organization Ownership

Healthcare organizations — whether for-profit or nonprofit — are a vital component of American society. As such, they need to be fulfilling their duties and living up to their missions in order to provide the best possible healthcare services to the public. This essay addresses several important issues relevant to any healthcare organization, including the forms of ownership, performance measurement, managerial skills, and leadership training.

In Jonas and Kovner's Health Care Delivery in the United States, the authors assert that "it is commonly acknowledged that the weakness of nonprofit organizations" — when compared with for-profit and governmental organizations — is that they "lack formal accountability either to voters or shareholders" (Kovner, et al., 2011, p. 299).

Whether a healthcare facility is for-profit or nonprofit, the pivotal point concerns governance — the process both nonprofits and for-profits use to make what Kovner calls "important decisions… about mission, goals, budget, capital financing, mergers, and quality improvement" (299). In the case of public HCOs, accountability runs to elected officials, which may add complications to governance. For-profit HCOs are accountable to shareholders — which on its face seems like a more direct governance link, without the political implications associated with public HCOs — while nonprofits are accountable to a board that may be composed of key community figures, and ultimately to the community they seek to serve.

Kovner (302) notes that "most nonprofit board members are not paid." In fact, these board members are likely to hold full-time jobs in the community and volunteer their time because of their specific interest in the healthcare services the nonprofit provides.

One clear advantage for a nonprofit healthcare organization is that, because it is not focused on maximizing profits, it can concentrate on how best to "serve the community in which it operates through the healthcare it provides" (Cleverley, et al., 2010, p. 8). Moreover, nonprofits are in most cases exempt from local property taxes and federal income taxes. The trade-off for this tax exemption is that nonprofits, according to Cleverley, are expected to provide: (a) more uncompensated care; (b) lower prices for their services; and (c) services that "might not be viable" in for-profit HCOs (8). Additional advantages for nonprofit HCOs include the ability to solicit tax-exempt grants from other nonprofits or foundations, and the fact that nonprofits typically "enjoy a lower cost of equity capital compared with for-profit HCOs" (Cleverley, 8).

One disadvantage for nonprofit HCOs is that they have "limited access to capital… [and] cannot raise capital in the equity markets" (Cleverley, 8). Kovner also explains that "a basic flaw with the not-for-profit form is the lack of accountability of governing boards to any outside body, such as legislatures or stockholders" (309). As a result of this lack of external accountability, there can be difficulty "in specifying the outputs of HCOs in general, conflicting goals, and [a] frequent lack of agreement among board members as to…" the actual mission of the healthcare organization (309).

The stated mission of the HCO is generally the driving force behind its original purpose and existence. However, if the mission is to serve low-income patients who cannot afford care, and some board members believe that mission puts the HCO in "financial jeopardy," that constitutes a serious problem. Boards of nonprofits — not just HCOs — are notoriously prone to disagreement and require constant engagement from management to ensure smooth administration.

Measuring the Performance of HCOs

Advantages enjoyed by publicly traded for-profit HCOs include: (a) the ability to raise equity capital "through the sale of stocks"; (b) the capacity as investor-owned firms to raise funding through "risk-based equity capital"; (c) if privately held, "far fewer reporting requirements by the Securities and Exchange Commission"; and (d) "limited liability" (Cleverley, 9). Disadvantages of for-profit HCOs include: (a) they are not tax-exempt; (b) investors must pay corporate income tax as well as tax on stock earnings; and (c) they face greater external regulatory scrutiny tied to shareholder expectations.

Kovner's text suggests that measuring the performance of a nonprofit HCO can be "tricky." While the essential goal of a nonprofit is identical to that of a for-profit HCO in the same community — improving healthcare services for citizens — the question of how "quality of care" is defined remains complex (Kovner, 303). If volunteer board members sense that the organization is not measuring up to its mission, they face a range of possible responses: (a) take no action, since others do not appear concerned; (b) raise the concern using data to illustrate the problem; (c) survey other board members by requesting that the CEO or board chair conduct a formal survey; (d) engage a subcommittee to examine finances and outcomes closely; or (e) offer to resign because accountability cannot be brought to expected levels of governance (Kovner, 303).

One reliable approach to measuring performance is first and foremost to establish "measurable objectives" (Kovner, 304). Determining what those objectives should be can be contentious, because deciding "which services" are to be monitored and measured is at the heart of any meaningful evaluation framework.

Conclusion

Jonas, Steven, Kovner, Anthony R., and Knickman, James. (2005). Jonas and Kovner's Health Care Delivery in the United States. New York: Springer Publishing Company.

Kovner, Anthony R., Knickman, James R., and Weisfeld, Victoria. (2011). Jonas and Kovner's Health Care Delivery in the United States, 10th Edition. New York: Springer Publishing Company.