For
Profit vs Not For Profit Health Care
Jessica
Bertagnolli
Health
Care Policy and Finance 6602
Idaho
State University
Health care in the United States is
complicated, expensive and access is limited. Health care expenditures in the
U.S. are the highest in the world. The largest expenditures are put toward
hospital care, administrative costs and clinical services. Regardless of the
large financial resources allocated to health care, outcomes such as infant
mortality and life expectancy are marginal in comparison to other
countries. There is no universal health care and it is estimated that over
47 million are with out health care coverage in the U.S. (Mason, Leaveitt &
Chaffee, 2007).
There are essentially two focuses of health care delivery and operation in the
U.S., for profit (FP) and not for profit (NFP). NFP organizations function
based on the needs of the community and
FP entities focus on financial benefit outcomes for shareholders. There
are critical differences between NFP and FP health care in cost of service,
levels of profit, pricing, cost shifting, uncompensated care, productivity,
quality, allegations of wrong doing, access to care and community benefits
provided (Rotarius, Trujillo, Liberman & Ramirez, 2005). Both types of
delivery models do benefit the local community through employing local
residence and providing health care services.
NFP health care organizations are eligible for special government treatment.
They can get tax deductible private donations, exemption of corporate income
tax and property tax and have access to tax exempt bonds. Although NFP's do
receive donations, most revenue is in the form of health care services
delivered. Thus, NFP need to survive in the competitive market and make a
profit (Rotarius, Trujillo, Liberman & Ramirez, 2005).
Tax
exempt status of NFP's comes into question at times. A NFP must make profit in
order to keep up on current technology, best practices and growth demands. In
addition, NFP need to continue to profit the community through preventative
medicine and education, which also costs money. In order to qualify for tax
exempt status, NFP's must meet the Internal Revenue code 501(c)(3). They must show
that they solely operate for charitable purposes. These criteria are met
by treating all equal, regardless of ability to pay, providing community
benefit by offering a service that the government would have to otherwise and
by not resulting in profit for an individual or private entity (Merz &
Stitzel, 1999).
As part of hospital reimbursement reform effort, DRG’s were created in 1982,
with the prospective payment program. This put price caps on health care
delivered and attempted to reduce long hospitalizations. This system created
the need to code for DRG's, which lead the way to the health care consulting
industry. Increased need for medical coding, in response to DRG's and Medicare
requirements, added to increased administrative costs. This also allowed for
increased fraudulent activities, such as upcoding, phantom billing, bogus
billing, unnecessary services, pharmacy fraud, rolling laboratories, mental
health service fraud and kickbacks (Rotarius, Trujillo, Liberman & Ramirez,
2005).
During the 1990’s, much question of wrong doing among health care organizations
was brought to the public eye. It was estimated that 25% of health care dollars
spent went to fraudulent activities. Inappropriate Medicare claims was near $23
billion in a single years time (Rotarius, Trujillo, Liberman & Ramirez,
2005).
Some
of the major organizations that were involved in fraudulent activity included
Tenet Health Care Corporation, Health South Corporation and Columbia/HCA. Tenet
Health Care was accused of over billing and collecting excessive Medicare
payments. This organization performed unnecessary surgical heart procedures on
more than 750 patients. Health South was accused of accounting fraud and
Columbia/HCA had physicians that were found to make health care decisions based
on personal profit, because they had a vested interest in the profit of the
hospital due to personal ownership (Rotarius, Trujillo, Liberman & Ramirez,
2006). .
The
1996 Health Insurance Portability and Accountability Act was created, which
increased regulation in the Medicare and Medicaid programs. Firm penalties were
set for fraudulent behavior. Program funding was collected via fines and
damages paid from anti fraud activities (Rotarius, Trujillo, Liberman &
Ramirez, 2006). Government regulation of health care is needed to control
behavior, which increases cost to the country. The resources allotted to
legislative involvement attempting to control fraudulent activities could be
used for other services that our government provides, such as health care.
Another
aspect of the health care system that has made the American public cautious is
activities of managed care organizations. The creation of managed care in the
1980's and 90's lead to capitated payments. In response some managed care
organizations were felt to decrease services covered in order to increase their
profit margin. Patients were being denied needed cares and appropriate access
to health care (Rotarius, Trujillo, Liberman & Ramirez, 2005).
Reported
quality indicators for investor owned HMO's were poor in 1997. The quality
indicators looked at routine preventative cares to acute and chronic illnesses.
Investor owned HMO's had an increase in membership from 26% to 62% from 1985 to
1998. Investor owned HMO's had lower rates for eye exams for diabetics,
appropriate drug treatment for MI survivors, follow up doctor appointment for
those released from mental hospitals, childhood immunizations, pap smears and
mammograms. They were found to spend 48% more of revenues on administrative
costs and profits than that of NFP HMO's. Although the cost of membership was
almost the same for FP and NFP, the FP HMO's provided significantly less care
for the patient (Himmelstein, Woolhandler, Hellander & Wolfe, 1999).
Hospital
days per patient among FP and NFP dialysis facilities was explored. It was
found that FP dialysis providers had 17 percent more hospital days than NFP.
The cost of out of hospital preventative treatment is not profitable, thus FP
organizations are less likely to provide such care. If providers were held
accountable and there were incentives to reduce hospitalization rates, the
amount spent on health care could be greatly reduced (Lee, Chertow &
Zenios, 2010). Chronic illnesses, such as ESRD and CHF, could have outcomes
monitored more closely and physicians held to performance expectations.
Following
public knowledge of the Columbia/HCA scandals, trust in health care plummeted.
Surveys sent to the American public between 1985 and 2000 show that NFP
entities are expected to be more fair and trustworthy than FP's (Schlesinger,
Mitchell & Bradford, 2004). Much of the fraudulent activity was being done
in FP organizations.
NFP
organizations support communities through charitable mission and by providing
the majority of hospital care. Statistics in 2001 showed 60% of community
hospitals were NFP. These NFP's provided treatment to 70% of hospitalized
patients, supported 30% of nursing home care and 50% of inpatient mental health
care. NFP employees have shown a pattern of commitment to community service,
whereas FP employees have not demonstrated such commitment (Rotarius, Trujillo,
Liberman & Ramirez, 2005). The mission of NFP organizations creates a
culture that many of the employees live by and take out into their community.
Many
believe that FP organizations pick and choose those they serve based on
complexity and funding source and are less likely to serve the uninsured and
poor. FP hospitals put more money into administrative costs, marketing
strategies and need to pay shareholder profit. These high costs to FP
organizations make profit more important than in NFP. The cost of care at FP
hospitals is significantly higher than care at NFP hospitals (Devereaux et al.,
2004). FP organizations do not engage in activities in which cost outweighs
revenue, such as research, education and preventative efforts (Rotarius,
Trujillo, Liberman & Ramirez, 2005). FP activities do not benefit the
community, as NFP activities do.
In
comparing health care services offered among FP, NFP and government hospitals
it is found that there is a significant difference. FP hospitals provide
services that are more profitable, whereas NFP and government hospitals provide
cares that are not as profitable (Horwitz, 2005). Many nonprofitable services
are preventative and necessary to avoid more costly and acute care.
Profit
from private insurance has dramatically increased over the years, whereas
profit from Medicare payment has decreased. Medicare payment is set at a 3
percent annual increase, which has not kept pace with the rising cost of health
care. In 1997, payment to cost ratio for private insurance was 132 percent,
compared to Medicare at 94 percent (Stensland, Gaumer & Miller, 2010). It
has been found that FP organizations tend to charge Medicare more than NFP's,
but NFP's tend to cost shift by charging the privately insured more for
services (Rotarius, Trujillo, Liberman & Ramirez, 2006).
Analysts
at the Medicare Payment Advisory Commission, looked at cost setting among
hospitals and explain how high profits from private insurance lead to falling
Medicare margins. Hospitals that have mostly private payer sources have higher
costs. NFP hospitals must spend their profit in order to meet the guidelines of
being a NFP. Many expand their services and improve the hospital in order to
attract patients with private insurance, yet these expenditures can cause
higher costs and again decrease the profit from Medicare patients (Stensland,
Gaumer & Miller, 2010). Hospitals will increase the cost of health care
services provided in order to make up for the loss from Medicare patients,
which again has the effect of making losses larger. This is a complicated and
wicked cycle in which the no one benefits.
According
to a study done in Canada it is estimated that the U.S. could have saved $6
billion spent in FP hospitals if all were converted to NFP, during 2001. FP
hospitals have been found to be 3-11% more expensive than NFP's and they spend
more on administrative and ancillary services. Yet, it was also found that FP's
have a lower salary expense overall. In comparing efficiency and productivity
FP hospitals were found to spend less on personnel, have fewer full-time
employees and report lower levels of
staffing (Rotarius, Trujillo, Liberman & Ramirez, 2006). Essentially, less
direct care is provided and services are more expensive.
Better
outcomes are associated with higher direct care staffing levels. Staffing
patterns of FP hospice agencies differs from NFP agencies. FP hospices have
fewer registered nurses, fewer social workers and fewer volunteers (Cherlin,
Carlson, Herrin, et al., 2010). Staffing levels in British Columbia long term
care facilities reflect a similar difference depending on profit status as
well. NFP facilities are found to have higher staffing levels of direct care
providers (McGregor, Cohen, McGrail et al., 2005).
It
has been found that although evidence based practices are utilized equally
among FP and NFP organizations, the cost of health care appears to be lower in
NFP and quality better. A meta analysis carried out in 2002 found that FP
hospitals have a higher mortality risk and another study in 2000 found that NFP
hospitals have a lower risk for mortality (Rotarius, Trujillo, Liberman &
Ramirez, 2006). Devereaux, et al. (2002) concluded that mortality at FP
hemodialysis centers is higher than NFP. Nurse and technician costs account for
close to 70 percent of total HD costs. Again, FP organizations are found to
have lower staffing ratios in order to maximize profit, thus having poorer
outcomes.
Overall,
FP health care does not seem to benefit the nation as a whole. The increased
cost of health care, coupled with lower quality of care is not beneficial to
the population. Increased mortality rates in FP organizations ends up costing
more money and spending precious resources on poor outcomes does not make
sense.
Government
intervention will be required to address the growing problems of our health
care system. The population of the uninsured and unemployed will continue to
struggle to have access to appropriate and preventative health care. FP health
care is adding to the limited access and health care cost issues in our nation.
With over 47 million people without appropriate access to health care, it seems
unjust for individuals to be making a profit and benefiting from the broken
system for personal gain, at the expense of others.
At
the very minimum, it would make sense for the government to set more stringent
minimum requirements for staffing and monitoring expected outcomes. The amount
of chronic illness, such as congestive heart failure, diabetes, end stage renal
disease and COPD, that goes without appropriate treatment and monitoring is
very costly. If each physician had a expectation to provide certain cares at a
set cost it may help keep costs under better control.
Closed
health care systems is another option that could potentially improve the health
care situation. If each organization was required to be the insurer, regulator,
employer and provider it would cut down on administrative costs. Kaiser seems
to be a good example of how beneficial closed systems could be. Kaiser has
small co-pays, their physicians are trained in preventative care and evidence
based practices. Specialist physicians are not utilized without a referral from
a primary care doctor and no physicians from outside of the organization are
covered (Mason, Leaveitt, & Chaffee, 2007). Closed systems have a vested
interest in keeping costs down and assuring that appropriate care is given in a
timely manor to avoid expensive health complications in the population served.
NFP
and government health care has many more positive attributes that benefit us as
a nation. With a focus on charity, preventative medicine and education NFP
health care just makes more sense.
Having a healthy population benefits the nation through increasing
productivity, reducing poor outcomes from chronic illness and spending less on
health care.
References
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