For Profit vs Not For Profit Health Care

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

Cherin, E., Carlson, M., Herrin, J., Schulman-Green, D., Barry, C., McCorkle, R., et al. (2010). Interdisciplinary staffing patterns: Do for-profit and nonprofit hospices differ? Journal of  Palliative Medicine, 13(4), 389-394.

Devereaux, P., Heels-Ansdell, D., Lacchetti, C., Haines, T., Burns, K., Cook, D., et al. (2004).  Payments for care at private for-profit and private not-for-profit hospitals: a systematic  review and meta-analysis. CMAJ, 170(12), 1817-1824.

Devereaux, P., Schunemann, H., Ravindran, N., Bhandari, M., Garg, A., Choi, P., et al. (2002).     Comparison of mrtality between private for-profit and private not-for-profit hemodialysis centers: a systematicreview and meta-analysis. JAMA, 288(19), 2449-2457.

Himmelstein, D., Woolhandler, S., Hellander, I. & Wolfe, S. (1999). Quality of care in invesor-owned      vs. not-for-profit HMOs. Birth Gazette, 15(4), 30.

Horwitz, J. (2005). Making profits and providing care: comparing nonprofit, for-profit and government   hospitals. Health Affairs, 24(3), 790-801.

Lee, D., Chertow, G. & Zenios, S. (2010). Reexploring differences among for-profit and nonprofit  dialysis providers. Health Service Research, 45(3), 633-646.

Mason, D., Leaveitt, J. & Chaffee, M. (2007). Policy and Politics in Nursing and Health Care. St.  Louis: MO, Saunders.

McGregor, M., Cohen, M., McGrail, K., Broemeling, A., Adler, R., Schulzer, M., et al. (2005). Staffing levels in not-for-profit and for-profit long-term care facilities: Does type of ownership matter? CMAJ, 172(5), 645-649.

Merz, C. & Stitzel, T. (1999). How much profit can a not-for-profit hospital make? A defense of the property tax exemption. Health Care Finance, 25(4), 59-66.

Rotarius, T., Trujillo, A., Liberman, A. & Ramirez, B. (2005). Not-for-profit verses for-profit health   care providers-Part I: Comparing and contrasting their records. The Health Care Manager, 24(4), 296-310.

Rotarius, T., Trujillo, A., Liberman, A. & Ramirez, B. (2006). Not-for-profit verses for-profit health  care providers-Part II: Comparing and contrasting their records. The Health Care Manager, 25(1), 12-25.

Schiesinger, M., Mitchell, S., & Bradford, G. Public expectations of nonprofit and for-profit ownership in American medicine: clarifications and implications. Health Affairs, 23(6), 181-191.

Stensland, J., Gaumer, Z. & Miller, M. (2010). Private-payer profits can induce negative Medicare margins. Health Affairs, 29(5), 1045-1051.