Differences Between NFPs and For-Profits are Marginal

Christopher Cheney, March 14, 2016

Quality as a common denominator
Despite the indications of business theory, there is no evidence that for-profits compromise quality of care through cost-cutting, Santerre says. "It's never played out in reality. … Physicians play a huge role at hospitals, which are the workshop of physicians. The physicians will do what they do regardless of the ownership structure of the hospital. Studies have shown not a dime of difference between for-profits and not-for-profits in terms of performance … measures such as quality, community benefits, and costs."

There also is no indication that for-profit hospitals are posting higher operating margins than their nonprofit counterparts, Santerre says. "There may be a different target at for-profits, but they're not achieving a different margin. … When taken as a whole, the literature does not show a significant difference in the profitability of for-profit and nonprofit hospitals. That's what we report in our textbook."

The 2016 HealthLeaders Media Industry Survey indicates there is little difference in reported margin among for-profit and nonprofit organizations. Fifteen percent of the for-profits reported a negative operating margin for the most recent fiscal year, nearly equal to the 16% of nonprofits reporting negative margin. Similarly, 9% of respondents from for-profits reported that their organization's financial forecast for the current fiscal year was negative or very negative, just a few points better than the 12% of nonprofits reporting a negative outlook.

For-profit and nonprofit hospitals achieve similar levels of quality care, says Mark R. Chassin, MD, FACP, MPP, MPH, president and CEO of The Joint Commission, an independent nonprofit that accredits and certifies nearly 21,000 healthcare organizations and programs in the United States.

The organization's Top Performer program has measured hospital quality performance from 2010 to 2014. The program recognizes those that attain excellence in accountability measure performance. The data report on evidence-based interventions for heart attack, heart failure, pneumonia, surgical care, children's asthma care, hospital-based inpatient psychiatric services, venous thromboembolism, stroke, immunization, perinatal care, substance use, and tobacco treatment.

"By 2014, there really are only minor differences between quality outcomes of for-profit and nonprofit hospitals," Chassin says.

The data shows that a greater share of for-profit hospitals make the quality cut as a Top Performer than nonprofits, he says. In 2010, 30.7% of for-profit hospitals participating in the quality assessment program earned Top Performer status, but only 9.7% of nonprofit hospitals qualified for the top honor.

Nonprofits have improved their standing in the Top Performer program significantly, Chassin says, noting 30.6% of nonprofits qualified as Top Performers in 2014. But for-profits continue to outperform nonprofits in Top Performer propensity, with 47.8% of for-profits qualifying as Top Performers in 2014. "Not-for-profit hospitals made up a lot of ground on the quality measures over this time period," he says.

For the 2014 results announced in November 2015, 3,315 hospitals provided data to The Joint Commission and 1,043 were recognized as Top Performers.

All hospitals have been under pressure to improve quality since the publication of an Institute of Medicine report in 1999 that estimated as many as 98,000 people die in hospitals each year from preventable medical errors.

To Err Is Human: Building a Safer Health System launched a systemic push to improve quality at hospitals, Chassin says. "Community stakeholders started asking questions. Boards of directors started asking questions. CEOs started asking questions. Adverse events got into the media. The quality problem needed to be addressed."

In September 2013, a report in the Journal of Patient Safety estimated that more than 400,000 premature deaths occur annually due to preventable harm to patients at medical facilities. The report also noted that serious harm seems to be 10- to 20-fold more common than lethal harm.

The staff and quality
The motivations of for-profit health system and hospital leadership teams extend far beyond financial incentives, Chassin says. "Self-interest is a very narrow view of how for-profit hospitals see their pathway to success. You can get by for a while scrimping on quality … but in order to be recognized, grow volume, and attract physicians as well as patients, you can't cut corners on quality for long."

Quality is a goal for all hospitals, Chassin says. "Nothing significantly separates not-for-profits and for-profits now on quality measures. The difference is a few percentage points one way or the other in care measure data. Qualitatively, hospitals of all kinds are focused on quality. They are all very attuned to a much wider array of quality initiatives than before, both external metrics and internal metrics."

The staff members who provide care in hospitals have motivations that trump financial incentives, says Dereesa Reid, CEO of Hoag Orthopedic Institute in Irvine, California, a 70-staffed-bed joint venture between physicians and Hoag Memorial Hospital Presbyterian.

"Economic theory does not totally apply in healthcare because one of the variables that is not considered in traditional economics is the vocational calling factor," says Reid, who worked at a county hospital, a state-owned academic medical center, and a faith-based nonprofit health system before leading HOI, which has a nonprofit/for-profit ownership structure. Hoag Memorial Hospital Presbyterian, a nonprofit health system based in Newport Beach, California, holds a 51% ownership stake in the for-profit HOI and for-profit physician groups hold a 49% stake. "Doctors and nurses go into the profession because they want to help people. It is a calling."

Christopher Cheney

Christopher Cheney is the senior finance editor at HealthLeaders Media.

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