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Nonprofit Hospitals: Will Margin Change Mean Mission Change?

Philip Betbeze, for HealthLeaders Media, June 13, 2011
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Section 9007 of the law requires nonprofit hospitals to administer community health needs assessments and to clarify and publicize their financial assistance policies. That needs assessment requires nonprofit hospitals to assess the effectiveness of their efforts to meet the needs of the community they serve, provide public access to the findings of the assessment, and publicize the levels of financial assistance they provide.

Failing to abide by those regulations can cost providers up to $50,000 in penalties, as well as possible civil or criminal consequences; but nothing specifically provides a mechanism for addressing their nonprofit status.

Redeployment of community benefit funding

Although many nonprofit executives don’t expect to reap a margin windfall from coverage of the currently uninsured under PPACA, that doesn’t mean they aren’t planning for contingencies in case there is.

It’s a matter that concerns Bill Atkinson, MD, president and CEO of WakeMed Health & Hospitals, an 870-staffed-bed private, nonprofit system based in Raleigh, NC.

“First, we expect less payment in the future. The assumption that everyone is going to be insured and there will be a flood of money, is not what it’s about,” he says. “Right now, healthcare reform equals payment reform.”

Though he’s not sure there will be anything left after reform shakes out, he has some ideas of where the money could be redirected if he’s wrong.

“We’ll continue to go where reform needs to take us, which is more focus on health and prevention. If we’re going to redefine payment, I’m hoping we’ll immediately redistribute not only to primary care, but we will also put a whole lot into education—especially teachers. If you want to change the face of healthcare, you have to redeploy there.”

He also sees a need to repair and replace core facilities.

“If there’s extra dollars, they might invest more dollars in the infrastructure. The nation will have a lot of that happening.”

Atkinson says if margins do expand thanks to coverage of the currently uninsured, he thinks more should be invested in redesigning approaches to emergency departments.

“It’s a strength that we’ve convinced people to come there over time, but can we look at ways to send true emergencies there and move everyone else to a clinic that’s in the PC setting? We also still need to help prepare our nation’s healthcare system for disaster situations.”

But Atkinson also has an interest in seeing greater fairness in how tax benefits are granted, and he thinks more hospitals will begin to clamor for distinctions to be made more specific. 

“I see a growing number of discussions on taxing hospitals based on what they do or don’t do. In principle, I agree with that. If you’re a nonprofit, be one. If not, declare yourself for-profit and move on. I see a lot of for-profits doing more charity work than some nonprofits.”

He sees a great opportunity to define what nonprofit healthcare means in the intermediate future. But he prefers that the industry get ahead of the debate and do the work themselves.

“If there will be a nonprofit status in the future, and I think there will be, it’s a great opportunity to define what that means,” he says. “But we’ve not always moved as fast as perhaps we should as an industry.”

And to be fair, debates about nonprofit status rub many of these institutions the wrong way. Count CHI’s Swindle among that number.

 “Nonprofit healthcare has a long history of being under siege,” he says. “It seems we can never go 12 to 18 months without some big disruption. Why are we, with our 3% margins, always seen as the problem?”

Dilution of mission and private capital

In terms of its importance, says the AHA’s Nickels, the issue of nonprofit status seems to be less important than other considerations not only for politicians, but for top executives at hospitals and health systems as well.

For instance, “will bigger systems be better able to deal with the new world?” he asks. “I see more of that concern than anything about nonprofit status. It’s a matter of whether they will be able to compete.”

WakeMed, for example, is surrounded by at least three larger systems in the state that are growing larger quickly. Novant Health, based in Winston-Salem, NC, but with hospitals in Virginia and South Carolina as well as in its home state, has spent millions acquiring hospitals and ancillary facilities over the past few years. Duke University Health System, based in Durham, NC, recently created a community hospital joint venture with LifePoint Hospitals, a for-profit company based in Brentwood, TN. Duke/LifePoint, as the joint venture is called, will combine LifePoint’s operational resources and experience managing community-based hospitals with Duke’s expertise in the development of clinical services and quality systems.

And the University of North Carolina Health Care System has acquired Rex Healthcare, a former independent nonprofit in the state. In fact, WakeMed is not happy with that deal and has led a request for public records to determine if public money has been used by UNC or Rex Healthcare, both of which are owned by the state of North Carolina, to unnecessarily duplicate and shift services and gain an unfair competitive advantage over WakeMed.

Tie-ups between for-profit hospitals and nonprofits aren’t limited to North Carolina. Caritas Christi Health Care, one of the northeast’s largest healthcare systems, completed a sale in November 2010 to private equity fund Cerberus Capital Management for $830 million, in a move that converted the six hospitals in the chain to for-profit status. Nashville for-profit hospital operator Vanguard Health Systems recently bought two formerly nonprofit hospitals from Chicago’s Resurrection Health Care, and has also bought Detroit Medical Center and its eight hospitals, which are now tax-paying. Further, Vanguard has pledged to retain at least as generous charity care provisions as did the nonprofit DMC. However, situations like these and others in development seem likely to further muddy the waters in determining the differences between for-profit operators and nonprofits.

Certainly, questions will begin to be asked as the line between for-profit and nonprofit hospitals continues
to blur.


Philip Betbeze is senior leadership editor with HealthLeaders Media.
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1 comments on "Nonprofit Hospitals: Will Margin Change Mean Mission Change?"


Jennifer James (6/24/2011 at 1:54 PM)
On behalf of UNC Health Care, I'd like to clarify some information. The article, as written, appears to imply that UNC Health Care recently purchased Rex Healthcare. In fact, UNC Health Care purchased Rex more than 10 years ago. Since then, UNC and Rex have built an important partnership that allows the two institutions to fulfill UNC Health Care's missions of providing excellent care to North Carolinians across the state, regardless of their ability to pay, conducting cutting-edge research and training the next generation of North Carolina's physicians. Also, to be clear, Rex is not a state institution and has never received any state taxpayer funding. Jennifer James, News Director, UNC Health Care