Question

Healthcare organizations (HCO’s) can be established as for-profit entities or not-for-profit entities.

Review the following link to distinguish the differences between for-profit and not-for-profit status:

https://hospitaladministration.org/how-to-tell-the-difference-between-nonprofit-and-for-profit-hospitals/

Given the financial and operational burdens of managing a large complex HCO system, provide clear justification for why a HCO manager would change their form of business entity from private/non-profit to public/for-profit.

Justify your response with appropriate research and reasoning.

Answer 1

1

The differences between for-profit and not-for-profit status for Healthcare organizations (HCO’s) can be categorised under broad headings as below-

• the way they are financed or funded
• how they look at community benefits and conform to the Affordable Care Act
• how they access the Patient pool

The for-profit hospitals are owned by investors/Shareholders and have access to cheaper equity capital sourced from investors or shareholders. And need to continue to generate a return on investment for shareholders so that they continue to stay invested in the organisation. They generate revenue from sale of services. And its management is accountable to investors.

Its purpose is to enhance the wealth of shareholders within the boundaries of law; does so by providing services

The not-for-profit hospitals are owned by members and dont have owners. They run on grants or charitable donations from various orgaisations and don’t need to pay returns on the funds they use. And they enjoy tax-exempt status. They generate revenue from sale of services and charitable contributions. And its management is accountable to a board.

Its purpose is to enhance the charity and community service; does so by providing services

The not -for-profit hospitals differ from for-profit hospitals in that they are required to offer community benefits in exchange for their tax-exempt status. They need to conduct research into the health needs of the communities they serve and develop plans to address those particular needs. Additionally there is now a higher level of transparency required by hospitals as to how they charge and collect on services provided to their communities. Some of these charging and collection activities that were viable in the past may now be prohibited. In contrast,  for-profit hospitals run and provide services on chargeable basis and collect fees and serve patients. There is no binding requirement to serve community benefit in particular.

The not -for-profit hospitals tend to be located in communities with higher incomes and a lower number of uninsured patients than for-profit hospitals.

2

For-profit health care providers can provide better care at lower cost due to their focus on efficiency. They have specialised focus on faculties such as cardiology and elective surgery due toease of raising funds for providing superior health care.

A HCO manager would change their form of business entity from private/non-profit to public/for-profit because of following -

Because nonprofits do not return dividends to the donors and reinvests all profit back into the company or donates it to charities, ownership is lost in this process.

There are many legal requirements when filing to become a nonprofit organization. One must know the difference between local, statewide, and national filings to be recognized as a nonprofit. This can be very tedious and over-whelming for a single individual running an organization

Nonprofit organizations have limited functions under law. These organizations are only allowed to use their revenues in certain areas, where as a for-profit corporation is allowed to spend it as needed. While for profit organizations have the ability to serve any function or purpose. Laws restrict which fields of work non-profit organizations are allowed to be invested in, but for profit organizations have no such restrictions apart from basic legal restrictions such as illicit substance distribution or other illegal activities.

For profit organizations can also contribute to political campaigns and are able to lobby as heavily as they wish. Many large for profit organizations use this advantage in order to ultimately create gains in their businesses. Overall, the most obvious and valuable benefit of a for-profit corporation is the generation of income for the investors.  

For profit organizations also compensate their employees generally well. Funding allows these companies to give their employees benefit packages, paid vacation time, bonuses and other motivating monetary incentives, which are believed to make the employees work more diligently and show stronger commitment to the corporation.

Since the general motivation of a for profit company is to make money, the owners are motivated by generating cash flows, in turn hopefully generating returns for the shareholders. The board of directors is given permission by the organization to make decisions, such as appointing CEOs, and running the business in general.By allocating votes based on ownership investment, for profit corporations are much more susceptible to what interests their investors have, making for profit organizations even more appealing.