Question

Differentiate how nonprofit colleges, universities, and healthcare organizations financially report receiving cash vs. material contributions, and evaluate how this reporting concept impacts business decisions in those organizations

Answer 1

There are only two differences. For-profit hospitals pay property and income taxes while non-profit hospitals don’t. And for-profit hospitals have avenues for raising capital that nonprofits don’t have.

Critics of for-profit hospitals — including labour unions, consumer groups and some legislators — say there are other differences, too. They note that unlike non-profit hospitals, for-profit hospitals have to answer to shareholders, who may not have the same interests as the local communities. Critics also warn that for-profit hospitals are more likely to stop offering money-losing services.

Theory, for-profit hospitals should operate with more zealous attention to business objectives than nonprofits because shareholders have their money on the line.

The absence of a residual claimant with a financial interest in the organization means that no one individual, has strong incentives to monitor the behaviour of the organization at non-profit hospitals," In the absence of mitigating factors such as shared regulatory frameworks and shared interests in providing quality services, financial considerations would dominate decision-making at for-profit hospitals. For-profit boards and their executive leadership teams, which invariably have monetary performance incentives built into compensation packages, face a measure of financial pressure that is absent at nonprofits. Theoretically, there is a residual claimant, and that residual claimant wants to maximize profit, he says, referring to for-profit shareholders.

Contrast, non-profit boards and their executive leadership theoretically have an "incentive not to compromise quality," noting a non-profit is required to distribute earnings back into the organization or into its service-area communities. Nonprofits can reinvest earnings in facilities, lower charges to patients In contrast, one of the prime benefits of operating as a for-profit is the opportunity to bank positive operating margin after taxes.