Advantages & Disadvantages of Not-for-Profit HCOs

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About 20 percent of the U.S. population does not know whether their health care provider organizations are for-profit companies or nonprofit organizations, according to the Alliance for Advancing Nonprofit Health Care. A poll cited by the Alliance found that 13 percent do not understand the difference between profit-making companies and nonprofit organizations. A profit-making company is designed to take in more money than it costs to produce the goods and services it sells. Much of that profit is given to the owners or shareholders as a payment for their investment in the company. A nonprofit organization is established under state and federal laws, which prohibit it from providing "profit" payments to anyone. Their purpose is to provide a public benefit. Donations to the Red Cross, for example, are used to provide services to people in need because of a disaster and cannot be distributed for non-charitable purposes.

About 20 percent of the U.S. population does not know whether their health care provider organizations are for-profit companies or nonprofit organizations, according to the Alliance for Advancing Nonprofit Health Care. A poll cited by the Alliance found that 13 percent do not understand the difference between profit-making companies and nonprofit organizations. A profit-making company is designed to take in more money than it costs to produce the goods and services it sells. Much of that profit is given to the owners or shareholders as a payment for their investment in the company. A nonprofit organization is established under state and federal laws, which prohibit it from providing “profit” payments to anyone. Their purpose is to provide a public benefit. Donations to the Red Cross, for example, are used to provide services to people in need because of a disaster and cannot be distributed for non-charitable purposes.

Providing Unprofitable Care

Some areas of health care are ignored by for-profit health care companies because they do not offer profit opportunities. Without government support, pharmaceutical manufacturers generally avoid making products with no profit potential. Profit-making companies tend to avoid health services, such as trauma care and burn care, which cost more to provide than they can charge. Rarely are for-profit companies found delivering health care services to small, isolated populations, such as those found on some Indian reservations. Nonprofit organizations offer insurance coverage to high-risk patients, who are often denied coverage by for-profit companies.

Offering Lower Cost Services

Nonprofit health care organizations typically offer patients lower fees, fees on a sliding income scale or no fees at all for their services. Free clinics provide charitable care to individuals too poor to afford any health care services. Hospitals run by religious organizations or charitable organizations dependent on donations provide services at prices matched to the incomes of their patients. Nonprofit organizations spend more of their dollars on health care and less on administration and advertising than for-profit companies. They are also more usually involved in state-sponsored safety net programs.

Innovative Approaches

Because nonprofit organizations are not bound by a commitment to provide shareholders and owners a return on their investments, many use surplus funds to test more innovative services and methods of delivery.

Limited Funding Opportunities

Nonprofit health care organizations have the disadvantage that if they cannot raise sufficient financial support from clients, donors or government sources, they must suffer the consequences and have to cut back on their services. They cannot obtain capital from investors because, by law, they are prohibited from paying dividends.

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About the Author

Roy Sylvan has a Ph.D. in communication studies. He directed a large city department of aging, was COO of a consulting company and provided management training to companies and nonprofits. Writing for more than 40 years, Sylvan has authored articles in trade journals, magazines and blogs, and wrote a how-to book on starting a business.

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