For Profit Vs. Non Profit Hospitals

by Jennifer Mueller

The majority of U.S. hospitals -- as many as 62 percent in 2003 -- are nonprofit. Nonprofit hospitals gain tax-exempt status by meeting guidelines set by state and federal governments to ensure these hospitals are providing benefits to their surrounding communities. These benefits often take the form of providing charity care. For-profit hospitals don't get these tax benefits. Whether publicly traded or owned by private investors, these hospitals are owned by individuals who expect to earn a profit from their investment dollars. However, the differences between these two types of hospitals go well beyond tax breaks and financing.

Provision of Uncompensated Services

Before 1969, the IRS required nonprofit hospitals to provide specific amounts of charity services to maintain their tax-exempt status. While the IRS no longer requires hospitals to prove particular percentages of their services are given away, uncompensated services -- including both charity care and bad debt the hospital writes off -- are still a key component of measuring the benefit a hospital provides to the community. Across the board, nonprofit hospitals tend to provide greater proportions of uncompensated care than do similarly situated for-profit hospitals. The burden of uncompensated care isn't carried by all nonprofit hospitals evenly, however. Rather, within the same geographic area the bulk of uncompensated services are provided by only a few hospitals.

Variety of Services Offered

For-profit and nonprofit hospitals also differ in the types of services they offer. Typically, nonprofit hospitals are more likely to offer services such as high-level trauma or intensive care burn wards -- facilities that are expensive to build and maintain but don't produce much profit. For-profit hospitals may have state-of-the-art technology for more expensive diagnostic or cardiac services, but nonprofits frequently offer alcohol and drug treatment programs, home health care and psychiatric care, services which provide more benefit to the community than income potential.

Quality of Care

While quality of care may depend more on a hospital's policies and employees than its financial status, researchers have noted differences in the way patients are treated in nonprofit and for-profit institutions. For example, Burton Weisbrod noted in his book, "The Nonprofit Economy," that patients in for-profit nursing homes were given sedatives more often than those in nonprofit establishments, concluding the medication was less expensive than hiring additional staff to work with active patients. Another study reported that patient mortality rates increased after nonprofit hospitals became for-profit institutions. At the same time, nonprofit hospitals sometimes struggle with finding the funds necessary to upgrade technology or maintain existing resources, while for-profits have greater capital to invest in state-of-the-art equipment.

Location, Location, Location

It may seem counterintuitive, but nonprofit hospitals tend to be located in neighborhoods with higher average incomes where more people have medical insurance, while for-profits often are located in places with higher poverty rates. Historically this has meant there are more for-profit hospitals in the southern U.S., while northeastern and midwestern states have higher concentrations of nonprofit hospitals. Since 2010, however, investment companies have expanded for-profit hospitals nationwide by buying nonprofit facilities in need of capital to ease financial stress. Most of these acquisitions are facilities in high-growth suburban areas with relatively few uninsured patients.

About the Author

Jennifer Mueller began writing and editing professionally in 1995, when she became sports editor of her university's newspaper while also writing a bi-monthly general interest column for an independent tourist publication. Mueller holds a Bachelor of Arts in political science from the University of North Carolina at Asheville and a Juris Doctor from Indiana University Maurer School of Law.

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