Switching to Profits
Does a change to for-profit help or harm communitites?

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Related sites Health Affairs Federation of American Health Systems VHA Inc. Volunteer Trustees

Un-Horror Stories Some conversions result in massive layoffs or closures, and news of those situations provokes anxiety about conversions in general. Often those fears are warranted, but many conversions seem to have a nominal impact at the bedside. Orfia Ochoa, RN, a staff nurse at the Edinburg Regional Medical Center in South Texas, said when her hospital was taken over in 1995 by Delaware-based Universal Health Services, the country’s third largest healthcare management company, there was some “concern that they were going to cut staff.” But those fears were quickly allayed through meetings aimed at easing the transition. “We expected abrupt changes,” she said. “But it has remained relatively stable.” What’s more, Universal Health Services helped fund a “much-needed new hospital,” which opened in 1997. The company also increased benefits, offering a better 401K retirement program and stock options. ~ Chris Schreiber

By Chris Schreiber
Photo: Artville
October 25, 1999

What’s the difference between a for-profit hospital and a nonprofit hospital? If you think one ignores the public’s needs to focus ruthlessly on the bottom line and the other pours resources into community health by caring for the poor and indigent, think again. According to a new study, if your local hospital switches from nonprofit to for-profit, chances are you’ll be hard-pressed to notice a big difference.

The study looked at 43 conversions in Texas, California, and Florida from 1980 to 1995. Published in the September/October issue of Health Affairs, “Nonprofit Hospital Conversions and Community Benefits: New Evidence From Three States” concluded that conversions did little to upset each site’s status quo on charity care, prices, and community benefit—whatever that happened to be.
Judging from reactions, the new analysis hasn’t done much to upset the status quo of people’s opinions, either. Investor-owned hospital groups have lauded the study as proof of what they’ve long argued: that communities need not fear their arrival. But critics of for-profit healthcare management companies have assailed the study’s data and conclusions.

Little difference, big difference

“We’ve said all along that [conversions are] really just a market response,” said Dan Boston, vice president of public affairs for the Federation of American Health Systems, which represents 1,700 investor-owned hospitals and health systems across the country. “It’s all just a question of how the market is flowing. There is very little difference between the two.”

That characterization doesn’t sit well with nonprofit hospital advocates. “There’s a very clear difference in their product,” said Dan Bourque, group senior vice president for VHA, a network of community-owned hospitals. “Anecdotally, we know that the emergency room population goes up in other locations when investor-owned hospitals come to town, and essentially, where they save their money is on labor costs.”

The nonprofit or for-profit status of hospitals boils down to taxes. Nonprofit hospitals pay no taxes but must show that they benefit their localities by offering charity care and other services. When investor-owned companies take over, property and other business taxes are levied and distributed to the community. “ The value of property tax [revenue] generally exceeds the value of the charity care they are gaining,” argues Gary Young, PhD, the study’s co-author and co-director of the Program on Health Policy and Management at the Boston University School of Public Health.

But Bourque and others say such a conclusion is spurious. “The taxes may go to things like transportation, not health care,” he said. Critics contend that investor-owned hospitals close unprofitable services like trauma centers and burn units and are slow to respond to community needs for things like low-cost immunizations or disease screenings.

Lots of complexity

Other research reveals a picture in shades of gray. A study released this summer by the American Association of Retired Persons found that hospital conversions ushered in a mix of expanded services in some areas, but generally cut charity care. But the study noted that some companies have also rescued financially strapped hospitals with an infusion of capital to pay for mandatory seismic renovation or other expensive improvements.

Some representatives of the nonprofit world also agree that it’s hard to come to a definitive position on all conversions. “You can’t paint a black hat on all the investor-owned hospitals,” Bourque said. “It’s a mixed bag. There have been some flagrant cases and other cases where the investor-owned were very responsible.”

The law of averages

Despite the case-by-case variation—some hospital conversions increase community benefits, others reduce them, and most are somewhere in the middle—the issue is often discussed in terms of averages. That’s how the Health Affairs study is framed; it concludes that “nonprofit conversions do not, on average, reduce community benefits relative to uncompensated care, prices, or unprofitable … services.” Young said his report confirms previous findings, but will not be the final word on the subject.

In the debate about hospital conversions, Young acknowledges that there are philosophical differences at work, too. “There’s more than just a scientific or research issue involved here,” Young said. “There are those who simply think for-profits don’t have any place in health care.”

Linda B. Miller, president of Volunteer Trustees, a national organization of hospital governing boards, is one of those critics. “There’s no question that the for-profit institution is marked by efficiency measured in profits and dollars.” She questioned Young’s measurements of “community benefits” and noted that a study published this summer in the New England Journal of Medicine found that, based on Medicare data, for-profit hospitals charge significantly more for patient care.

Young maintains the validity of both his study and the conclusions it draws. “All the evidence we have to date, none of it points, on average, to a negative impact of these conversions,” Young said. “There may be things that fly below our radar, programs that may be cut that we don’t see, but nothing obvious.”

Averages aside, many experts say some concerns about conversions are justified. “The legitimate concern [about conversions] is that for-profits do not support nonfunded services. They do care for uninsured people, but it’s not on purpose,” said Wanda Jones, MPH, president of the New Century Healthcare Institute in San Francisco.

Even so, sometimes practicality wins out. “A for-profit company can deal with things a nonprofit can’t,” Jones said. “And when it’s a choice between survival and going for-profit, the community better embrace the for-profit.”