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HOSPITALS/POLICY: MY 2 cents on the non-profit conundrum….incentives matter more than labels

Here’s my follow up to Maggie’s interesting piece and it’s the editorial in FierceHealthcare later today

The non-profit hospital world has been in the news lately, and this week a study of all the studies ever done on the non-profit/for-profit contrast came out in Health Affairs. The story is pretty well known and the study confirmed that non-profit hospitals offer a little more charity care, and have slightly lower costs than for-profits. But then again, there are three factors that make those results a little less than great. First is that location matters and the non-profit category includes a great number of hospitals that are in unfavorable locations, like inner city areas and poor rural counties. Second, the behavior of their for-profit competitors over the years has tended to center on the border between scandalous and criminal. And far too many non-profits have been imitating that behavior, such as New Jersey’s St. Barnabas, which settled with the government for as much as it could afford for apparently over-charging Medicare by over $500m. Third, for-profits have stayed at around 15% of hospital beds for decades and aren’t expanding their market share much. So the main issue is how do hospitals overall behave.

The truth is that whatever the label put on an organization, in an environment where doing more and charging more brings more profit/margin, there will always be institutions and people within them that will fall temptation to taking the easy (and fraudulent) way to more money. Proponents of self-reform may point to the improvements in quality brought about with no financial incentives which were reported by IHI last week, but until we create incentives for organizations to do well by doing the right thing, the label will be largely irrelevant.

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In the KnowTom LeithBarry Carol Recent comment authors
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In the Know
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In the Know

It isn’t just the hospitals themselves that are engaged in unethical behavior. I worked as a claims rep for an Illinois company that handles the outsourced billing and collections work for hospitals around the USA, many of them non-profits. They tried to screw me out of almost a hundred dollars in commission one month by hoping that I wouldn’t notice that everyone was due to be paid commission for that payroll period. When I kept trying to get them to promise IN WRITING that my next check would include the (cough) correction to the error (cough cough), they refused to… Read more »

Tom Leith
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Tom Leith

> I wonder how the non-profits would justify their tax > exemption if we had universal coverage and there were > no uncompensated or charity I also have asked this question. This is not exactly a defense, but there are many tax exempt not-for-profit organizations that do less than health fairs and nobody questions them. Healthcare organizations are a target, and a big one, but they’re far from the only available target. That said… I think it is moot. In a single-payer world howsoever it is arranged (NHS –> Enthoven –> Kennedy) there will be no long-run industry-wide economic profits… Read more »

Barry Carol
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Barry Carol

Whether for profit or non-profit and as long as the individual hospital is properly sized to operate efficiently in its market, there are comparatively few economies of scale to be harvested by organizing hospitals into large groups, especially if dispersed over multiple geographies. There are some cost advantages in purchasing supplies, but these only account for about 15% of revenues or so. Larger entities may also be better able to afford expensive equipment and investments in technology. On the downside, there are incremental overhead costs in managing a larger, more complex organization. The critical and very large labor component would… Read more »