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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  1. 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 do it, although I did finally get paid. Numerous other claims reps, however, were complaining loudly about the times when they experienced more of these mysterious accounting errors in how commissions were paid out, though, and I kept hearing that three reps got together and went to the VP as a group. He just said thanks for bringing the matter to his attention, but then they never got paid. It was like he just screwed them over since nothing was in writing to prove that they were owed more money.
    I hope the press goes into these companies that handle the outsourced business office functions, because there is a LOT of unethical behavior going on as long as they can get away with it. Many of the employees were these young, 20-somethings just out of high school, and so they didn’t know how to put their documentation in writing to protect themselves, because they didn’t have any college business law classes under their belts at all, and so they got screwed.
    But yes, there are many crooks in the healthcare finance business, and while some of it isn’t totally illegal (the employee handbooks did state that commissions “may” be paid, but not that they absolutely would be paid out each month), it does border on slimey, unethical, and unfair to the employees, to say the very least.
    We need more regulation to bust these Enron-esque types who screw over the little people.

  2. > 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 to be had because the single payer will not permit it.
    In the short run, if some for-profits in this world can be more efficient than average or manage to attract a patient mix whose reimbursement is on average “advantageous” then they have a window in which to work. But I bet the single payer expects increasing efficiencies, and wants to force them The single payer will essentially put 1 – 2% of provider organizations out of business every year mainly through cuts in case rates. They may do it also on quality metrics.
    In the single payer world especially, everyone will be a not for profit. But this is the theoretical outcome of perfect competition. I am not saying the regulators can achieve perfection — probably far from it. The idea it can be perfect is the great hubris of the 20th century, and unfortunately there are still some people who have not learned. Which is one reason I think I tend to favor hybrid approaches like Enthoven’s: he does not presume an omniscient regulator.

  3. 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 probably be about the same as a percentage of revenues if the organization consisted of one hospital or 100. The for profits also have to pay property taxes and corporate income taxes (if profitable).
    I wonder how the non-profits would justify their tax exemption if we had universal coverage and there were no uncompensated or charity care that needed to be delivered. Offering the community a few health fairs and blood pressure screenings seems inadequate, in my view.
    As for deterring wrongdoing, I think it would be helpful if there were a more robust outside audit capability. I suspect that financial misbehavior would decline materially if the perceived probability of being caught rose substantially, along with a high likelihood of swift and appropriate punishment if caught and found guilty. Whether the wrongdoer is HCA, Tenent, Saint Barnabas or UMDNJ, it might be useful to see law enforcement go after this behavior with the same zeal that it went after Enron, Arthur Andersen et. al.