A Tale of Two Systems: For-Profit and Nonprofit Hospitals in the U.S.
Healthcare System
Preston Burkhart
Southern New Hampshire University
IHP 610 Health Policy and Law
Professor Reardon
May 28th, 2023
Business Objective
For-profit and nonprofit hospitals have different organizational structures, which are
reflected in their business objectives. According to Shi and Singh, for-profit hospitals want to
make money, distribute profits to shareholders, and keep growing their service offerings to draw
in more customers (Shi & Singh, 2019). In keeping with their mission and vision, they frequently
place an emphasis on cost-efficiency and long-term financial viability while upholding a
dedication to patient care.
On the other hand, the goals of nonprofit hospitals are centered on public welfare and
volunteerism. Their objective is to offer healthcare services to their local communities while
reinvesting surplus funds back into the hospital to enhance and broaden its offerings (Gray &
Schlesinger, 2009). Given that they frequently rely on a combination of patient service income,
philanthropy, and grants to carry out their goal, this focus on community welfare affects their
financial demands.
Financial Strategy
Hospital financial strategies are heavily influenced by their tax status. Tax obligations at
the local, state, and federal levels have an effect on the revenue and profitability of for-profit
hospitals (Horwitz, 2005). To maintain operations while providing returns for investors, for-
profit hospitals must place a heavy emphasis on profitability and revenue growth.
In contrast, nonprofit hospitals are excluded from the majority of taxes, allowing them to
invest more money in hospital upgrades, services, technology, and community initiatives
(Horwitz, 2005). To keep their tax-exempt status, they must make enough money to pay their
expenses and carry on providing charitable care.
Provision of Uncompensated Care
Uncompensated care refers to healthcare services provided by hospitals for which no
reimbursement is received from patients or insurers (Kane, 2020). In order to maximize profits,
for-profit hospitals typically provide a smaller percentage of their services as uncompensated
care (Shi & Singh, 2019). In contrast, as part of their mission and to keep their tax-exempt status
nonprofit hospitals frequently offer a greater amount of uncompensated care (Gray &
Schlesinger, 2009).
Liability for Malpractice
For-profit and nonprofit hospitals both have malpractice liabilities. They both can be held
liable for malpractice and are required to carry insurance to cover potential lawsuits (Sage &
Hyman, 2004). Hospitals rarely benefit from sovereign immunity, which usually shields them
from lawsuits, unless they have a connection to the government. As a result, both for-profit and
nonprofit hospitals need to regularly assess their risks and set up effective mitigation plans
(Hyman & Silver, 2013).
Recommendation
The analysis' findings indicate that hospitals, whether for-profit or nonprofit, play a
significant part in the American healthcare system. With their business-oriented objectives, for-
profit hospitals frequently innovate and make significant investments in cutting-edge
technologies, which helps to improve healthcare as a whole (Shi & Singh, 2019). Contrarily,
nonprofit hospitals have a greater emphasis on community health and offer more uncompensated
treatment, ensuring that people with little financial resources can receive healthcare (Gray &
Schlesinger, 2009).
This duality helps balance the healthcare system, addressing varied patient requirements
and providing broader access to care. Therefore, the continuation of for-profit and nonprofit
hospitals coexisting in the American healthcare system is strongly advised.
References
Gray, B. H., & Schlesinger, M. (2009). Charitable expectations of nonprofit hospitals: Lessons
from Maryland. Health Affairs, 28(2), 809-821.
Horwitz, J. R. (2005). Making profits and providing care: Comparing nonprofit, for-profit, and
government hospitals. Health Affairs, 24(3), 790-801.
Hyman, D. A., & Silver, C. (2013). Medical Malpractice Litigation and Tort Reform: It's the
Incentives, Stupid. Vanderbilt Law Review, 59(4), 1085-1136.
Kane, N. M. (2020). Understanding Health Care Budgets and Financial Management. In
Financial Management for Public, Health, and Not-for-Profit Organizations (pp. 141-
167). SAGE Publications.
Sage, W. M., & Hyman, D. A. (2004). Let's make a deal: Trading malpractice reform for health
reform. Health Affairs, 23(4), 33-44.
Shi, L., & Singh, D. A. (2019). Delivering health care in America: A systems approach. Jones &
Bartlett Learning.
