Are Not For Profit hospitals on their way to extinction?

Has the Affordable Care Act reduced the differentiated value of services provided by Not For Profit hospitals that special tax exemptions will be eliminated? Therefore, the existence of Not For Profit hospitals will disappear and all hospitals will be considered For Profit. To appreciate how this is a real possibility, it is important to understand the purpose of a Not For Profit hospital. The purpose of a Not For Profit hospital is to serve families in the community that cannot afford medical care.  In exchange for this charity care, Not For Profit hospitals receive exemption from federal and state corporate income taxes, exemption from state and local property taxes, and access to tax-exempt bond financing. In addition, charitable contributions to Not For Profit hospitals are tax deductible for the donor. This allowed Not For Profit hospitals to live up to their mission of serving the community and being financially viable.

Now that the Affordable Care Act will provide insurance coverage for those individuals that were originally charity care, the argument of Not For Profit hospital special tax exempt status is significantly weakened. As Not For Profit hospitals start receiving payments for services originally written off as charity, the For Profit hospitals will have a stronger argument that they are being financially disadvantaged. In addition, when the Federal and State governments realize higher costs for the delivery of healthcare under the Affordable Care Act, they will also be looking for additional sources of income. This will create the argument that Not For Profit should not be treated any differently than For Profit hospitals. Between the push from For Profit hospitals and the government looking to generate additional income to help cover healthcare costs, Not For Profit hospitals existence will cease in the future. Forward thinking Not For Profit hospitals need to anticipate the elimination of the tax advantages  in the future and be prepared to take on the same financial burden and benefits of For Profit hospitals.

5 comments Add your comment

Healthcare Worker

July 19th, 2013
9:09 am

Remember there will continue to be indigent and charity care even under the fully implemented ACA if everyone were insured. There will be as long as patients share financial responsibility. Hospitals collect less than 5% of self pay responsibility and only 50% of copays and deductables.

Also remember that Medicare and Medicaid are programs designed to pay hospitals less than cost to provide care. That missing margin is replaced by higher commercial payments driving up those rates through a “hidden tax” peopole with insurance have been paying for years.


July 19th, 2013
1:42 pm

While the Affordable Care Act promises that everyone will have insurance it doesn’t take a rocket scientist to see that won’t happen anytime soon. Not-for-profit hospitals provide much more than just free care. They are heavily involved in education of health professionals, subsidized health services like emergency transport services, emergency rooms and underpaid or uncompensated programs essential to their communities. All of their income goes back into goods and services to support healthcare in their communities. A big distinction from the private benefits stockholders get from the for-profits.

Bob Wells, executive in healthcare technology

July 19th, 2013
9:50 pm

Points well made. I agree that the impact of the Affordable Care Act (ACA) providing insurance for everyone will take time. It is a safe bet that government healthcare costs will also rise at a faster rate than calculated. These excess costs will need to be funded, and it is not a stretch for the government to justify the elimination of these tax benefits in exchange for providing these new additive insurance payments. Here are specific responses addressing the other points made that support my point that Not For Profit hospitals will no longer exist in the future.

I also agree that Medicare and Medicaid payments are limiting. The challenge is for healthcare providers to manage their costs and clinical outcomes allowing them to break even and potentially generate a profit. I have worked with hospitals modeling and implementing changes where they can make a profit at Medicare rates. The argument of reimbursement fees not sufficiently covering the costs for healthcare is weakening. The foundation of this argument will continue to erode as new models of reimbursement successfully demonstrate how healthcare providers can generate a profit by taking on more risk and managing their business differently. For example, Bundled Payments implemented properly can have a positive impact to reduce costs, drive consistent high quality outcomes, and reduce variation in treatment by physicians. This was proven in the early 1990’s with a HCFA (now CMS) demonstration project.

Very few hospitals truly understand their cost of services. Therefore, pricing reflects some level of arbitrary calculations. This is one of the contributing factors of why pricing is so disparate across healthcare organizations and not reflective of the real cost.

The ACA is designed to help address the gap of self-pay patients that don’t pay for healthcare services. These are typically low-income families that earn too much income to not qualify for Medicare, and not enough to afford insurance. Healthcare providers will see an influx of income they have been writing off in the past. This weakens the argument that the special tax privileges justify the reduced write off of healthcare services fees.

Subsidization of medical services is a business decision by healthcare providers. By managing their business differently, the costs are covered with the appropriate level of service delivered to the community.

I Work In "Not For Profit"

July 22nd, 2013
12:47 pm

I have to agree with Tom, that there’s much much much more going on and behind the scene than “free” care. NFP hospital serve a much greater capacity and I think will be around a long time before extinction. I work on the finance side of things, which is huge in and of itself and we only have NFP Hospitals in our portfolio. Yeah, extinction will be a long time coming…if anything at all.

That’s about all I can disclose. Very surface but you get the picture.


September 24th, 2013
2:58 pm

My experience with not-for-profit hospitals is that they are much less willing to negotiate discounts to self-pay patients. Some of these patients are self-pay because they can’t afford insurance,not because they are rich or foreigners. These working poor have to pay 2 or 3 times what medicaid or insurance companies pay for the same services. This is unethical and it is disturbing that these organizations get financial incentives to call themselves not-for-profit. Not-for-profits are in bed with large corporations and the government.