“For- Profit” HCA Vs. “Not-for-Profit" Hospitals: Which is to be the Master

No margin, no mission.

Sister Irene Krause (1924-1998), CEO of Daughters of Charity National Health System

Profit is a condition for survival.

Peter Drucker (1909-2006), Social, Business, and Management Philosopher

“The question is,” said Alice, “whether you make words mean so many different things.” “ The question is,” said Humpty Dumpty, “which is to be the master – that’s all.”

Lewis Carroll (1832-1898), Through the Looking Glass (1892)

February 8, 2012 – Well, the news is out. HCA Holdings, Inc, the nation’s largest “for-profit” hospital system, with revenues of $33 billion, is making profits again and rewarding its investors. On February 6, HCA Holdings reported better-than-expected fourth quarter earnings and recorded a one-time gain from an investment, sending its shares up 6%. HCA says it did so by controlling expenses and reducing debts, even though its surgical volumes were down for the 3rd straight quarter. It also approved a special dividend of $2 per share for its stockholders.

This news may offend social purists. They insist there is no place in the hospital world for profit-making. One can have “ margins” to maintain facilities, update equipment, and pay employees, but one should not “profit” and certainly not reward stakeholders.

About two-thirds of U.S. hospitals are not-for-profit. The remainder are split between for-profit and government ownership. As yet, there is little sign for-profits are taking over the hospital universe or depriving the public of charitable care.

Instead, for-profits and not-for profits co-exist. There is room for both. They provide similar services for similar mixes of patients, contract with the same insurers and government payers, operate under the same regulations, employ staff with the same training and ethical obligations, and have the same needs to maintain margins to survive. Both are obligated to treat those who show up on their ER doorsteps.

The fundamental difference between the two is tax exemption for not-for-profits. Other than that, there may not be a “dime’s worth of difference,” other than chest thumping about the moral virtues of serving the community rather than investors.

Certainly, there are few signs of dire evolution of the dangers of a profit-making medical industrial complex predicted in 1980 by Arnold Relman MD, editor of the New England Journal of Medicine.

Thirty two years ago, Relman said,

“The new “medical industrial complex “may be more efficient than its nonprofit competitors, but it creates the problems of overuse and fragmentation of services, technology overemphasis, and ‘cream skimming,' and it may also exercise undue influence over medical health policy.”

Last year in the New York Review of Books, Relman extended his concern over profits to physicians by saying, in essence, “Thou shalt not profiteer.”

“Physician-owned not-for-profit groups, particularly those that pay their doctors at least partly by salaries, are not as likely to provide unnecessary services or to recommend hospitalization when it is optional. Their physicians have few financial incentives to do so, and the services of their specialists are coordinated with their primary care doctors, who usually recommend the simplest and least expensive choices consistent with good medical care. In today’s political climate these reforms have no chance, but this could change if physicians continue to join groups and transform the organization of medical care.”

Relman’s concerns may have been overblown. If anything, the not-for-profit sector has the same need for margins as its for-profit counterpart. Not-for-profit hospitals places the same emphasis on marketing, technology, and specialty profit-lines to maintain margins. These similar behaviors will only intensify as the health law cuts Medicare margins, and as the states struggle to meet Medicaid obligations by slashing hospital payments.

No doubt, on occasion, both sectors put profit before people to maintain margins. Whether for-profit hospitals are “fair” and have the right mix of equity, social justice, and profit-distribution, is in the eye of the beholder and is another ball of wax.

For both for-profit and not-for-profit hospitals, the same rule applies: Be Good, Do Good. Have a social mission and carry it out well enough to stay in business.

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