A study published in the May issue of Health Affairs demonstrated to the public that nonprofit does not necessarily mean ‘no profit.’ For the fiscal year of 2013, the profitability of more than 3,000 acute care hospitals was analyzed. The bottom line: In 2013, 7 of the top 10 most profitable hospitals in the United States were nonprofit hospitals, each netting over $160 million in profits. This leaves many people scratching their heads and wondering how this could be.
Of the hospitals studied, 59 percent were nonprofit, 25 percent were for-profit, and 16 percent were public. Gerald Anderson, professor of Health Policy and Management at Johns Hopkins Bloomberg School of Public Health and Ge Bai, an assistant accounting professor at Washington and Lee University co-authored the study. Anderson and his team used net income from patient care services and Medicare cost reports. They did not include profits made from non-patient care activities including but not limited to investments, charitable contributions, tuition, and parking fees.
The table below, courtesy of Health Affairs, shows the top ten US most profitable hospitals, according to their study. Gunderson Lutheran Medical Center in La Crosse, WI topped the list earning over $300 million in profits in 2013.
Of the study results, Anderson said, “We were pretty surprised. I had no idea what hospitals would be the most profitable, and which were not. This is telling us that the taxing system may not be working properly if nonprofit hospitals are making a lot of profit and not necessarily putting it back into the community.” How is it that nonprofit hospitals are actually some of the most profitable hospitals in the country? And furthermore, where are all these profits going?
How are non-profit hospitals so profitable?
For-profit hospitals must pay taxes and give returns to their investors while non-profits get major federal and state tax breaks for charity care and community benefit. And research has shown that over the past decade, the value of those tax breaks has doubled. It seems that for non-profit hospitals, executives get huge payouts, and the surplus of funds allows them to create more “nonprofit” hospitals, increasing their market share.
The study found that hospitals in larger urban areas that were a part of a larger health system were more likely to be profitable. Hospitals that are part of a system are more likely to dominate a region, creating a monopoly. When you have a monopoly in the health care system, you can charge higher fees for service and pay lower salaries to your employees. You don’t have to worry about losing your patients or employees to competition because as a monopoly, there is no other competition. With competition, hospitals must try to acquire patients by offering better services. Competition in healthcare also stimulates advances in medicine and patient care. Without this competition, the patient pays the price—literally and figuratively.
As this country looks to fix the problems plaguing our healthcare system, we will see nonprofit hospitals with large profit margins come under close scrutiny and review to find out why they are making such large profits, and where these profits are going. With the trend of hospital mergers, consolidations, and acquisitions, we will expect to see more monopolies which will lead to further decline in quality of patient care. Between the workforce shortage and the trend of healthcare monopolies, it is clear that the US healthcare industry is in crisis, and it’s going to take a concerted effort from healthcare professionals and Washington to stop it.