Fifth, even the not-for-profit's barring against distribution of profits has started to fall apart as legal means are discovered through which not-for-profit organizations are able to create incentive compensation arrangements for management and workers that are essentially profit-sharing schemes.
Lastly, access to tax-exempt financing is not exclusive to not-for-profit organizations. Under certain conditions, for-profit enterprises can obtain tax-exempt debt financing through industrial revenue bonds, construction, and lease-back arrangements.
For-Profit Healthcare Providers, Greater Cost-Efficiency?
The debate over the cost performance of for-profit and not-for-profit healthcare providers remains inconclusive. Many economists argue that for-profit ownership is inherently more efficient because these entities must excel beyond not-for-profit counterparts in order optimize profits. While The Wall Street Journal reported that for-profit providers charge less for insurance (Wall Street Journal, 1997) and cost less in nursing homes (Marmor, Schlesinger, and Smithey, 1986; Philipson, 2000), surprisingly only 13 studies (23%) found for-profits to be superior (see Figure 1). In other words, in nearly 77% of comparative studies conducted since 1980, not-for-profits were either determined to be superior in terms of cost/efficiency or no difference was seen between not-for-profits and for-profits, contrary to what economic theory predicts.
Quality of Care: Not-for-Profits Lead the Charge
A literature review in 1979 found no quality difference between for-profit and not-for-profit providers in the 1960s-1970s (Palmer, Reilly, and Reilly, 1979), while some studies indicated not-for-profit providers excelled in quality, and others varied in their conclusions. Successive to that, a 2002 meta-analysis revealed a higher death risk in for-profit hospitals (Devereaux et al., 2002).
As market competition drives improvement, health economists have argued that there should be little difference in quality between the two types and that for-profit providers typically respond faster to competition (Rice, 1998). Among 149 studies with 69 compared quality-of-care measures; 59% favored not-for-profit providers, 29% found no difference, and only 12% rated for-profits superior (see Figure 1).
Not-for-Profit Hospitals Open Doors for Access to Healthcare
Access to healthcare is of paramount importance, particularly for individuals who face severe health issues. If true to their purpose and mission, not-for-profit providers would exert more effort in facilitating access compared to for-profit providers, whose primary focus lies in prioritizing investor interests, such as profitability, over ensuring accessibility.
According to research from the 1970s, not-for-profit providers can be predicted to outperform for-profit providers on access criteria (Marmor, Schlesinger, and Smithey 1986). Thirty of the 149 papers reviewed here evaluated access between not-for-profit and for-profit providers. Twenty (67%) thought not-for-profits were superior. Only one study (3%) comparing hospitals with data from 1992 discovered that for-profits performed better on this criterion, and nine (30%) found no difference (see Figure 2).
Operating on Generosity: Amount of Charity Care by U.S. Hospitals
When service charges go unpaid, providers describe it as uncompensated care, which is classified as bad debt when collection fails and charity care when no payment is pursued. Some argue that bad debt still counts as charity care, whether due to patient refusal to pay or genuine inability to afford it. Not-for-profit providers are obligated to undertake charity care in order to justify tax advantages (required in the State of Texas) and sustain their objective of volunteerism, philanthropy, and service to the poor.
In 1991, it was discovered that 80% of not-for-profit hospitals provided uncompensated treatment that more than offset the tax benefit gained (Morrisey, Wedig, and Hassan, 1996). It's still debated whether for-profit providers match the level of charity care provided by not-for-profits; some studies suggest not-for-profit providers excel in this area, while others indicate otherwise.
The nature and attributes of the hospital industry prompt an inquiry into whether for-profit production can attain the anticipated levels of efficiency and consumer satisfaction as foreseen by the competitive market model. Hence, although nonprofit organizations might seem to contrast unfavorably with the competitive ideal, this comparison likely lacks suitability within the hospital sector. Regarding for-profit hospitals, factors such as entry barriers, information asymmetry, and the uncertain role of physicians as the consumer's agent, might challenge the presumption that they can efficiently provide the desired quantity and quality of services at an efficient price.
