Capitol Connection: Understanding the Difference Between Nonprofit & For-Profit Hospitals

July 16, 2014

The healthcare landscape in our country is certainly changing. Hospitals are expanding, health insurance is evolving, and more and more hospitals are seeking paths to leave behind their nonprofit status and instead become for-profit institutions.

In Connecticut especially, the debate over “hospital conversions” is a heated one. And with last week’s announcement that St. Mary’s in Waterbury is yet another hospital planning on making the change, I think it’s important to talk about what these transitions mean for our communities.

There are two main differences between for-profit and nonprofit hospitals. For-profits pay income and property taxes; and for-profits can also raise revenue through private investors or public shareholders, depending on who owns the hospital. Nonprofits do not pay the same kind of taxes and operate more like charity organizations.

Some people, including some labor unions and patient groups, criticize for-profit hospitals for answering to shareholders, who may not have the same local interests as community run hospital leaders. Critics also say that for-profit hospitals may be too focused on making money, leading them to make decisions that benefit the hospital more than patients. For example, a for-profit hospital might be more likely to offer expensive operations in house, but then send people to other facilities for treatment that is less expensive and therefore generates less of a profit.

On the other side, for-profit hospital supporters say that for-profit status gives hospitals more opportunities to raise funds, invest in new medical care and provide better services overall.

Both sides would agree that hospitals face many challenges in any community. Providing healthcare is an expensive task, and in Connecticut when you have additional burdens such as the hospital tax, it can be hard for hospitals to remain financially stable on their own. That’s why so many have turned to other companies to buy their hospital, make it a for-profit entity, and boost their financial stability. In the last 10 years alone, the number of for-profit hospitals has increased by 50 percent nationwide.

This legislative session, the Connecticut General Assembly tackled the issue, approving a bill that allows hospitals to convert to for-profit institutions and establishes regulations to protect the interests of doctors, staff and patients during these conversions.

Thanks to the new law, many legal barriers were removed that made it hard for for-profits to operate. The new legislation also gave the state more oversight on the conversion process. For example, before converting, a hospital must ensure the community that access to affordable care will be preserved, the public health commissioner and attorney general can place certain conditions on a deal before approving it, and the hospital and purchaser must also hold a town-wide public hearing on a conversion before it is approved.

Right now, Connecticut has 28 nonprofit hospitals and one for- profit (Sharon Hospital). But Tenet, a healthcare services company that operates 79 hospitals in 16 states, is on its way to purchasing five hospitals, including St. Mary’s. That means Connecticut will see a whole lot of change over the next few years.

Like all things, I do believe healthcare must grow and evolve to meet the changing needs of our communities. That being said, I think we all need to have both an open and critical mind. We have to be willing to try something new, and also ask questions along the way. I for one will be keeping a close eye on these transitioning hospitals. I’m open to change, as long as patients remain the top priority.