"Why Nonprofit Hospitals Can’t Fix the Health Care Crisis"

March 30, 2022
Jill Horwitz
Jill Horwitz

New scholarship from Jill Horwitz, the David Sanders Professor in Law and Medicine, was a lead feature in the journal Health Affairs this month. The new article, "Hospital Service Offerings Still Differ Substantially By Ownership Type," is an update of research Horwitz began fifteen years ago on the medical services provided by nonprofit hospitals compared to similar for-profit hospitals, and the potential effects of these outcomes for patients and the public purse. The work was also the subject of Horwitz's appearance on the "A Health Podyssey" the podcast hosted by Health Affairs editor-in-chief Alan Weil.

Horwitz also penned a guest essay for the Health Affairs Today newsletter, in which she critiques the common call to action of policy makers and academics to mandate more services from nonprofit hospitals. "Solving the health care crisis that is harming both our economy and our people will require big interventions and hard choices," writes Horwitz. "These problems and solutions are the province of a nation, not a nonprofit hospital."

We reprint Horwitz's essay here, with permission.

Why Nonprofit Hospitals Can’t Fix the Health Care Crisis

By Jill Horwitz

First published in the Health Affairs newsletter on March 29, 2022.

As US health spending enters the stratosphere, it is critical to control hospital costs and protect the increasing number of patients who cannot afford care.

Doing so needs to be part of a comprehensive federal effort to reform the health care system.

Policy makers and scholars are instead doubling down on a tired intervention that has failed for decades—mandating that nonprofit hospitals provide more free care and community benefits to solve a host of social problems rather than focus on their charitable, legal purpose: to promote health.

This intervention is justified by evidence that, by some financial measures, nonprofit hospitals do not behave differently than for-profits. However, cost-shifting to nonprofit hospitals will not solve the health care crisis.

This strategy will likely backfire by increasing expense and waste at hospitals, further harming the economy and, potentially, the health of patients.

Targeting hospitals may have the same appeal as banks did for the robber Willie Sutton: “That’s where the money is.” Yet, as a group, nonprofit hospitals are far from flush.

The average nonprofit hospital earns a negative operating margin. In Sutton’s terms, nonprofit hospitals are bad banks to rob.

Requirements imposed by state community benefit laws, the Affordable Care Act’s Section 501(r) exemption rules, and the IRS ask hospitals not only to identify and address their community’s hospital-care needs but also the financial wherewithal of its patients and the community’s broader health, housing, environmental, workforce, and other social needs.

Nonprofit hospitals are designed to provide sophisticated medical care, not health insurance or social services. With few exceptions, nonprofit hospitals don’t have the expertise to be insurers.

Although all hospitals, for-profit and nonprofit alike, should partner with local social service providers, given their expensive overhead and personnel, hospitals make for terribly ineffective providers of the social services related to social determinants of health.

Public benefit laws, however, direct hospitals to wade into areas outside their (narrow) expertise.

This is a particularly bad moment to ask hospitals to do more. The pandemic hit hospital finances hard, even accounting for temporary federal subsidies.

Adding to their financial strain through indigent care and community benefit requirements could not come at a worse time. Hospitals across the country are short-staffed. Workers are burned out, demoralized, and leaving the field.

Employers are struggling to find nurses to hire despite the seemingly contradictory fact that unemployment is high, disproportionately so for nurses who are members of racial and ethnic minorities.

Any profits that nonprofit hospitals manage to earn would be better spent rebuilding a robust workforce, thus improving the quality of care for everyone.

Finally, nonprofit hospitals make unique contributions to medical care that are too often overlooked.

Austin Nichols and I published an article in Health Affairs this month that evaluates differences in medical service provision among nonprofit, for-profit, and government hospitals.

The findings extend a long line of research showing that nonprofits are strikingly different from analogous for-profits.

On average, nonprofits are less likely than comparable for-profits to offer profitable services such as invasive cardiac treatments, which are expensive for Medicare and tend to be over-provided.

At the same time, nonprofits are more likely to provide relatively unprofitable services such as psychiatric care, which are poorly reimbursed and disproportionately needed by poor and uninsured patients.

Moreover, for-profit hospitals are more likely than nonprofits to respond to changes in financial incentives.

For example, we found that relative to nonprofit and government hospitals, for-profits opened emergency departments only when emergency care became more profitable.

If nonprofits are compelled to spend more on free care and other community benefits, they will be forced to make up that money somehow.

Competition, coupled with laws such as corporate practice restrictions in many states, make it hard for nonprofits to control their physician staffing, so they will try to increase revenues instead.

The obvious response is to provide more profitable, less-necessary care and bill the government for it. That is an outcome no one wants.

Some nonprofits earn enormous profits, and some of them behave badly, including by failing to inform eligible patients about mandated financial assistance programs.

These problems are important and should be addressed. But they are not the central reason that our system is failing and people are suffering. This focus on nonprofits is largely a misguided distraction.

Solving the health care crisis that is harming both our economy and our people will require big interventions and hard choices: imposing price regulation, making difficult tradeoffs with respect to quality and quantity of care, finding waste and eliminating it, negotiating drug prices, addressing physician specialist salaries, reigning in medical prices and unsustainable administrative costs, and more.

These problems and solutions are the province of a nation, not a nonprofit hospital.

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