What Difference Does It Make Who Owns the Hospital?
Why should caregivers want to know who owns a hospital? Knowing the answer to that question is crucial because it relates to the quality of care patients receive, which is influenced by how leadership manages resources.
Two fundamental accounts dictate management practices in business: revenue and expenses. How leadership manages these two accounts sets the philosophy for the organization’s decision-making across all departmental actions, from the executive office to the loading dock.
When I refer to revenue, I consider all sources of income that benefit the bottom line of a healthcare facility. Therefore, if the funding source supports the organization’s efforts to provide patient care, conduct business, and market itself to the public, these activities should be included as part of the revenue stream. The revenue sources may include, but are not limited to, payments received for services provided, donations, endowments, or investment earnings.
Expenses, on the other hand, refer to all the money flowing out of the organization necessary to conduct business, including but not limited to paying the facility maintenance, utilities, supplies, repairs and improvements; providing staff salaries, benefits, training, security, equipment, materials and resources; ensuring safe and competent provision of delivery of care through suppling of adequate materials, equipment, resources, medications, training, clerical support, regulatory compliance, administrative oversite, professionalism, and more.
To have an active business, revenue must exceed expenses. To have a successful business, revenue must exceed costs. Each of the following ownership types has its own strategies to exceed expenses, including not-for-profit organizations. The way they choose to do that is the difference in the ownership styles.
Public Ownership
A public entity is an entity owned by either a federal, state, or local government. Often, the name identifies the entity, such as Virginia Commonwealth University (run by the state of Virginia) or Veterans Administration Hospital (run by the federal government). With public ownership, funding comes from tax revenues and government budgets. A Board of Directors, appointed by a government official or elected by the public, serves as the governing body.
With a public hospital, the government sets pricing. Hospitals must purchase supplies from the lowest bidder unless their vendor is a sole-source vendor. With purchase agreements, quality is not a primary factor in the selection process, only price.
The same holds for salaries. The government approves salary ranges. If a staffing crisis occurs, healthcare organizations cannot respond to the situation and compete with other organizations quickly enough to retain their staff. The result is often understaffing in their organizations.
The advantage of public facilities is that they are less expensive, and both under-insured and non-insured patients receive care. However, due to limited government budget support and the fact that many of their patients do not pay or pay very little, they lack the funds for the best equipment and resources. Therefore, the quality of care is not as good. Pay is not competitive, leading to the top healthcare professionals leaving to work at other facilities.
Probably the most frustrating roadblock when dealing with a public healthcare organization is the bureaucracy. When trying to make changes or implement new programs, obtain approvals, or anything else that is outside current policy or practice, it actually takes “an act of Congress” to make a change because that is who has final approval for those organizations.
Private Nonprofit Ownership
Many people believe that nonprofit organizations cannot earn a profit and remain tax-exempt. However, that rumor is incorrect. They can and should. A nonprofit organization operates as a private nonprofit, focusing on community service rather than generating profit to benefit the owners. Although most nonprofit organizations are exempt from paying taxes on the money they earn and donations, that’s not true for all of them; therefore, if you are looking for a tax write-off, confirm their status before donating.
Primarily, charitable hospitals fall under two main types: faith-based or those run by influential community members or physicians. The boards of both typically consist of members who focus on delivering quality care rather than generating profits.
Most of their funding comes from patient fees, fundraising/donations, grants, and occasionally government support such as tax-exempt bonds. Revenue earned from any of these methods may total any amount, provided all of it funnels back into the organization to provide for the maintenance, operations, and business costs of the organization. There is no limit on the amount they can earn, provided all of it goes toward the organization’s mission and none goes toward making the governing board rich.
The good news for customers is that their prices are often lower than those of their competitors and may be offered for free or on a sliding scale. They offer a wide range of treatments and have numerous facilities for their services.
On the downside, staff work long hours and feel stretched to the breaking point, but most do it because they care. You will find that the care received is also better because those who work there do so for the mission, not for the money. Therefore, they tend to be more compassionate and understanding. It’s probably the only type of healthcare organization that still sees the patient as a person rather than an insurance code worth a certain amount of money.
Private For-Profit Ownership
While most people associate hospitals with a desire to help others, the motivation behind “for-profit” healthcare facilities focuses on financial gain. With this group, the owners are usually wealthy businessmen or physician practice groups who have extensive experience in running a successful business. They want to invest in something that will provide them with a good return on their investment. Therefore, they buy struggling hospitals and turn them around.
These businessmen know how to apply their skills to the healthcare industry. By analyzing trends in diagnostic codes, spending habits, demographics, and socio-economic status, they make their choices on what services to offer to customers based on the amount of reimbursement they will receive, not on what is best for the community. They also chose to build their facilities in areas just outside of cities where the more affluent live or work, hoping to attract a wealthier clientele to their facilities. As a result, they make more money per patient admission. However, many of their clients are one-use patrons rather than long-term repeat customers, which harms their bottom line.
While “for-profit” facilities often are well-equipped and may have the latest equipment, they are known to cut corners in less apparent ways. Many supplies are of poor quality because the cheapest bid is accepted. They buy limited quantities, resulting in supplies frequently running out. When they can purchase reusable products, they do. They also can’t be trusted to report accurately anything in their books. They tend to underreport inventory, taxes, and mistakes. You need to be cautious.
Salary and benefits are the most significant expenses for any company. To keep those costs as low as possible, patient-to-staff ratios are very high. That means the number of patients assigned to a staff member for care on a shift is too high for patients to receive adequate attention, thus creating a greater risk for patient errors.
Academic Medical Center (AMC)
The practice of medicine is not something a person can learn from a book or a simulation lab. Although practicing on a CPR manikin or learning to insert an IV into a plastic arm is a great way to develop skills without causing harm to a live person, nothing feels the same as real flesh and bone, and the cost of reproducing the way that feels would be too expensive to support the gesture. Therefore, using real people is the best alternative. Thus, student healthcare professionals must have an affiliation with a hospital to complete a certain number of clinical hours before they are turned loose on the world to practice their profession independently. Most schools contact hospitals to complete clinical hours at various locations. They send their own faculty to those facilities to teach their students, and the hospital has no responsibility for their learning other than to provide the facility.
In Academic Medical Centers, the hospital and the University have a shared responsibility in the students’ learning. Not all AMCs offer training in the same number of healthcare careers. All offer a School of Medicine, but may also include: a School of Nursing, Advanced Practice Nurses, Physician Assistant, Physical Therapy, Occupational Therapy, Speech Therapy, Chaplaincy, Counseling, Dietitian, Social Work, Respiratory Therapy, Rehabilitation, and more. In each of these programs, faculty teach the course at the University and then rotate into the hospital as a clinician to be with students during their rotation to partner with them at the bedside to ensure patient safety and support them in the learning process. The hospital employs the faculty member and must maintain full standing as an employee both at the hospital and the University.
Funding for AMCs is through patient care reimbursement, research grants, state and federal educational funding, and student tuition. Often, patients can receive care at reduced rates due to state funding sources or through participation in research grants.
While it might sound scary to think you are receiving care from a student, their faculty is always close by with a watchful eye. For medical care, you often have five people looking over your care – a fresh medical student who looks up everything, (will ask you a hundred or more questions), a 4th year medical student (almost ready to graduate to become a “somewhat doctor” i.e. entering grad school ( they know a bit more but still pretty green, will attempt to guess at what’s wrong with you. 2nd-year resident – He will run your case (knows stuff). 4th-year resident (knows a lot of things – almost a real doctor). The faculty doctor – he’s the real doctor (i.e., attending). You have five “doctors” reading your chart in detail, looking for problems. Each is trying to make themselves look better than the other one. If there’s a problem, one of them is going to find it. Unlike in any of the different hospitals, where they are understaffed, underpaid, and no one cares. They care because they want to pass and get their license.
