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Did You Know: For-Profit Versus Nonprofit Hospitals

Doctor greating patientIn America’s early years, it was rare for someone to go to a hospital. The predominance of rural communities meant that when most people got sick, they were tended to at home—even when they needed surgery. Hospitals were mainly places where disadvantaged, chronically ill people were sheltered and cared for.

Things are different today, of course.

According to the American Hospital Association (AHA), nearly 37 million people are admitted to U.S. hospitals every year. These hospitals range from tiny facilities with just a few doctors and nurses to enormous complexes with more than a thousand beds serving many thousands of patients a year.

All of the nation’s nearly 6,000 hospitals focus on caring for the ill and injured. They operate under the same health regulations and have employees who are similarly trained. But how each is structured can be quite different. One way hospitals vary is by their profit status.

What makes a nonprofit?

According to the AHA, about 18 percent of U.S. hospitals are private, for-profit hospitals, while 23 percent are owned by state and local governments. The rest are private, nonprofit facilities. This means they’re exempt from federal income tax—and often other taxes as well. It also means tax-exempt bonds may be issued on their behalf.

Some nonprofit hospitals are religiously affiliated. And all nonprofit hospitals have charitable obligations to their communities. In a way, they’re similar to the nation’s earliest hospitals.

But nonprofit facilities also have rules that govern their existence. For example, they’re required to have a written policy that outlines how they’ll help patients needing financial assistance and how charges to patients are calculated.

Under the Affordable Care Act, these hospitals are also required to conduct community needs assessments. Then they’re charged with developing strategies for meeting the needs identified.

Nonprofit status doesn’t mean a hospital can’t make a profit. But it does mean any surplus funds must be reinvested in the hospital. These funds go toward things like facility improvements, equipment and training. Unlike in for-profit facilities, which sometimes also provide charity care, surplus funds cannot be returned to investors.

Making life better

Nonprofit hospitals strive to make their communities better. The AHA reports that many develop outreach programs and education efforts. Some also offer health screenings and engage in wellness and prevention activities. Their goal is to help people be healthier for the good of all.

Photo Credit: hang_in_there via Compfight cc

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