- Nonprofit and government-owned hospitals are more likely to offer unprofitable services than their for-profit peers, according to a new study published Monday in Health Affairs.
- Government-owned facilities and nonprofit hospitals were 9 percentage points and 6.2 percentage points more likely than comparable for-profits to offer relatively unprofitable services, respectively, according to the analysis of data from 2,500 urban hospitals from 2004 to 2019.
- That dichotomy has resulted in a lack of unprofitable services, like psychiatric care and substance abuse treatment, and a surplus of high-margin services like heart surgeries in the U.S., researchers found.
Ownership matters when it comes to what type of care facilities provide, the new study suggests.
Although all hospital types respond to relative profitability in deciding what services to offer, for-profits are more responsive than comparable nonprofits, while nonprofits are more responsive than comparable government hospitals after adjusting for hospital and market characteristics.
For-profits were 31.5% more likely to offer a profitable service on average than an unprofitable service. That's compared to 27.3% for nonprofits and 22.2% for government-owned facilities, the study based on survey data from the American Hospital Association found.
For-profit hospitals were significantly less likely to offer emergency psychiatric services, care for HIV or AIDS, substance abuse treatment, and hospice and obstetric care, all of which are relatively unprofitable service lines.
Instead, for-profits were much more likely than nonprofit and government hospitals to offer lucrative adult cardiac surgeries, including both invasive major surgery like coronary artery bypass grafting surgery, and less invasive surgery.
Researchers Jill Horwitz, a medical professor at the UCLA School of Law, and Austin Nichols, a principal scientist at Abt Associates, also found a spillover effect of ownership within hospital markets. As for-profit penetration in a market increased, nonprofits and government-owned hospitals in that market were more likely to behave like for-profits and skew their service lines toward more profitable options.
Nonprofits receive generous tax breaks in exchange for providing charity care and other community benefits. But the facilities have received a firestorm of criticism for not doing enough to justify that tax-exempt status, drawing ire from lawmakers, market researchers, patient advocates and more.
Some have even called on Congress to consider changing the tax exemption rules for nonprofit hospitals, as the IRS has reported challenges in policing those requirements.
Nonprofits generally point to the dollar amount of uncompensated care they provide in a given year in defending their tax-exempt status. And federal regulation of nonprofits, including provisions in the Affordable Care Act that imposed financial assistance requirements, focuses largely on poverty relief.
But the study argues its also important to evaluate what services hospitals offer when gauging whether nonprofits earn their tax exemptions.
Requiring nonprofits to offer more uncompensated care could result in them curtailing services that benefit low-income individuals, researchers argued.
"Because most nonprofits have small or negative margins, onerous free-care requirements may force them to eliminate relatively unprofitable services that disproportionately benefit poor patients," Horwitz and Nichols said. "Alternatively, nonprofits might raise revenues by expanding relatively profitable but unnecessary services by offering a new service line or more of an existing service, thereby increasing health care spending and causing unnecessary risks to patients."
Further research is needed to determine why nonprofits behave the way they do, the study concluded, though researchers noted they suspect state laws governing nonprofit status, not tax law, might be important in governing nonprofit behavior.