Frontiers: Not-for-Profit Hospitals: Balancing Business and Benefit

Features by Vernon E. Weckwerth, Ph.D. and Bryant H. Krenek, Jr.

Softbound, 45 pp, Summer 2006
ISSN 0748-8157
Order code: WWW1-J487
Price: $29.00

EDITORIAL

Not-for-profit (NFP) hospitals have come under increased scrutiny. Are the advantages they enjoy as tax-exempt institutions warranted? Is there a difference between investor-owned (IO) and NFP hospitals, when both seem to share the burden of uncompensated care? Should the business strategy for an NFP hospital differ from that of an IO hospital? These represent just a few of the challenges facing NFP hospitals. For this issue of Frontiers, we have asked experts from the worlds of practice and academe to provide some answers.

For Vernon E. Weckwerth, Ph.D. (director of the Graduate Executive Program in Health Administration at the University of Minnesota), the "issue is economic viability and not NFP versus IO." The distinctions between the two types of hospitals are diminishing; NFP hospitals are shifting to a business model of management and IO hospitals (because they must) are providing charity care. To retain their status, Weckwerth says, NFPs will have to prove that they produce a community beneÿt beyond charity care.

Bryant H. Krenek, Jr., CHE (president and CEO of Memorial Health System in Lufkin, Texas), suggests that the NFP tax status can be a double-edged sword for some hospitals. On the one hand it is signiÿcant and can be a tremendous ÿnancial advantage for the institution. On the other hand, it can result in what Krenek calls the "not-for-proÿt mentality"--a state of mind that lacks a sense of urgency or need to make a proÿt. What is needed are good solid business practices. Krenek offers four proven turnaround strategies for ailing NFP hospitals.

Commenting on the two articles, James N. Valenti, FACHE (president and CEO of El Paso County Hospital District), suggests that NFP hospitals have long ago shed their "NFP mentality" and have introduced effective busi-ness practices to their operations. However, he doesn't agree that focusing on the bottom line will eliminate the problems hospitals are facing today and pro-vide economic viability. The best means for achieving economic viability, according to Valenti, is to move this country to a single-payer system. Donald C. Wegmiller, FACHE (chairman of Clark Consulting Healthcare Group), agrees that all hospitals, whatever their status, must operate in a business-like fashion. Although ÿnancial stability of the NFP is important, he argues that far more important right now is regaining the public's trust through demonstrat-ing the beneÿts of having a local NFP hospital. Finally, Michael Morrissey, Ph.D. (professor at the University of Alabama), believes that the two forces of proÿtability and technological advance are key to understanding the future of hospitals. New technologies allow providers to identify proÿtable hospital prod-uct lines and patients and to enter those market niches with equal or better ser-vices at lower prices. These new competitors are willing and able to enter the market, effectively underprice community hospitals, and take their business.

Given the climate of increasing numbers of uninsured, declining reim-bursements, and growing competition from specialty hospitals, the healthcare system in general is under great strain. But, what about the not-for-proÿt sec-tor? Is its burden greater? Are NFP institutions really different? Can they fulÿll the mission required by their tax-exempt status and still survive? The contrib-utors to this issue have provided some very thought-provoking insights and recommendations, which should bring us closer to some answers to these increasingly pressing questions.

Audrey Kaufman, Editor