Monday, December 31, 2012

Profit, Non-Profit

 Here's a quote from the Washington Post article,  "5 Myths about charitable giving" on 30 Dec: "Nonprofits are not profitable.  In 2010, US charities reported more than $2.7 trillion in assets.  . . . (in 2007) a large Midwest charity hospital chain reported reserves of $7.4 billion, more than twice the cash on hand at Walt Disney Co."  If you're not laughing yet, read the entire article. 

His basic premise is correct, non-profits do indeed make profits, so it's hard to poke fun at this slip.  But anyone who took accounting 101 knows the difference between profits (the difference between income and expenses) and assets (stuff you own or take to the bank).  The distinction between for-profit and not-for-profit healthcare institutions has long been a source of confusion.  It should not be.  On the one hand, there is no difference.  All companies make a profit, or they cease to exist.  You can spend assets to pay expenses for awhile, but ultimately, you must make a profit to persist.  I once worked for a company that was jointly owned by a for-profit medical group and a not-for-profit hospital.  We kept three sets of books:  One for reporting our business to the IRS each year.  One for reporting to our for-profit owner, and a final one for reporting to our not-for-profit owner.  Note that it was the same business--same income, same expenses, same profits.  Each of the owners treated the profits differently on their tax return.  So that's the rub, how you report profits to the IRS.

It also makes a difference in how you run the company.  Here's a list of goals and strategies for a not-for-profit healthcare organization:
1. Emphasize giving.   Message every patient about all the good work you do and make it easy for them to contribute to your endowment.
2. Call yourself a "Children's" hospital, rather than a "Women and Children's hospital, because Children's hospitals attract more donors.
3. Lobby CMS and Congress for higher reimbursements.
4. Appoint wealthy locals to your board, and hold charity events to raise money. .
5. Cultivate relations with the press to obtain favorable coverage of heartthrob cases.

By contrast, here's what the for-profit competitor might do:
1. Control costs by bargaining aggressively with suppliers.
2. Engage employees in eliminating waste in healthcare processes.  Award cash bonuses.
3. Cultivate surgeons who bring high profit margin cases.  Make it easy for them to work here.
4. Aggressively manage the processes of care to eliminate waste and unnecessary steps.

One more thing:  there is a difference between a charity and a not-for-profit, tho some institutions are both.  In principle, a charity receives income exclusively from donors and spends money on some worthy cause.  Generally, they do not send bills or provide services for a price.  The Girl Scouts of America is a charity.  They do sell cookies, but they don't send bills to those who receive their services.  Georgetown University Hospital is a not-for-profit.  They do send bills to those who receive their services.  The Shriner's hospital  is the closest thing to charity in the healthcare world.  Their web site is all about donating, and their mission is to provide care without regard for the "ability of a patient or family to pay." 

As one might expect, for-profit healthcare institutions tend to be more efficient.  Nothing like reporting to a board on where the money went to focus your attention on the cost of providing care. 

Oh, yes.  The answer to the question from last time is one.  Marriott owns one hotel, the Key Bridge Marriott in Washington.  It was the first hotel Marriott built.  All the others are franchises.  Marriott has a quality team that regularly visits each hotel with a checklist.  If there are deficiencies, you are given an appropriate time to make corrections.  If progress is not forthcoming, they take the sign off the door, and you are no longer a Marriott hotel.

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