How to Compare Profit & Nonprofit Hospitals

Although all hospitals are aimed at helping sick and injured people, they vary in the manner by which they accomplish this goal. For-profit hospitals are essentially business ventures. They are backed by a group of investors whose sole interest is to make money. Nonprofit hospitals are organized differently. By law, they cannot make a profit. Rather, all of their funds must be allocated to services and things directly related to the exempt purpose of the establishment.

Instructions

• 1

  Look at the incorporation of the establishment. For-profit hospitals are incorporated as corporations. Their purpose is make a profit. Nonprofit hospitals are incorporated as 501(c)(3) corporations. Unlike for-profits, nonprofit hospitals are exempt from paying federal and state taxes. However, nonprofits are prohibited from keeping extra funds at the end of the business year. They must allocate all of their resources toward their exempt purpose, such as salaries, equipment, rent, or donations to a specific cause.

• 2

  Check the price of procedures. For-profit hospitals have different motives than nonprofits. They are concerned with making as much money as possible to please their investors. Thus, they tend to charge more for various procedures in order to maximize profits. Interestingly, this increased revenue does not mean higher salaries. A study conducted by the Bureau of Labor Statistics found that the salaries of workers in nonprofit and for-profit hospitals are almost equal. By paying the standard salaries while charging higher prices for procedures, for-profit hospitals tend to generate more revenue.

• 3

  Look at the salaries of administrators. For-profit hospitals pay higher salaries to their administrators than nonprofit hospitals. As a means of satisfying upper management, for-profit hospitals allocate most of their funds for salaries to administrators and interest groups. Conversely, nonprofits spread their funds for salaries across all professions in the hospital.

• 4

  Count the number of nurses in the hospital. Nonprofits tend to have more nurses than for-profit hospitals. Since for-profits pay higher salaries to administrators, they are left with less to allocate to other workers. Thus, they typically hire fewer nurses and more workers that require a small salary, such as nurse technicians. Since nonprofits do not pay as much money to their administrators, they have more leftover funds that enable them to hire more nurses.

• 5

  Look at the death rates of the institution. For-profit hospitals tend to have higher death rates than nonprofits. Dr. P.J. Devereaux of McMaster University in Ontario conducted a study of nonprofit and for-profit hospitals in the United States. He believed for-profits have a higher death rate because "instead of finding new efficiencies, folks were cutting corners in quality health care, and also people were having to pay more for care."