How are some non-profit hospitals more profitable than others?
My medical school curriculum includes a class called the “Business of Medicine,” where we learn about different payment systems in the healthcare industry. My school’s affiliated hospital, Northwestern Memorial, seems to have the business aspect of medicine down pat, as it ranks among the most profitable hospitals in the US. Meanwhile, just 11 miles away on the South Side of Chicago, South Shore is one of several neighboring hospitals that recently announced financial struggles. Both Northwestern Memorial and South Shore are non-profit institutions. How is it that some non-profit hospitals are so much more profitable than others?
To be fair, the financial disparity between Northwestern Memorial and South Shore is not unique to Chicago as hospitals across the US are entangled in complicated financial systems. While seven of the ten most profitable hospitals in the US are non-profit institutions, roughly two-thirds of hospitals lose money per patient treated; the median hospital in the US loses $82 per patient discharged. Smaller, rural hospitals lose even more money per patient. Hospitals, like South Shore, that treat a greater percentage of Medicare, Medicaid, or uninsured patients have greater financial losses because public insurance pays out lower reimbursements than private insurance.
As non-profit institutions, hospitals like Northwestern Memorial and South Shore must provide charity care, free or discounted services for patients who cannot afford medical treatments. In fact, as mandated by the Affordable Care Act, non-profit hospitals must abide by IRS regulations by conducting Needs Assessments and providing explicit financial assistance policies to maintain a tax exempt status. However, how generous a hospital wants to be is largely up to the hospital; the laws governing non-profit hospitals install no hard caps on their profitability. These guidelines, or perhaps lack thereof, means that the difference between Northwestern Memorial and South Shore is that by simply serving the surrounding community, Northwestern Memorial’s largely privately insured patient pool easily makes up for its charity care obligations while South Shore loses money per patient in a lower income and largely publicly insured community.
Despite being in a “Business of Medicine” class, my classmates and I have not once discussed the consequences of the fundamental premise that healthcare should be treated like a business. In any business, money buys better access and quality. However, this premise means that our current healthcare system discriminates buyers in the same way where a patient’s value is determined by the health insurance they carry. Currently, 30% of outpatient physicians, such as primary care physicians who provide non-hospital care, do not accept new Medicaid patients, given how reimbursements for the same procedures are much lower for Medicaid patients versus privately insured patients.
Although hospitals are perceived to take care of any patient who walks through the door, for the same financial reasons as outpatient physicians, hospitals are also prioritizing privately insured patients. These practices are more subtle through targeted advertising in affluent neighborhoods and by reducing emergency room services to disincentivize uninsured patients from seeking primary care. Even when it comes to providing charity care, a Kaiser Health News analysis found that “45% of non-profit hospital organizations are routinely sending medical bills to patients whose incomes are low enough to qualify for charity care,” according to policies written by the hospitals themselves. At least four of the ten most profitable hospitals, three of which are non-profits, engage in such hospital billing practices.
The consequences of running healthcare as a business are countless. They include community hospital (re: unprofitable) closures that predominantly affect low-income and communities of color, the prioritization of patients based on class access, and a convoluted insurance system. A more equitable healthcare system would ensure all communities have access to quality care and treat patients equally, regardless of their insurance or lack thereof.
This post was contributed by Christopher Song. Christopher is a medical student at Northwestern University Feinberg School of Medicine. He's passionate about primary care medicine and cookies.