Nonprofit vs For-profits in Same Sector
John Gear
Trending - Held OverHybrids, Hybridity, and Hype
The new nonprofit-business hybrids that have been cropping up lately assert that they are a distinct form. But are they?
Sectors: The Distinction with a Difference
An institution’s sector, which guides its institutional priorities and accountability streams, appears often to be important when you look at outcomes. There are some fields in which you can see the comparative results of nonprofit versus for-profit—nursing homes, hospices, schools, and even aquariums—and there are many indicators pointing to outcomes being affected by the sector.
For instance, NPQ has done a number of articles on the growing presence of for-profit corporations in the hospice care “industry,” and the effect their presence is having on cost and quality of care. One hospice organization, Vitas, started in Miami but now operates in eighteen states altogether. And it is owned by a larger corporation, Chemed, which also owns Roto-Rooter—the smaller of the two businesses. In 2011, the top executive at Chemed took home more than $6 million. In Palm Beach, according to a study done by the Palm Beach Post, Vitas keeps patients on government-reimbursed care for 40 percent longer than its nonprofit counterparts.2
And these numbers are not isolated. Over the same period of time that for-profit groups have been aggressively entering the field of hospice care, Medicare costs have increased precipitously. The Department of Health and Human Services says that Medicare spending on hospice care for nursing facility residents jumped nearly 70 percent between 2005 and 2009, from $2.55 billion to $4.31 billion.3
A number of investigations and suits have been launched around the country regarding for-profits’ flouting of eligibility requirements. Watchdogs charge that for-profit hospice providers locate more-profitable patients and serve them in greater abundance as part of their business model, and this can become a problem when the patient is actually ineligible—that is, not within six months of death. Some speculate that the for-profits are taking patients—including Alzheimer’s and dementia patients—too soon, possibly through sweetheart deals with nursing homes, resulting in longer-term care. These patients also generally cost less to treat, thus hiking up profits even further.
Nursing homes show similar disparities. A report released by federal healthcare inspectors in November 2012 revealed that there is approximately $1.5 billion in Medicaid overbilling by the nursing home industry.4 But Bloomberg Businessweek filed a Freedom of Information Act request and dug a little deeper, finding in their sample that for-profit nursing homes overcharged at a rate of 30 percent in comparison to nonprofits, which overcharged at a rate of 12 percent. The overcharging was through the filing of improper claims.5
The article states, “The figures add to the case—advanced by healthcare researchers and Medicare overseers in at least six government and academic studies in the last three years—that the rise of for-profit providers is fueling waste, fraud, and patient harm in the $2.8 trillion U.S. healthcare sector. At nursing homes, 78 percent of $105 billion in revenues went to for-profits in 2010, up from 72 percent in 2002.” 6
Medicare accounts for approximately a third of nursing home revenues, and Medicaid, the statefederal health insurance program for the poor, accounts for nearly half, with most of the rest from private payers. There is a 20 percent profit margin on Medicare patients in for-profit facilities compared to 9 percent for nonprofit operators, according to the Medicare Payment Advisory Commission (Medpac), an arm of the U.S. Congress. 7 How is this achieved? Is it better management? According to Health Services Research, it is about quality of care; the ten largest for-profit nursing home chains employed 37 percent fewer registered nurses per patient day between 2003 and 2008 than did nonprofits—and they received 59 percent more deficiency notices from government inspectors.8
The provision of clinically inappropriate treatments to maintain the highest of reimbursement rates, efforts to preserve high census counts by retaining patients past the point when need exists, and growth of the involvement in healthcare of private equity firms—especially in areas where reimbursements are high or growing—threaten the well-being of an aging American public.
NPQ recently wrote a newswire about Bain Capital’s having purchased Habit OPCO, which has twenty-two clinics in New Hampshire, New Jersey, Massachusetts, Pennsylvania, and Vermont. CRC Health Group, owned by Bain Capital, calls itself the nation’s largest provider of addiction treatment services, and its website says it owns 154 treatment facilities across the country (along with eating disorder programs, boarding schools, and wilderness camps).9
According to a Salon article titled “Dark Side of a Bain Success,” from July 2012,
The CRC acquisition immediately made Bain owner of the largest collection of addiction treatment facilities in the nation. Unlike some Bain Capital acquisitions, which led to massive layoffs, the company’s approach with CRC was to boost revenues by gobbling up other treatment centers,raising fees, and expanding its client base through slick, aggressive marketing, while keeping staffing and other costs relatively low. But that rapid pace of acquisition couldn’t be sustained in the mostly smallscale drug treatment industry alone. So Bain Capital and CRC set their sights on an entirely new treatment arena: the multibillion- dollar “troubled teen” industry, a burgeoning field of mostly locally owned residential schools and wilderness programs then serving, nationwide, about 100,000 kids facing addiction or emotional or behavioral problems.10
The article goes on to detail an array of lawsuits and investigations related to the company and its subsidiaries.
Are there some fields that would be better served by removing the profit motive—where, in other words, nonprofits should be the preferred provider? It seems so, if we care about the quality of care provided to the sick and elderly, and if we care about out-of-control medical costs.
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