Conversion of Hospitals from Nonprofit to For-Profit Can Offer Community Benefits
During 1997 and 1998, researchers at Boston University School of Public Health examined the short- and long-term impact that conversions of hospitals from nonprofit to for-profit status have on their communities.
The researchers' main source of information was state-published hospital annual reports for California, Florida and Texas, which provide data on ownership status, operational statistics, financial measures and service availability.
This project was part of the Robert Wood Johnson Foundation (RWJF) national program Changes in Health Care Financing and Organization (HCFO) (for more information see Grant Results).
- Community impact after conversion varied: some hospitals significantly increased the amount of uncompensated care they provided, while others posted decreases of more than 40 percent.
- In the aftermath of conversions, hospitals shifted the composition of their governing boards, including fewer community representatives and more hospital senior management among the members.
RWJF supported this project through a grant of $72,618.
As tax-exempt entities, nonprofit hospitals are obligated to provide health care services that benefit the community. An increasing number of conversions of nonprofit private and public hospitals to for-profit status in the past few years has ignited concerns that such conversions put communities at risk for reductions in these community benefits. From 1992 through 1998, more than 90 private nonprofit and 17 public hospitals nationwide have converted from nonprofit to for-profit status almost as many conversions as occurred during the entire decade of the 1980s.
There is widespread concern that nonprofit hospitals are being sold to investor-owned corporations in the absence of adequate procedures for protecting the community's interest in the hospital. These concerns have contributed substantially to a flurry of state legislative initiatives to regulate nonprofit conversions.
This study examined the short- and long-term impact on communities of conversions of nonprofit private and public hospitals to for-profit status. In earlier research which was the first published empirical study on the community impact of hospital conversions the investigators looked at the short-term impact of 17 nonprofit hospital conversions in California on the provision of uncompensated care and emergency care. That study was limited because it focused on conversions in just one state and looked at the effect during only a three-year post-conversion period.
The investigators focused their research on the conversions of 43 hospitals 20 in California, 15 in Florida, and 8 in Texas three states that had among the highest rates of nonprofit hospital conversions in the country. They compared this group of hospitals with a group of nonprofit hospitals that did not change their status in order to separate out overall trends in the provision of community benefits among nonprofit hospitals. The researchers' main source of information was state-published hospital annual reports for 197996 for California and Florida and 198895 for Texas, which provide data on ownership status, operational statistics, financial measures, and service availability.
Conversions were identified by noting changes in ownership status. In addition to the state-level hospital data sets, the researchers used several other secondary data sources, including the American Hospital Association (AHA) Annual Survey of Hospitals for 198095, the 1990 Census, and the County and City Database (CCDB). The AHA survey was used to validate conversions identified in the state databases; the Census and CCDB provided socio-demographic information on community residents.
The study looked specifically at the impact of conversions on four measures:
- The provision of uncompensated care.
- The availability of traditionally unprofitable services, such as 24-hour emergency care.
- Community representation on governing boards.
The team used a comparison group of hospitals that did not undergo conversions in order to identify general trends in the provision of uncompensated care.
The overall findings from the analysis included the following:
- During the pre-conversion period, hospitals that subsequently converted their status had higher prices and offered fewer community-oriented services than did comparison hospitals.
- In the short term (meaning within the first three years after a conversion), the conversion from nonprofit to for-profit status did not have any effect on the level of uncompensated care, prices, or the availability of unprofitable services.
- In the longer term (meaning within six years after a conversion), there also were no significant changes in prices or services among the converted hospitals.
- On a case-by-case basis, conversion was followed by both increases and decreases in community benefits. Of the 43 conversions, 24 were followed by some decline in uncompensated care while 19 were followed by some increase in uncompensated care. In 7 of the 24 conversions that were followed by a decrease in uncompensated care, the decrease was more than 40 percent. In 8 of the 19 conversions that were followed by an increase in uncompensated care, the increase was more than 40 percent.
- Nonprofit conversions were followed by shifts in the composition of hospital governing boards. Hospitals typically brought on board more senior management representation and included less community representation. While this change in board composition did not translate into reductions in types of community benefits examined in the study, such a shift potentially may have more subtle effects on the hospital-community relationship that cannot be readily measured.
In a September 1999 Health Affairs article, the researchers conclude: "It appears likely that a hospital's provision of community benefits is more closely related to its local market condition than its type of ownership. The strength of the relationship that existed between a hospital and its community before conversion also may be important in determining the hospital's post-conversion commitment to providing community benefits."
The researchers note two positive byproducts of hospital conversions:
- For-profit hospitals pay local property taxes.
- Conversions may prevent the closure of financially ailing nonprofit hospitals.
In a follow-up study, the researchers looked at the effect of conversions on public hospitals that changed to a for-profit status. They found that following the conversion these hospitals provided less uncompensated care. However, these hospitals also provided significantly less uncompensated care prior to privatization than did other public hospitals. In a March/April 2000 Health Affairs article they conclude: "Either these public hospitals were not the primary source of uncompensated care in the community they served or they served in communities where there was relatively less demand for uncompensated care."
The project team intends to report the findings in several leading academic journals and through presentations at various conferences, particularly those aimed at policymakers.
GRANT DETAILS & CONTACT INFORMATION
Research on the Impact of Nonprofit Hospital Conversions on Community Benefits
Boston University School of Public Health (Boston, MA)
Dates: September 1997 to August 1998
Gary J. Young, J.D., Ph.D.
(Current as of date of this report; as provided by grantee organization; not verified by RWJF; items not available from RWJF.)
Young GJ and Desai KR. "Nonprofit Hospital Conversions and Community Benefits: New Evidence from Three States." Health Affairs, 18(5): 146155, 1999. Abstract available online.
Desai KR, Van Deusen Lukas C and Young GJ. "Public Hospitals: Privatization and Uncompensated Care." Health Affairs, 19(2): 167172, 2000.
Report prepared by: Karin Gillespie
Reviewed by: Marian Bass
Reviewed by: Molly McKaughan
Program Officer: Nancy L. Barrand