The Difference in Cost and Quality of Care between Profit and not for Profit Hospitals - Research Paper Example

? The Difference in Cost and Quality of Care between Profit and not for Profit Hospitals of the Business of the Concerned August 2, 2011 The Difference in Cost and Quality of Care between Profit and not for Profit Hospitals Introduction In the recent years, the competition between for profit and not for profit hospitals to solicit and attract patients has immensely intensified. This has directly augmented the interest in the academic and business circles regarding the competitive performance and efficiency of for profit and not for profit hospitals. Both the profit and not for profit hospitals in the contemporary economic environment are required to manage a tight rope walk involving the achievement of a delicate balance between their responsibilities towards the patients and the society and their tough financial requirements. In the last two decades, the healthcare in the United States of American has undergone immense structural changes leading to a visible proliferation of both for profit and not for profit healthcare institutions. At the same time, the other big development has been a rise of the concern for the achievement of ethical competency in the functioning and working of profit and not for profit healthcare institutions and organizations (Walshe & Smith, 2006, p. 85). This overall alteration in the business environment in the country has lead to an impetus for minimal reliance on the charity and philanthropic sources of capital and a preference for competency and competition in the long term financial working of the healthcare institutions and organizations. It goes without saying that it will be immensely revealing to study the impact of these developments in the cost and quality of care of for profit and not for profit hospitals. However, this endeavor, by its very nature necessities a pragmatic insight into the American healthcare system and the salient features and priorities of for profit and not for profit hospitals. Background American Healthcare System In the current times, the healthcare system in America is facing many problems and issues. America spends more money per person in healthcare than perhaps any other nation in the world (Sultz & Young, 2010, p. 29). A large percentage of the national GDP in the United States of America is spent on healthcare because of the high costs involved (Sultz & Young, 2010, p. 29). The public healthcare expenditure of the United States of America stands to be the third highest in the world owing to the glaringly high cost of medical care in the country (Sultz & Young, 2010). The present and intended reforms in the healthcare system revolve around varied grave issues like the right to healthcare, quality of medical care, access to healthcare, and the efficiency and costs incurred by profit and not for profit hospitals. Though the Americans spend so much on healthcare, yet it is sad to acknowledge that America tends to lag behind many nations in the area of life expectancy and infant mortality (Sultz & Young, 2010, p. 4, 5). So the common citizens, institutions, organizations and the interested groups are getting wary about the fact that as to whether the system is delivering the value for money or not. It is utterly difficult to delve on the difference in cost and quality of care between profit and not for profit hospitals without taking into consideration the framework within which they operate and the targets they are primarily affiliated to. For Profit Hospitals-Salient Features In the United States, for profit hospitals are also known as the investor owned hospitals. They usually comprise of chains of investor owned hospitals that have infiltrated the healthcare system in the United States in the latter half of the 20th century. Realistically speaking, in contrast to the more traditional not for profit hospitals, for profit hospitals intend to accrue profits from the services provided by them (Cutler, 2000, p. 23). Those people, groups and corporate bodies who support for profit hospitals extend various reasons for their existence. They say that for profit hospitals tend to lead over the regular not for profit hospitals in terms of the quality of care and cost efficiency, because of their being competitive and efficiency oriented. The detractors of for profit hospitals say that these hospitals only indulge in such medical care and procedures that is profitable and aims at extending healthcare to more affluent and well to do clientele (Cutler, 2000, p. 31). These hospitals seldom dare to venture into areas that are cost intensive and unprofitable and involve the poor or sidelined segments of the society. For profit hospitals share some salient features such as: For profit hospitals do intend to earn profit for their investors (Cutler, 2000). Hence, it could reasonably be concluded that their commitment to the patients will, to some extent, be influenced by the high priority they give to their investors. As for profit hospitals intend to earn profit, they could be expected to pass on the profits and extra revenues to the investors rather than trying to use these revenues to extend better healthcare facilities to the society at minimal costs. As for profit hospitals are, in a way, profit earning corporate bodies, they do incur massive administrative costs. In case of eventualities like rise in taxes, for profit hospitals naturally prefer to pass on the rise in costs to the patients. For profit hospitals are not likely to invest in the community care programs because of their being cost intensive and unprofitable. For profit hospitals are more likely to be quality conscious and efficiency oriented, thereby being more up to date in terms of equipment and having a better paid staff. Not for Profit Hospitals-Salient Features A non-profit or also commonly known as the not for profit hospital operates as a corporate body for which earning a profit is not the prime priority. These not for profit hospitals are mostly charitable in their scope and perspective and hence affiliated to some form or other of charitable or religious body. Simply speaking, the not for profit hospitals have been the traditional means of extending the healthcare in the United States of America. Not for profit should not be taken for, for profit hospitals or the public hospitals that are owned by the federal, state or county governments. Not for Profit hospitals are mostly dedicated to the community health and their assets are mostly committed to the well being of the community (Cutler, 2000, p. 60). In other words, no investor, private person or private corporation tends to earn profit from the activities and operations of a not for profit hospital. As not for profit hospitals are mostly dedicated to serving the community, they extend a wide spectrum of healthcare facilities without exclusively focusing on the criteria of cost or profitability (Cutler, 2000, p. 60). The assets of the not for profit hospitals stay in the community and the revenues earned are to a great extent solely spent on extending and bettering the healthcare opportunities and services (Wegmiller, 2006, p. 31). The salient characteristics of the not for profit hospitals are: As the not for profit hospitals are not liable to any investor or shareholder, it could reasonably be concluded that the patients stand to be the first priority of the not for profit hospitals. As the not for profit hospitals do not tend to exclusively focus on engaging in operations and procedures that are profitable and attract a rich clientele, they offer a broad spectrum of services and are mostly accessible to the weaker sections of the society (Wegmiller, 2006). Not being profit earning corporate bodies, the administrative costs accrued by not for profit hospitals are not so extensive. The charges of the not for profit hospitals are not so strictly and religiously tied to the economic considerations like tax rates. The extra revenues at the disposal of the not for profit hospitals are reinvested in improving the healthcare, without passing on anything to some investor or a shareholder. As is evident that for profit and not profit hospitals are committed to different goals and objectives, it is somewhat difficult to compare their cost structure and quality of care in a direct manner. Still, such an endeavor could be attempted on the basis of the available academic and professional sources. Cost of Care at for Profit vs. not for Profit Hospitals Several available and credible studies have established beyond doubt that the cost of care in the for profit hospitals tends to be higher than not for profits hospitals. As per a 2004 study published in the Canadian Medical Association Journal, it was revealed that the cost of care in the for profit hospitals in the United States tends to be quiet higher as compared to the not for profit hospitals. As for profit hospitals are almost nonexistent in Canada, so a team of researchers under the distinguished leadership of Dr PJ Devereaux carried out a meta-analysis of the cost of care in the for profit hospitals in the United States of America. The study being discussed selected for its analysis more than 26,000 hospitals in the United States and came to the conclusion that for profit hospitals accrue 19 percent more on the cost of care as compared to the not for profit hospitals (Devereaux et al, 2004, p. 1823) . The study established beyond doubt that the patients undergoing treatment in for profit private hospitals have to bear a higher cost of medical care. Not only this, the team of researchers that conducted this study attributed this higher cost of care in the for profit hospitals to their commitment to accrue profits for their investors (Devereaux et al, 2004, p. 1823). The very obligation to generate maximum profits for the investors leads to the soaring of the costs of care in for profit hospitals. This study also identified some other features peculiar to the for profit hospitals that make them costlier and dearer. It was observed that for profit hospitals incur much higher administrative costs that are almost 6 percent higher as compared to not for profit healthcare institutions and are also required to contend with significantly inflated executive bonuses (Devereaux et al, 2004, p. 1823). Actually, it was noted that the executives bonuses in for profit hospitals were almost 20 percent higher than those in not for profit hospitals (Devereaux et al, 2004, p. 1823). The study also made a cursory mention of the instances of frauds like the performance of not required surgeries, unnecessary detainment of patients having psychiatric problems for inflating the bills, tendency to bill the services that are actually not provided by the hospitals, which could much expand the cost of care in for profit hospitals (Devereaux et al, 2004, p. 1823). The very same study speaks a lot about the cost of care in not for profit hospitals. The researchers involved in this study also led to the conclusion that the not for profit hospitals do have a significantly lower cost of care as compared to the for profit hospitals. In fact the cost of care in the not for profit could sometimes be almost 19 percent lower as compared to the for profit hospitals (Devereaux et al, 2004, p. 1823). This cost reduction on the part of not for profit hospitals could be attributed to several positive factors. As not for profit hospitals are not investor owned and are not required to earn profits for investors or share holders, hence they do not stand to gain anything by inflating the cost of care. Besides, the not for profit hospitals being nonprofit corporations have much lower cost of administration as compared to the for profit hospitals (Devereaux et al, 2004, p. 1823). If one goes by the conclusions of this up to date and very recent study, the cost of administration in the not for profit hospitals could be at least 6 percent lower than that in the not for profit hospitals. Moreover, if one takes cognizance of a 2008 study by Alam, Elshafie and Jarjoura published in the Academy of Accounting and Financial Studies Journal, this research team came to the conclusion that “not for profit hospitals are more profitable relative to for profit and government hospitals even after controlling for other factors reflecting other financial and non-financial measures (p. 40).” To put it simply, though the cost of medical care at not for profit hospitals is lower than for profit ones, even then the for profit hospitals are more cost efficient and profitable. Perhaps a great deal of this cost effectiveness could be attributed to the fact that the not for profit hospitals do not have to contend with investor pressure, high administration costs and inordinate executive bonuses. Private ownership of the healthcare facilities is not a guarantee for competitiveness and efficiency when it comes to the cost of care. Quality of Care at Profit vs. not for Profit Hospitals The Canadian team that conducted the study under Devereaux regarding the cost of care in for profit and not for profit hospitals in the United States, also conducted a parallel study regarding the quality of care in the for profit and not for profit hospitals. This research project comprised of 15 observational studies and involved 26000 hospitals in the United States (Devereaux et al, 2002, p. 1399). The study led to some shocking revelations regarding the quality of care in the for profit hospitals in the United States. The general perception is that for profit hospitals being efficiency and quality oriented are more likely to have a better quality of service. However, the study under consideration concluded that for profit hospitals in the United States have a higher mortality rate as compared to the not for profit hospitals (Devereaux et al, 2002, p. 1404). They attributed this lacuna in the quality of care in the for profit hospitals to a variety of reasons. As per the Canadian study, the investors owning for profit hospitals expect a 10-15 percent return on the investments made by them (Devereaux et al, 2002, p. 1404). Besides, the administrators and executives managing for profit hospitals get incentives on the additional profits made by them (Devereaux et al, 2002, p. 1404). In addition, for profit hospitals have to contend with taxes and the large reimbursement packages for their senior administrators (Devereaux et al, 2002, p. 1404). Due to these cost pressures and the onus of assuring a high profitability, for profit hospitals tend to extend a quality of care that demands fewer resources per patient (Devereaux et al, 2002, p. 1404). This gives ways to too many limitations regarding the quality of care in the for profit hospitals that adversely impacts patient outcomes (Devereaux, 2002 et al, p. 1405). Also, for profit hospitals have fewer highly skilled personnel per bed (Devereaux et al, 2002, p. 1405). The same study also concluded that not for profits hospitals not only have a lower mortality rate, but also offer a better quality of care. Conclusion Though, the United States of America spends a lot on healthcare, still it cannot claim to be the most efficient healthcare system in the world. With the rising cost of healthcare, the customers expect the hospitals to be more affordable and quality oriented. In that context, the cost of care in the for profit hospitals is considerably high as compared to the not for profit hospitals. This could be attributed to several factors like the onus of assuring profitability, cutting on costs and extending heftier remunerations and bonuses to the executives and administrators. This immensely raises the cost of care in the for profit hospitals. Also, going by the fact that for profit hospitals aspire to extend patient care by exploiting minimal resources, this compromises the quality of care leading to a higher mortality rate. References Alam, Pervaiz, Elshafie, Essam & Jarjoura, David. (2008). The Effect of Ownership Structure on Performance of Hospitals. Academy of Accounting and Financial Studies Journal, 12 (30): 37-40. Devereaux, PJ, Choi, Peter TL, Lacchetti, Christina, Weaver, Bruce, Schunemann, Holger J, Haines, Ted… Guyatt, Gordon H. (2002). A systematic view and meta-analysis of studies comparing mortality rates of private for-profit and private not-for-profit hospitals. Canadian Medical Association Journal, 166 (11): 1399-1406. Devereaux, PJ, Heels-Ansdell, Diane, Lacchetti, Christina, Haines, Ted, Burns, Karen EA, Cook, Deborah J… Guyatt, Gordon H. (2004). Payments for care at private for-profit & private not-for-profit hospitals: a systematic review and meta-analysis. Canadian Medical Association Journal, 170 (12): 1817-1824. Cutler, David M. (2000). The Changing Hospital Industry. New York: University of Chicago Press. Sultz, Harry A & Young, Kristina M. (2010). Health Care USA. New York: Jones & Bartlett Publishers. Walshe, Kieran & Smith, Judith. (2006). Healthcare Management. Maidenhead, England: Open University Press. Wegmiller, Donald C. (2006). Community Benefit Plans and Action. Frontiers of Health Services Management, 22 (4): 29-31. Read More