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N.C. Nonprofit Hospitals – For Profit or Community? – Part 1

The Charlotte Observer ran a five-part series, Prognosis: Profits, this past week. The series attempts to bring to light the difference between nonprofit and for-profit hospital systems and how North Carolina’s nonprofit hospitals may be doing a disservice to North Carolina residents by focusing too much on profits and growth. We will be analyzing this expose in the next three blog posts. This post will focus on what a nonprofit hospital is and how the charlotte area hospitals may not be meeting expectations.

A nonprofit hospital is a hospital that is based on a charitable commitment to the community. They do not function like most business models, which focus on building profit. Instead, they are supposed to reinvest their profits into the community. These types of hospitals generally do not turn any patients away and charge lower prices for services. Because of their charity to the community, nonprofit hospitals do not pay any sales, income, or real estate taxes.

According to the Charlotte Observer, many nonprofit hospitals in the Charlotte region are no longer acting like nonprofit organizations. They suggest that these hospitals are instead focused on growth and financial strength and have actually contributed to the rising cost of health care.

According to their investigation, many charlotte area hospitals:

  • Generate some of the nation’s largest profit margins. Despite the Great Recession, they have amassed billions of dollars in reserves.
  • Inflate prices on drugs and procedures, sometimes as much as 10 times over costs. Hospital prices in the region are about 5 percent higher than the national average and comparable to those of larger cities, such as Chicago, Dallas, and New York City, according to Aetna insurance company.
  • Hike prices almost every year. Blue Cross and Blue Shield of North Carolina, the state’s largest health insurer, says its total cost per hospital admission went up nearly 40 percent from 2007 through 2010.
  • Pay their top executives millions. Nineteen officials at Carolinas HealthCare System and Novant Health got total compensation exceeding $1 million in 2010 or 2011.

These hospital systems are able to accomplish all of these feats because of the sheer size of the system. As hospital systems grow larger they gain more leverage to negotiate higher payments from insurance companies, which helps them to grow even larger. In return, this causes patients and employers to pay more for treatment and insurance. A person involved in an accident that suffers catastrophic injuries could find themselves in a financially devastating situation.

Hospital officials claim that their actions are necessary for the hospital to survive and meet the demands of the community. But, it actually seems that the larger these systems grow, the less they give back to the community. Many nonprofit hospitals across the country are struggling to keep their doors open and are plagued by downgraded credit. This is not the case in the Charlotte region. Profit margins have grown over the past couple of years, even with the depressed economy.

In the next post we will look at what these nonprofit hospitals are doing with this profit and whether or not it is actually benefitting the community.

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