Profit vs. Nonprofit Hospitals: What's the Difference?

Two different types of hospitals exist across America. Some hospitals are for-profit businesses, while others have nonprofit status.

For-profit and nonprofit hospitals are run differently and operate according to different financial models. Each has its benefits and disadvantages from a community perspective.

What Is a For-Profit Hospital?

A for-profit hospital is run much like any large business. Many of these hospitals are run by publicly traded companies on the stock market.

That said, the hospital or healthcare network administrators are responsible for returning value to the shareholders. That adds financial pressure to running one of these hospitals or healthcare centers.

What Is a Nonprofit Hospital?

Nonprofit hospitals have official nonprofit status and structuring. As such, they may be exempt from local, state, and federal taxes.

Nonprofit hospitals must show that they are run according to some charitable model with charitable outcomes. They do not have the financial obligation to return value to shareholders, so they are often more flexible under certain kinds of financial pressure.

At the same time, they are subject to oversight that for-profit hospitals are not because of their tax exemptions.

How Many For-Profit and Nonprofit Hospitals Are There?

There are over 5,200 private sector hospitals in the United States.

Many for-profit hospitals (and a significant portion of the government hospitals) are clustered in the American South, in states like Florida and Texas.

Do For-Profit and Nonprofit Hospitals Stay Up-to-Date on Latest Medical Technology?

For-profit and nonprofit hospitals both strive to stay up-to-date with the latest medical technology, but there are notable differences in how they approach and implement these advancements.

Nonprofit hospitals are generally more dependent on government funding, charitable donations, and grants. While they have a strong commitment to delivering high-quality care, budget constraints can make it challenging for them to invest in cutting-edge technology. They often prioritize cost-effectiveness and may lag behind for-profit counterparts in adopting the latest equipment or software.

On the other hand, for-profit hospitals have a profit-driven motive, allowing them to allocate more resources for technology investments. They may be quicker to adopt the latest medical innovations to attract patients and increase revenue.

Moreover, both types of hospitals must consider the return on investment and the needs of their patient populations when integrating new technology. While for-profit hospitals may have more capital for investments, nonprofit hospitals often strive to leverage partnerships, grants, and community support to bridge the technology gap.

Are For-Profit Hospitals Under Financial Pressures?

Since they have to balance shareholder value with community good, for-profit hospitals can be more challenging to manage.

For example, studies show that operating margins among for-profit hospital systems have put these hospitals under financial pressure during the pandemic. Labor shortages and high demand were cited as factors.

After the pandemic era, Forbes reports hedge funds and VC investors are buying up hospitals, hoping to catch the upside as healthcare systems and network groups recover from COVID-19.

What Are Patient Stays Like in For-Profit and Nonprofit Hospitals?

Regarding the patient's perspective, there's often not a lot of difference between the two models regarding the quality of care and the ultimate billing process.

Financially speaking, either type of hospital has to go by contractual agreements with insurance payers. That means the insurance will pay its contractual obligations above a specific dollar amount.

Some also point to a greater incentive for efficiency that might improve how for-profit hospitals handle revenue cycles. They also suggest that for-profit hospitals may find investing in new medical technologies easier.

For-Profit and Nonprofit Hospitals and Bad Debt

When it comes to uncollected revenue, the numbers are less concrete.

Each type of hospital holds higher levels of uncollected revenue in various categories. One of these is bad debt to net patient revenue, where higher numbers are often driven by patients or other payers needing to pay for their portion of healthcare services.

For-profit hospitals tend to be more prevalent in areas with lower-income populations. There is also the charity care that both types of hospitals deliver, which is money that can't be collected.

In assessing revenue cycles, experts will look at metrics like bad debt to net patient revenue, advertising, charitable care, and how collections are handled.

Another metric commonly used is unreimbursed Medicaid costs, indicating that the hospital provides more charitable care to lower-income patients. The category of "uncompensated care" as a whole is vital in this type of assessment. This can show whether nonprofit hospitals are well aligned with the subsidies they get regarding unpaid taxes.

Federal government changes have also tried to address cost functions for both types of hospitals. For instance, diagnosis related group (DRG) codes seek to put different care costs into a standard bucket to analyze how the hospital bills for treatment and services. The idea of accountable care organizations or ACOs is another reform effort looking at how hospitals charge for healthcare services.

The federal HITECH Act also addresses optimal efficiencies for hospitals by promoting electronic medical and health records and meaningful use standards for healthcare facilities and healthcare providers.

What Should You Know About Nonprofit Hospitals and the Affordable Care Act?

Under the Affordable Care Act, there are new requirements for nonprofit hospitals as community hospitals to meet to justify their nonprofit status. Nonprofit hospitals have to conduct a community health needs assessment, or CHNA, and be transparent about the results of this research.

In addition, there are new requirements (outlined by the Internal Revenue Service or IRS) for:

New social programs and other positive initiatives from a nonprofit hospital’s CHNA assessment can also be seen as a positive outcome. 

Despite being less micromanaged than nonprofit or not-for-profit hospitals, for-profit hospitals have fared differently under the Affordable Care Act. Medicare reimbursement continues to be essential; in states that expanded Medicaid, average hospital operating margins have risen by at least 2.5% since the ACA was enacted. For-profit hospitals were among the types of hospitals that saw the most significant gains.

What Is the Future of Healthcare Like?

As both of these types of hospitals contribute to the public health networks in the United States, the difference between for-profit and nonprofit hospitals may be related to the debate around the existing employer-based insurance system or a new alternative – nationalized healthcare. 

As planners and policymakers look at the healthcare needs of new generations, issues with health insurance and uninsured patients, and the pros and cons of for-profit and nonprofit health systems, they have to make decisions about financial care models, and the status of U.S. hospital operations can be part of that discussion. Although for-profit hospitals have maintained financial solvency in today's healthcare environment, efforts to manage nonprofit hospitals better (and their commitment to community health outcomes) may contribute to their growing role in tomorrow's healthcare models. 

Hospitals and New Technology

These hospitals also use new technology to drive better outcomes and streamlined operations. 

New diagnosis, care, and billing software can expedite quality patient care and improve stakeholder relationships in a medical network. For instance, some of this software can be delivered through the cloud in SaMD (Software as a Medical Device) innovation. 

AcuityMD provides data-driven insights to help medical device sales representatives navigate the complex healthcare landscape, helping providers optimize operations and enhance patient care. 


Operating Margins Among the Largest For-Profit Health Systems Have Exceeded 2019 Levels for the Majority of the COVID-19 Pandemic | KFF
Requirements for 501(c)(3) Hospitals Under the Affordable Care Act – Section 501(r) | Internal Revenue Service
How Has the ACA Changed Finances for Different Types of Hospitals? | RWJF
Software as a Medical Device (SaMD) | IMDRF

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