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There Is A Distinct Different Between Non-profit And For-profit Healthcare Organizations That Boards Should Be Aware Of

For-Profit Healthcare Organizations vs. Not-for-Profit Healthcare Organizations


A not-for-profit organization exists for the good of the community, and a not-for-profit healthcare organization helps to cover gaps in health services rather than generate a profit.

While for-profit and not-for-profit hospitals are all regulated by the same authorities and have the same requirements, there are certain distinctions between for-profit vs. not-for-profit healthcare organizations beyond whether they pay property and income taxes.

Despite the similarities and differences between for-profit and not-for-profit healthcare organizations, the right governance technology can give not-for-profit organizations a much-needed boost in efficiency.

Read on to learn more about :

  • What is a not-for-profit healthcare organization
  • What is a for-profit healthcare organization
  • What is the difference between a for-profit vs. not-for-profit healthcare organization
  • Examples of not-for-profit healthcare organizations
  • How governance technology can enhance your not-for-profit healthcare organization

What Is a Not-For-Profit Healthcare Organization?

A not-for-profit healthcare organization is an organization that was founded based on a mission that serves people in the community or advocates on behalf of health services without the intent of making a profit. Not-for-profit healthcare organizations are accountable to their donors, community members, and other stakeholders for abiding by their stated missions.

The IRS classifies not-for-profit healthcare entities as tax-exempt organizations, which allows them to use more of their funds for the good work they do.

What Is a For-Profit Healthcare Organization?

A for-profit healthcare organization is owned by investors, much like any other for-profit business. While for-profit healthcare organizations offer services and programs to help people get and stay healthy, they aim to make a profit to satisfy the shareholders, and investors expect a good return on their money.

Also, much like other corporations, for-profit healthcare organizations have a hierarchical organizational structure that includes a board of directors.

What Is the Difference Between For-Profit vs. Not-For-Profit Healthcare Organizations?

There are many similarities between for-profit healthcare organizations and not-for-profit healthcare organizations such as both have a board of directors and both provide health services for the public. The main differences between them are:

  • Nonprofits are tax-exempt
  • Nonprofits must reinvest their funds back into the organization
  • Nonprofits are limited in their ability to lobby for legislation
  • Nonprofits may have employees, and they may also rely heavily on volunteers

The chart table below shows the primary differences between for-profit healthcare organizations vs. not-for-profit healthcare organizations.

For-Profit Vs. Not-For-Profit Healthcare Organizations

CharacteristicsFor-Profit Healthcare OrganizationsNot-For-Profit Healthcare Organizations
Required to fundraise/raise capitalNoYes
Likely to have access to updated technologyYesSometimes
Have in-house resources for professional servicesYesNo
Tax-exempt from property taxes and income taxesNoYes
Restrictions on lobbying/advocatingNoYes
Focus on healthcareYesYes
Focus on profits YesNo
Limitations on investingNoYes

Advantages and Disadvantages of For-Profit Healthcare Organizations

For-profit hospital boards have to maintain a business-driven culture because they’re accountable to their shareholders. Shareholders don’t always have the same interests or level of compassion as community members.

On a positive note, for-profit healthcare organizations don’t generally have a ceiling on the ability to invest, which means that for-profit healthcare organizations have access to greater funding to upgrade their facilities, buy costly medical equipment, and keep technology systems up to date.

For-profit healthcare organizations typically have more funding to invest in technology than not-for-profit organizations enabling them to offer the best care and do so efficiently. Having greater access to technology also enables for-profit healthcare organizations to proactively address cyber risks to protect shareholders, patients, and the public at large.

Large for-profit corporations with multiple facilities also have the benefit of using their own resources, such as in-house legal counsel and special consultants, rather than hiring outside professionals. Another benefit of scale is that large healthcare organizations can share what they’ve learned about best practices with their sister facilities.

Despite criticism from labor unions, consumer groups, and some legislators, for-profit healthcare organizations don’t necessarily sacrifice the quality of care over profitability. The quality of health services is generally quite good.

Advantages and Disadvantages of Not-For-Profit Healthcare Organizations

While not-for-profit healthcare organizations enjoy tax-exempt status from property and income taxes, they rely on funding from donors, minor investments, and the community to be able to provide care for patients.

While not-for-profit organizations have some limitations on their ability to invest without compromising their nonprofit status, they typically reinvest any overages into maintaining facilities, purchasing new medical equipment, updating technology, and other necessary medical improvements.

Not-for-profit healthcare organizations typically promote a service-driven culture rather than a business-driven culture. As service-driven entities, not-for-profit healthcare organizations tend to be more aggressive negotiators when approaching expenses such as managed care contracts.

As part of the 501(c)(3) statute, not-for-profit healthcare organizations have some limitations on their ability to lobby or advocate for healthcare reforms. Advocacy and lobbying cannot be a substantial part of their activities or they risk losing their nonprofit status.

Examples of Not-For-Profit Healthcare Organizations

Some not-for-profit organizations are advocacy organizations, and some are hospitals or organizations that employ physicians.

The following not-for-profit healthcare organizations list will give you an idea of some of the leading not-for-profit healthcare organizations in the country:

  1. American Heart Association
  2. Doctors Without Borders
  3. Kaiser Permanente
  4. CommonSpirit Health
  5. Providence St. Joseph Health
  6. Ascension
  7. University of Pittsburgh Medical Center
  8. Trinity Health

A simple online search will yield hundreds of other not-for-profit healthcare organization examples.

Leveraging Governance Technology to Enhance Board Efficiency

While there are pros and cons to the quality of healthcare between for-profit and not-for-profit healthcare organizations, efficiency is something both types of entities hold dear. Technology can improve your board’s efficiency on multiple fronts. Not using governance technology could cost your board time, energy, and money.

To learn more about how technology can enhance your board meetings, read “How Governance Technology Can Increase Efficiency for Your Healthcare Board”.

Imagine how much more your not-for-profit healthcare organization could achieve if you could:

  • Access board materials in a secure online board management system any time you want
  • Create board books with ample time for board members to review the agenda and supporting documents
  • Ensure board members have the most recent updates
  • Share an online calendar
  • Route updated information on time-sensitive matters
  • Significantly reduce time and printing costs in creating board books

A BoardEffect board management solution does all these things and more.  With the right tools at your board’s disposal, your board can reinvest the time you previously spent on moving your nonprofit’s mission forward.

Ultimately, technology will help your not-for-profit healthcare organization provide the best in efficiency and quality of healthcare, and that’s a win-win for your board, the organization, and the people it serves.

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