For Profit.Not For Profit

by Joe Flower


This article originally appeared in The Healthcare Forum Journal, vol. 39 no. 2, March-April 1996.
International Copyright 1996 Joe Flower All Rights Reserved
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The argument has boiled for decades within the industry, often framed in impassioned terms as black vs. white, as good vs. evil. One side claims, "Caring for people's health must be driven by compassion and community, not profit." The other side says, "Everybody in the industry makes money. The only difference is that we pay taxes on ours."

In the turbulent mid-1990s, the argument has reached new heights. As mission-driven institutions are driven to consolidate or to seek partnerships, in many cases the only partners left -- or the only ones with cash in hand -- are proprietary chains. And the mission-driven boards and management ask themselves, "Is this okay? Can I sell to these people? Can I partner with them?"

For some the differences between the mission-driven and the proprietary are technical and minimal, matters of different tax status and different access to capital. For others the differences are moral and abyssal.

Yet the realities are rarely that simple, and as we careen through the fog of the 90s the realities ramify into complexities at once gorgeous, enthralling, and frightening.

Mission-driven institutions are experiencing a deep "migration in thinking," as former US Health chief Erie Chapman puts it. "So many not-for-profit executives have recently said things to me like, `I am seriously looking at options now that I would not have considered a year ago.'" The for-profit option has become "fashionable," says Chapman. "Many CEOs on the community side have seemed to lose confidence in the value of being there for the community." Proposing to sell the system to a proprietary chain -- the act that caused Steve Morris to be unceremoniously booted from the helm of Samaritan Health Systems in Phoenix a decade ago, his career ended and reputation in tatters -- has become an everyday occurrence.

David Fine, CEO of Tulane University Medical Center (recently partnered with Columbia/HCA, the Colossus of investor-owned chains) says, "The industry is at a crossroads in which an organizational model that served it well for many generations -- the charitable model -- is coming under greater question than at any time before. The incentives that caused religious organizations to start hospitals in the first place have shifted drastically. The gap in hospital beds no longer exists. Local governments increasingly want to know whether there is a real quid pro quo for tax exemptions. In some places the answer clearly is `no.'"

Indeed, proprietaries have begun to attack the special status of not-for-profits with a greater intensity and clarity than ever before, demanding that local and state governments make not-for-profits show what they are giving in return for their tax freedom. Utah and Texas have already passed such legislation, and other states are considering it. And not all the fire is coming from the for-profit side. Even healthcare's happy prophet Leland Kaiser, a lion of the community not-for-profit model, says, "I agree with [Columbia/HCA CEO] Rick Scott on this one point: if not-for-profit hospitals don't give as much back to the community as they would in taxes, then they ought to pay taxes."

But not-for-profit advocates can be just as passionate in sounding the moral clarion. Terry Shaw, a vice president at Florida Hospital (an Adventist institution), says, "The for-profit guys show up at work for one reason, one goal -- to increase the value of that stock" -- echoing almost exactly what National Medical Enterprises' CEO Jeffrey Barbakow said in announcing the buy-out of American Medical International in late 1994: "The number one priority for our board is to drive shareholder value." Chicago's Cardinal Joseph Bernardin weighed in last year with a much-quoted speech to Harvard Business School alumni in which he asserted that there are some services "too important to leave to the marketplace."

Is such conventional reasoning "obsolete," as Editor Craig Havighurst did in the investor-owned industry's Health Systems Review last summer? Have the fundamental arguments changed? Jeff Goldsmith of HealthFutures says no: "I don't see anything new here except for the level of panic among the not-for-profits. They're running around saying, `The sky is falling, the world is coming to an end, the for-profits are coming.' But the numbers say no such thing. There are actually fewer for-profit hospitals now than at their peak in 1986. The panic is not really about the for-profit movement."

Yet panic about the changes in healthcare markets is widespread. You can read the tea leaves: the bond ratings of the marginal institutions are falling, and those of the successful institutions are holding or rising. That panic does tend to focus on the aggressive growth of Columbia/HCA, the re-formed Tenet, and other proprietary systems. And over the next few years, especially as federal healthcare cuts take hold and the managed-care companies round up greater chunks of the market, more and more not-for-profit institutions will be driven into their arms.

The arguments form around ethical dilemmas, cost-cutting, the stability of the not-for-profits and the flexibility of the for-profits, the specter of money made from healthcare leaving the community to satisfy investors, the question of who takes care of the poor -- and ultimately, around the very nature of the business we are in.


The ethical argument


Dr. David Lawrence, CEO of Kaiser Permanente, has a basic ethical problem with some forms of for-profit involvement in health care, even in the hands of the best-intentioned and most ethical people: "In a field as ambiguous as healthcare, where the science is so limited as to what works and what doesn't work, the opportunity for ethical mischief at the margin is fairly substantial. The opportunity to find ways to shave care is very great. The standards of what works and what doesn't are too weak to carry that kind of ethical burden." He and his fellow Kaiser decision-makers get individual financial rewards if the organization can exceed certain population health status targets. In some regions, all employees get bonuses based on customer satisfaction surveys. "This is a very different focus from keeping the price of the stock up," he says.

Boone Powell, CEO of Baylor Health Care System in Dallas, agrees: "I have financial pressures, but not the pressure of shareholders watching what I am doing. That would be an enormous management burden to carry."

Columbia/HCA executives dismiss such thinking. Vic Campbell, a senior vice president with financial responsibilities, says, "I guarantee you there is no one in this organization who runs around worrying about the stock price. The shareholder is no different from the bondholder for a tax-exempt organization -- and the bondholder has more power, the power to seize the asset if the bond goes into default. For-profit or not, I believe that if you live up to your values and principles, you will continue to be in business."


The cost advantage of size


One part of the for-profit argument is that it is simply more successful at providing an undoubted social good: low-cost, high-quality health care. So any discussion comparing the for-profit and not-for-profit model has to deal in part with the practices and prospects of the for-profit sector, and especially of its leader in size, savvy, and momentum, Columbia/HCA.

From its beginnings, the proprietary side of the industry has been the bottom-feeder, buying up struggling institutions and emphasizing low costs. Columbia/HCA has been called "the WalMart of healthcare" by its own co-founder Richard Rainwater. Yet oddly enough, it is the not-for-profits that should have the advantage at the cost game. They can be comfortable with a margin well below 10 percent, while a company that wishes to keep Wall Street happy has to look for a return on investment of 20 percent or higher. And taxes -- corporate income taxes, local business taxes, and property taxes -- take a big bite. In theory, the proprietaries should start way back in the pack. The fact that they can compete at all is powerful testimony to their business effectiveness.

One big for-profit advantage has nothing to do with tax status, but with sheer size: for some things, bigger is better.

Columbia/HCA has followed the path of its predecessors in amassing an enormous system involving hundreds of hospitals, citing economies of scale and buying power. The company often asserts that its size brings it a great advantage in the cost of capital, the ability to amortize the cost of sophisticated information systems across hundreds of institutions, and as much as a 30 percent cost advantage in buying supplies -- and indeed, in the first year or two after takeover, many Columbia/HCA hospitals have shown a dramatic turnaround in profitability. John Hornbeak, CEO of Southwest Texas Methodist, which last year became a joint venture with Columbia, testifies that the savings were even greater than he expected: "Our cost of borrowing is far less than it was, and we are reducing expenses for supplies and insurance in ways that outstrip what we planned."

But what does the cost advantage of size have to do with tax status? Advocates of such large not-for-profit amalgamations as the Voluntary Hospitals of America, and the recent merger of American Healthcare Systems, Premier Health Alliance, and SunHealth Alliance, argue that they can bring as great an advantage to their members. But many of the advantages of size accrue to tight control, not loose affiliation -- and tight corporate control is antithetical to the not-for-profit ideal of control by the community, by a religious group, or by an educational institution.

This local control has a cost. If a not-for-profit alliance cannot order its members to use certain suppliers, then it cannot guarantee those suppliers the kind of volume buys that will garner the lowest prices. If it cannot order its members to use a single global information system, it cannot amortize the cost of that system over hundreds of hospitals. If it cannot order its members to restrain their capital spending, to trim departments, to consolidate, or even to shut down when their capacities are not needed, then it cannot rationalize their capacities in each local market as a for-profit chain can.

Yet while the advantages of size are great, they guarantee nothing in themselves, and the for-profits do not necessarily have an easy road in the years to come. Many of the major decisions that Columbia/HCA executives make to restore profitability are one-time, strategic decisions -- shutting down money-losing departments and hospitals, for instance -- that cannot be duplicated quarter after quarter, year after year.

Even under the lash of hard-nosed business types, the hospital industry in the 1990s is not the high-margin business it was before DRGs, and that margin will shrink severely as federal budget-crushing continues to squeeze Medicare and Medicaid, and as for-profit managed care companies corner greater and greater parts of the market, often competing on cost alone.

Buying hospitals in such an environment, as the proprietary chains are doing, is "crazy," says Kaiser. "That's the last thing you'll do if you understand the future of healthcare. The whole future of healthcare is population-based medicine."

Goldsmith has equal doubts, citing the company's sharp drop in growth in the past year. In its rapid growth in the two previous years, he says, "Columbia was mopping up a failed experiment. They haven't been able to put the squeeze on other markets like they did in El Paso and Miami. They are stagnant in most of their markets. They lost the University of Louisville contract. They are not really moving in Nashville. They are not major market players in Chicago or Houston. They haven't done much in Dallas, other than sign a Kaiser contract. They're just buying earnings and utilization."

Indeed, there are signs that Wall Street shares some of Goldsmith's concerns. Columbia's price/earnings multiple (the fundamental measure of the investment community's enthusiasm for a stock) has stayed well below the PEs of the highest-flying healthcare stocks. And its short position -- the volume of dollars bet on the idea that the stock is going to fall -- is often one of the largest on the stock exchange.

But one major not-for-profit executive, who has become deeply familiar with Columbia/HCA, disagrees with this gloom and doom scenario. In a detailed discussion, this executive (who wishes to remain anonymous) pointed out the powerful advantage of a business-is-business mindset focused solely on the hospital itself: "There is a huge difference in corporate culture between Columbia and the large-system not-for-profits -- a difference that is not at all well-understood by the not-for-profits. Today's large, integrated, not-for-profit systems are into a self-aggrandized version of industrial culture that is five to ten years behind other industries. Just at the point when other industries are decentralizing in order to be more nimble and responsive, healthcare is into owning assets, building highly centralized systems and bureaucracies. There are really very few efficiencies that arise just from putting together these systems involving different kinds of businesses form insurance to clinical.

"When these not-for-profit folks look at Columbia, which focuses on the core hospital business, they see it as thinking only on a quarterly basis, based on cutting costs by decimating staff and cutting non-paying programs. But that's not true. What the Columbia/HCA culture says is that structure and strategy are important, but the key is in operations. When you get everybody from the CEO on down to living and breathing operations, they will also be capable of good strategy.

"They have a fundamentally different perception of the business role of hospitals. To the large-system not-for-profit mind, the hospital has become a cash cow, throwing off money to develop and subsidize the PHO and the managed care wing. They have developed a kind of contempt for the hospital and the doctors, where their fundamental business still lies.

"Columbia still sees the hospital itself as a business, a money-maker on its own, one which depends upon a successful relation with physicians, and market expansion, along with the economies of scale in purchasing and finance that their size can bring. This is a better analysis of what is going to succeed in the next five years.

"You can run your hospital with the attitude that what you are doing is just keeping your head above water, or with the attitude that you are going to be the survivor and keep your margins high, that you are going to excel at the hospital business. Whether the hospital sector is a growth industry is irrelevant, as a business question. The business question is whether you can make money in it."


Here today, gone tomorrow?


The greatest business advantage the proprietaries have over the not-for-profits is the nimbleness and the strong corporate structure necessary to move swiftly in turbulent times -- but in healthcare, people prize stability.

Most people are born in hospitals, go through some of their greatest struggles in them, are at their weakest and most frightened in them, and often die in them. Everywhere in America, mission-driven hospitals, and the organizations that run them, are among the most enduring monuments on the local landscape. Such common hospital names as "Memorial" and "Community" stand for a quite deep and passionate sense of connection, of community, and of generations, that people attach to these institutions.

The proprietaries' score on stability is close to zero. The movement is only three decades old, and has already gone through several paroxyms of growth and dissolution. Nine years ago Columbia didn't exist. Three years ago, it owned 24 hospitals. Today it owns more than 330. A number of institutions, including such major ones as St. Luke's/Presbyterian in Denver, have gone through several owners and shifts in tax status. As Preston Gee and Sandy Lutz put it in The For-Profit Healthcare Revolution, "Almost without exception, investor-owned companies develop another whole genus of money masters: junk bondholders, banks, venture capital investors, private placement investors, and real estate investment trusts. . . . When things get tight, the not-for-profit is more likely to hang in there; the for-profit will be sold, closed, or go through a revolving door of administrators."

Among mission-driven institutions, generations of history is the norm, and a century or more is not even rare. Rich Morrison of Florida Hospital says, "The for-profits can put their money in other places. We have been here 85 years, even when margins were ugly, even when we had to sell property to meet payroll."

Yet "hanging in there" is not an unmixed virtue. Not-for-profits are notoriously slow to make the changes that are necessary to re-shape the industry to new realities. Their distributed governance structure, their multiple levels of boards, and their deep roots in community -- in some ways their greatest strengths -- make them vulnerable.

In an interview last year, David Vandewater, chief operating officer of Columbia/HCA, emphasized his company's willingness to do what needs to be done: "Hospital operations are not much different from a ball bearing company -- if we run at 40 percent capacity we are going to be inefficient. We treat this industry as a business and try to get our inpatient and outpatient capacity totals up, whether inpatient or outpatient."

For some community advocates, this is the strongest argument for selling not-for-profit institutions to for-profit chains: if the boards of not-for-profits don't have the strength and boldness to do what needs to be done, they should turn over the assets to someone who is willing to do it, in exchange for money that might still serve a community purpose. "Columbia/HCA is performing the important social function of squeezing out cost and capacity," says Mollie Coye, former health commissioner of New Jersey and California. "Today there is a high percentage of unnecessary and inappropriate care, and of excess capacity that should be closed -- but it's not happening. The providers will not cut themselves off at the ankles, unless they get replacement income for doing so." Ironically, Coye was until recently a senior vice president at Good Samaritan Health System in California, whose sale to Columbia/HCA probably served to preserve capacity that Good Samaritan would have been forced to close.

As the CEO of another mission-driven health system put it, "Columbia/HCA seems to be an efficient eliminator of excess capacity, which we not-for-profits aren't. Community representatives do not get on the hospital board to shut it down. It's not a pleasant voluntary task. Perhaps that is Columbia's role -- or an example to follow."

To some critics, this is nothing less than a failure of the not-for-profits' will to do what needs to be done. Michael Annison, a healthcare futurist whose beliefs prevent him from even consulting for proprietaries, says, "A `Board of Trustees' is called that for a significant reason: they hold the assets in trust. Their responsibility is not to the institution but to the long-term needs of the community." Jeff Goldsmith says, "The for-profits supposedly do magical things to prop up profitability. But why couldn't the previous owners have done those same things? The answer is weak governance."


Follow the money


Leland Kaiser says, "Your budget is your ethical document." What this "ethical document" shows at any viable healthcare institution or system is millions of dollars in profit. In a proprietary system, it shows those dollars, for the most part, leaving the community where they were made and going to investors that are, as Lutz and Gee put it, "emotionally, geographically, and intellectually distanced from their investment."

"That's why my prejudice is for the not-for-profit model," says Leland Kaiser. "I don't think any healthcare dollars ought to leave the community. While we pump the profits out to Wall Street, we have all kind of kids that are not getting basic healthcare."

In an ongoing "battle of the studies," Columbia/HCA has attempted to prove that not-for-profits slack off in providing the charity care and community work that they give in return for tax exemption, and not-for-profits have fought back with studies attemting to show that Columbia hospitals "dump" non-paying work on rival institutions. But it is not simple to say which point of view is correct. Dollar figures for "charity care" are often not comparable, since not-for-profits have an incentive to put uncollectable accounts and underfunded Medicaid contracts in that category, while for-profits can write off bad debt, and have little interest in showing their stockholders that they are giving away the store. As with many such studies, the key lies not so much in the statistics as in the assumptions. For-profit executives do not admit to "dumping." But their argument implies that, if not-for-profit hospitals are tax-exempt because of their indigent care and community work, then taxable hospitals should reasonably be exempt from such demands.

And they insist that they do their share. Columbia/HCA's Rick Scott declares: "We do far more than our fair share of the charity care in this country." Vandewater, his second in command, adds, "When we acquire a not-for-profit, we'll contractually obligate ourselves to do as much as they have been doing because, generally speaking, they don't do as much as we normally do. We just consider that a cost of doing business."

Tommy Frist, Jr., one of the grand old men of the for-profit movement, says that the focus of healthcare "has got to be broader than health. . . . It could be crime, it could be drugs, it could be pre-natal care. It could be education. . . . It's a `healthy community' type of approach."

Vic Campbell agrees: "We are here to serve the community. That's our reason for being."

But many people engaged in the debate raise the question: what happens to the extra money, the profits, generated by these organizations?

The profits of not-for-profits stay, at least physically, in the community. Whether they do any good there is another matter. Some not-for profits have devoted their margins to medical arms races, buying market share, subsidizing doctors' incomes, or building up reserves that have gone as high as $1 billion in some local systems. Others have bent at least some of it to the task of building a healthier community.

For years, Leland Kaiser has been urging hospitals to "tithe," to dedicate ten percent of margin to the task of changing the community -- and, according to Kaiser, dozens of institutions have taken up the challenge, including Memorial Hospital in Houston and Memorial Hospital in South Bend, Indiana. South Bend CEO Phil Newbold, says, "Not only do we earn our tax-exempt status, we go beyond it. In the long run, this is the kind of policy that will earn not-for-profits the trust of the community."

Kaiser says, "Tithing is a clear statement to the community that we are doing what we can for unmet needs. We'll give some back, and we'll put it exactly where neither third-party payors nor the government are dealing with the problem. If Columbia/HCA would tithe itself and put that back into the community, I would get off their case."

Florida Hospital's Terry Shaw allows that investor-owned hospitals probably do deliver healthcare efficiently. "But that model doesn't solve long-term social problems, doesn't partner the police force or the schools, doesn't do anything for the overall health of the community -- and I don't buy that outlook for a second."

When confronted with such notions, Columbia/HCA executives vigorously object. They define their mission far more narrowly ("We are not in the healthcare business," Columbia COO David Vandewater told me, "we are in the sick care business"), they claim that they give over $1 billion in uncompensated care per year, and they cite the $1 billion in local, state, and federal taxes they pay as their contribution to the community.

Some critics of for-profits consider this simply part of the nature of a profit-making enterprise. Annison put it this way: "Rick Scott is accountable to the market for the efficient use of resources. He is not responsible to the community for the effective use of resources."

Kaiser agrees, charging that "the greatest violators of ethics in this country are not the for-profits. The for-profits are saying: `We are going to make money off disease, and kill off our competitors.' They're very clear. The not-for-profits say, `We are here to serve the community.' But in fact most of them are not doing anything."

Yet it may be that the greatest community-benefits question has nothing to do with intent or declarations of good-heartedness, and everything to do with incentives. Columbia/HCA has attempted vigorously to stay in the fee-for-service hospital business. It has avoided buying or developing insurance capabilities, and has not leapt to take on risk in direct, capitated employer contracts. Hospitals have high fixed costs, and incremental business brings high margins. One private Columbia study shows that each extra admission in an average Columbia hospital adds over $5,000 to operating income -- a figure probably comparable to other hospitals. But as their size, and the trends of the time, force the proprietaries to take on risk, especially for high-risk Medicare and Medicaid populations, it is possible that their corporate interest in the health of the general population will rise vertiginously.

Some suggest (as did Tom Chapman, CEO of George Washington University Hospital in the District of Columbia, in Health Systems Review) that in some areas, healthcare may no longer be the best business for a religious or charitable organization. If their goal is to serve the community, it may be best for them to convert all that capital into a foundation geared to meeting the community's unmet needs, from housing to hunger.

That is, in fact, what many not-for-profits are doing -- selling out, retiring their debt, and setting up a foundation. The foundation can often give their current programs a stable funding base, expand their funding, and start new programs in the community. And some observers are appalled.

Goldsmith calls such conversions "acts of cowardice," and calls the foundation left behind "a false beneficence."

"I am totally not impressed," by the conversions, says Kaiser. "It takes you out of the business. You become a bit player. You promote yourself into obscurity. Once you are no longer a major provider, how do you help re-shape healthcare in this country? The people who are doing the everyday work are the people whose values and goals are going to shape the future of healthcare. When you sell out and convert the assets into a foundation, you're taking the people who have the values that we need to transform healthcare and putting them on the sidelines."

Mike Guthrie, sidelined as CEO of the Good Samaritan Health System in San Jose as of January 1, when he and his board sold the system to Columbia/HCA, counters: "It's not a sin vs. sainthood question. It's a tools question. What do you want to do in the next five years, and what's the best way to do it? The people who work here the day after we close this deal still care about their patients and the health of the community, and they will have more tools at their command, more capital, and more information than we could provide them."


New ways out of the dilemma


But new paths out of this dilemma are beginning to materialize out of the blinding fogs of the decade.

The most significant possibility is the hybrid: under the right circumstances, hybrid joint ventures may offer the strength, speed, and capital of proprietaries, along with the strong values, stability, and community orientation of the mission-driven organization.

Two recent standout examples are a teaching hospital and a religious hospital, both major urban not-for-profits who have recently teamed with Columbia/HCA -- and both of whom profess to be pleased with the results so far.

If you call the executive offices of Tulane University Medical Center, the voicemail recording responds, "Welcome to the New Orleans Division of Columbia/HCA." Indeed, Columbia now owns an eighty percent share in the facility. Yet Tulane holds veto power over major appointments, as well discontinuation of any clinical services -- in all, some 15 decision areas marked out in the agreement as "major." Only faculty members of the university medical school may practice in the hospital, and Columbia has no say in those appointments. "Tulane University has absolute control of the mission," says CEO David Fine. "Why should you tie up so many tens of millions of dollars of capital in a physical asset when someone else is perfectly happy to buy that from you in a way that allows you to continue the mission?"

Fine is pleased enough with the result that he accompanies Columbia/HCA delegations to other systems. "To other hospital boards I would say: The freestanding facility is becoming an anachronism," says Fine. "You have to give up something to become part of an integrated system. Typically, that's some level of autonomy. Whether to sell to an investor-owned chain or to a charitable competitor is a local policy decision, but one in which the opportunity to leave behind both a functioning hospital and tens of millions of dollars for your community foundation is increasingly hard to ignore."

In San Antonio, Southwest Texas Methodist has been searching for the right dance partners since 1990. After long, difficult courtships with the Lutherans, the Baptists, and the Catholics came to nothing, a new suitor showed up from an unexpected direction. Columbia/HCA had acquired four smaller hospitals in town. The two suitors merged their interests to create a five-hospital citywide presence called "Methodist," anchored by Methodist Hospital, run by the top officers of Methodist Hospital, with Methodist chaplains, and pledged in considerable detail to extending Methodist social ideals. Methodist has rights to pull out of the deal under certain circumstances or, under any circumstances, to sell out at the acquisition price (for seven years), or to deny Columbia the use of the Methodist name. Methodist was able to retire its debt, and its share of the income is pledged to Methodist's foundation for community uses. What did Columbia get? Half the profits from a stronger system in San Antonio.

John Hornbeak, CEO of the venture, calls it "An elegant solution of the dilemma between mission and margin. We had drifted into being a fairly secular money-making machine. You couldn't tell if you were sitting in a proprietary or a not-for-profit. I think it's that way in not-for-profits across the country. No matter how much money we made at Methodist, I could always think of ways to spend it without going out to the south side of town and opening a clinic. I could think of a lot of things we could do for the community, but they would be black holes, and we wouldn't be able to come in with the low bid on managed care.

"But this is a solution: separate the two. Maintain all the free care and so forth that you did before, with the bonus that the income is free from the market pressures. This solution aligns the interest of Columbia/HCA's shareholders with the interests of our foundation -- they both want the system to prosper."

Spurred in part by such examples, Sharp HealthCare in San Diego has signed a letter of intent to place its core in-patient hospital business into a 50/50 venture with Columbia/HCA.

"We started with the mission," says Marguerite Calloway, CEO of Sharp Consulting Institute (and a member of the executive team that came to the decision), "and we never left the mission. The question was what would better serve our mission: to stay on our own as an integrated not-for-profit system, to convert to for-profit status, or to take on a for-profit partner."

In prospect, their reasons look similar to the results of the two previous examples: near-zero debt, access to capital, and greater ease in investing and dealing with physician groups. "It will free up our volunteer board to deal with the broader questions of health in San Diego County, and give them a stream of income in the tens of millions of dollars annually with which to do that."

The deal is not final, but already Sharp has formed a "purpose committee" to work with the county public health department in deciding the best uses of these new resources.

Calloway is enthusiastic about the hybrid model. "Neither model alone is sufficient to the task of healthcare in the `90s. The not-for-profit model carries a lot of baggage: a cumbersome board structure, serious restrictions on the ways it can do business, a debt structure that can only be applied to bricks and mortar rather than to clinical innovation, and a limited ability to truly align the incentives and share the risk with the physician. At the same time, if you have a purely business focus, as a for-profit, you have an inadequate piece of the picture. We're not selling soap suds."

Yet the hybrid model is no panacea. Other such deals, such as the proposed Columbia deal with Emory University, have fallen apart. Some, such as the Tenet deal with the University of Missouri, have disappeared in clouds of campus acrimony and legislative high dudgeon. Every pie is unique, but the deals that work seem to have one thing in common: they happened only after the mission-driven institutions involved had gone through many months of intensive self-scrutiny at all levels, so that everyone understood the need for change. "There are no shortcuts," as Fine says.

The strong attraction of hybrid deals was in fact one of the factors propelling the recent amalgamation of AmHS/Premier and SunHealth: Robert O'Leary, the Pied Piper of this new group, has experience in both camps, as CEO of both Voluntary Hospitals of America and American Medical International, and strongly advocates such collaboration. Another executive with similar experience is John Casey, former CEO of Presbyterian/St. Luke in Denver, then Methodist in Memphis, then COO of American Medical International -- and Casey is devoting himself to a joint venture with VHA which will itself become a shell for hybrids.

Such deals may provide one practical answer to the many voices now saying, "It's not the tax status that matters, ultimately. It's the effect on the community." GWU's Tom Chapman calls the "good-and-evil" debate over tax status "a lot of hot air." He asserts: "Non-profit hospitals do not have indestructible halos, or the for-profits indestructible horns. We should re-frame this debate in terms of the outcomes for the community, of how we can best meet clear and meaningful goals that matter in the community itself. It's not how much profit you make, but what you do with it to improve health."

Methodist's Hornbeak echoes his words: "It's not your tax status that defines your value to the community, it's what you actually do."

Columbia/HCA's Campbell says, "I don't think it's even a conversational issue. It's not how you are incorporated or capitalized. It's how you operate. It's not a matter of paying taxes or not, It's about doing the right thing."


What is healthcare about?


In the end, the debate does bring us to the central question: what is healthcare about? What business are we in? Kaiser Permanente's Dr. Lawrence frames it this way: "If taking care of patients is seen as a business, just like telecommunications or manufacturing, then you have one set of imperatives -- a business set. If, on the other hand, you see patient care as a public good, then you need to find the right way to mix for-profit and not-for-profit business models in various parts of the system in order to achieve that good." Florida Hospital's Rich Morrison puts it as a patient: "I don't want to go into a healthcare institution that sees my health as a commodity. My health is not a pair of shoes, a lawnmower, or a bushel of wheat."

It may be, in reality, that the debate is not so much about tax status, or even control, as it is an expression of fear and hunger: a fear that all of us, for-profit or not, have settled for something narrow -- a vision of ourselves as just another cut-throat industry -- and a hunger for something broad and powerful, a vision of easing the pain, comforting the afflicted, and raising up the hearts and health of the community, the place we live.

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