Abstract
The study seeks elaborate on the nonprofit and for-profit hospital joint venture and giving growing similarities in their operation capacities. The growing need for improvement by nonprofit hospitals regarding healthcare delivery requires high capital generation and more funding. Overdependence on sponsors and well-wishers for grants do not support the community benefit fully. This makes nonprofit hospitals not to deliver high quality health care, and unable to settle bills and outsourcing high technology to support medication. The conversion from nonprofit to for-profit hospital, and joint venturing with for-profit hospital help in improving performance, delivery, and high-quality health care. The paper focuses on basic distinguishing characteristics of both nonprofit and for-profit hospitals, conversion process and financial benchmark. These features are essential in risks analysis and capital structuring for the for-profit hospital in decision making for a joint venture with the nonprofit hospital. Therefore, the decision made depends on the analysis undertaken by the nonprofit hospital to convert to a for-profit hospital.
Introduction
In the organizational setting, different risks are involved in the business operation in daily activities. These risks depend on the managerial approach and structure of the operations. The profit making organization focuses in undertaking business operations with the aim of improving the income level while nonprofit organization values services and community benefits over the income and revenue generated. The board of directors of nonprofit hospital approaching the for-profit hospital for a joint venture requires risk analysis and undertaking capital structuring to identify compatibility of two organizations. The conversion of a nonprofit to for-profit hospital requires both organizations to undertake comparative changes that would ensure business operation, objectives and goals are aligning. Therefore, the study seeks to evaluate the factors that nonprofit hospital has to consider for a successful conversion to a for-profit hospital. Furthermore, the study will identify some of the characteristics of the both for-profit and nonprofit hospitals, factors that require being considered during the conversion as well as risks involved during the process of conversion.
The key distinguishing characteristics
For-profit hospitals
The main objective for-profit hospital is earning revenue to gain profit. The characteristic for-profit making hospitals are;
The hospital must have the ability to raise and distribute profit among its investors; for-profit making hospital like any other profit making the organization, the basic objective is raising profit for its investors. The generated profit is shared among the investors on their shares and contribution.
Ability to raise capital; for-profit making organization must have the ability to raise both initial and operation capital through its investors. The operations of the for-profit hospital generate income with the aim of raising operation capital. During loss-making, the investors contribute toward raising capital to support the basic operations in the hospital.
Tax payment; for-profit hospital like any other profit generating organization, it has an obligation to pay both income and property taxes. The hospital has to comply with the general laws that subject to tax payment.
Nonprofit hospitals
Nonprofit hospitals focus on community benefits whereby the public enjoys subsidized or uncompensated health care, unbilled public goods, and services. These are the characteristics of nonprofit hospitals,
Nonprofit hospital has the obligation of investing all o its profits in the organizational development, supporting operation and expanding community benefits. The nonprofit hospital subsidizes its operation, and hence the collected revenue helps in reinforcing its daily operation.
Nonprofit hospital like any other nonprofit making organization enjoys exemption from state and federal taxes payment on its income and properties. The organization is considered to use the revenue collected in supporting its operation in community benefits.
The nonprofit hospital is required to report the community benefits that are offered to the public. This helps to enlighten public the available services and the packages offered regarding community benefits. The support from the well-wishers as grants helps in subsidizing the bills and service delivery in nonprofit hospitals.
The features of nonprofit and for-profit hospitals depend on the objectives of the institutions. In a joint venture between the nonprofit to a for-profit hospital, the nonprofit hospital has to undertake appropriate mechanism to meet for-profit hospital characteristics. The main objective is to align all the operation of the nonprofit hospital regarding regulations and policies to meet the requirements of the for-profit hospital (Patterson & Houston, 2012). These include remittance of income and property taxes, generating revenue with the aim of profit making and raising capital without depending on grants from government and other well-wishers.
Converting Nonprofit to for-Profit hospital
Nonprofit hospital has to consider involving the Internal Revenue Service in the process of converting to profit making a hospital. This is facilitated with the for-profit hospital assistance to ensure all the required criterions are achieved successfully to merge. The benefits of converting to the for-profit hospital are chances of obtaining loans for financial breakthrough, merging with other profit making an organization to improve in continued service delivery to the community (Nicholson, Pauly, Burns, Baumritter, & Asch, 2000). The process that nonprofit hospital should consider in converting to the for-profit hospital requires the involvement of stakeholders, tax adviser and donors among others.
The first step in conversion process should be consultation with a tax adviser to deliberate on the tax returns and potential income expected. This helps in understanding organizational capability in seeking loans and funding to support its operation would be worthy to meets taxes and the amount owed annually (Patterson & Houston, 2012). This involves the board of directors and donor approvals on the willingness of nonprofit hospital to convert to a for-profit hospital.
The board of directors should convene a meeting to review the financial options and then vote for the conversion from nonprofit to a for-profit hospital. The review of the conversion process conducted in assessing the impacts to donors and private backers. The minute from the meeting is then notified to the employees, donors, partners and other members.
The statement of nonprofit conversion to the for-profit hospital is notified to Internal Revenue Service indicating the reasons for the decision. This is accompanied by the copy of certified liquidation plan, fair market value o entire hospital and asset recipients if they are distributed as the nonprofit termination plan (Collins, Gra, & Hadley, 2001). The nonprofit hospital is categorized as the for-profit making hospital, and the need of reorganizing the tax structure and assets is initiated. These statements are subjected to the Exempt Organization Determinations Department for Internal Revenue Service to review the conversion plan.
The nonprofit hospital considers notifying the employees, partners, donor and members of the conversion status after getting paperwork indicating the new status of the for-profit hospital. The conversion achievement makes the hospital engage in the profit making and merging with other partners such as a for-profit hospital. The need to this shift to for-profit hospital helps in setting a strong foundation for hospital survival from the risks involved in community benefits services (Blumenthal & Weissman, 2000). In this environment, the nonprofit hospital depends on with the grants and funds from well-wishers. The overdependence to sponsors poses some risks of low funding and a hence shortage of operating capital to support the hospital operation. The bills incurred and subsidized medical care would attract high burden in running a nonprofit hospital.
Reasons for outright merger versus joint venture
In the merger, the nonprofit hospital and for-profit hospital sets appropriate platform in healthcare operation. The for-profit hospital completely absorbs the strategy and plans of operation of the nonprofit hospital. This makes for-profit hospital take over all the operations offered by the nonprofit hospital under merger and acquisition platform (Lee, Yih, & Alexander, 1999). On the other hand, the joint venture is based on an agreement between the for-profit hospital and nonprofit hospital in undertaking similar strategy and action is incorporated. Each organization runs on itself but taking the similar project through partnering.
The potential reasons for partnering are an improvement in quality services delivery and ensuring the community benefits from the services. The nonprofit hospital considers getting more funding through accessing loans and partnering with other for-profit hospitals in improving in healthcare services. The approach of the joint venture is essential in maintaining the medical services offered by nonprofit hospital even after becoming a for-profit hospital.
Payer mix and financial benchmarks
Payer mix indicates healthcare revenue percentage that is contributed by private, government and individual insurance versus contribution. The Medicare and Medicaid insurances paid in hospitals sometimes are considered being less than the cost incurred during patient treatment. This makes nonprofit hospitals incur shortages in setting its bills, outsourcing high-quality health care services and supporting its operations.
Financial benchmark covers financial analysis comparison to the overall hospital competitiveness, productivity, and efficiency in running its operation and offering high-quality healthcare. Nonprofit hospitals get short financial support as it depends on sponsors and other good-wishers. This makes it provide low-quality services even if it is community benefits.
Contrary, the for-profit hospital has investors, contributing operation capital. It has easy access loans and financial funding from the profits achieved. This helps in improving service delivery, high-quality medication and outsourcing are improved to support patient’s treatment (Collins, Gra, & Hadley, 2001). Uncompensated are a burden in the nonprofit hospital makes it have challenges in achieving its objective to community benefits.
Conclusion
The for-profit hospital should consider and accept the offer from a nonprofit hospital in creating a joint venture. This should be achieved after nonprofit hospital taking the initiative of converting to a for-profit hospital. The joint venture would ensure the both institution to operate on their specialization in the healthcare sector. This would also help in attracting more profits, as the newly for-profit hospital would maintain its customers; improve its services and quality of healthcare. Therefore, the for-profit hospital should accept the nonprofit hospital joint venture idea.
References
Blumenthal, D., & Weissman, J. S. (2000). Selling teaching hospitals to investor-owned hospital chains: Three case studies. Health Affairs, 19(2), 158–166.
Collins, S. R., Gray, B. H., & Hadley, J. (2001). The for-profit conversion of nonprofit hospitals in the US Health care system: Eight case studies. Commonwealth Fund, 1-28
Lee, S. Y. D., & Alexander, J. A. (1999). Consequences of organizational change in US hospitals. Medical care research and review, 56(3), 227-276.
Nicholson, S., Pauly, M. V., Burns, L. R., Baumritter, A., & Asch, D. A. (2000). Measuring community benefits provided by for-profit and nonprofit hospitals. Health Affairs, 19(6), 168-177.
Patterson, M., & Houston, T. (2012). Five Steps to Transition: the Canada Not-for-Profit
Corporations Act. Charity Law, 8-12.
Appendix
Risk analysis and capital for nonprofit hospital
