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What is the difference between nonprofit and for-profit hospitals?

What is the difference between nonprofit and for-profit hospitals?

In the U.S., hospitals come in various models, each designed to meet specific healthcare needs, financial structures, or community requirements. Among these facilities, the two most common models are nonprofit and for-profit hospitals. Each organization has unique characteristics and fundamental differences that shape its approach to healthcare delivery.

In this blog, we’ll compare and contrast nonprofit and for-profit hospitals.

What is a nonprofit hospital?

Nonprofit hospitals are driven by a commitment to community service and a mission to provide accessible healthcare to all, regardless of a patient’s ability to pay. These facilities are often founded by charitable organizations, religious groups, or community initiatives, or may be affiliated with a medical school. Nonprofit hospitals are sometimes known as not-for-profit or NFP.

What is the largest nonprofit hospital?

Determining the largest nonprofit hospital depends on the financial, clinical, or quality metric being measured.

For example, New York Presbyterian Weill Cornell Medical Center is the largest nonprofit hospital by net patient revenue (NPR), with an NPR of $7.6B, according to the most recent 12-month interval tracked in our database. Advent Health Orlando is the largest nonprofit hospital by number of staffed beds—2,247. Vanderbilt University Medical Center is the largest nonprofit hospital by total facility square footage at more than 8 million square feet.

Check out our Healthcare Insight on the largest nonprofit hospital systems for more trends and information.

What is a for-profit hospital?

For-profit hospitals, by contrast, operate under a business-oriented model. Like most common businesses, for-profit hospitals are owned and managed by private entities or corporations and prioritize generating profits for shareholders or owners.

Some of the largest for-profit health systems in the U.S. include HCA Healthcare, Tenet Healthcare, and Community Health Systems (CHS).

While the primary goal of both nonprofit and for-profit hospitals is to deliver high-quality care to patients, profit generation may influence how for-profit facilities make decisions regarding service offerings and resource allocation.

Are most hospitals for-profit or nonprofit?

According to the American Hospital Association, there are 6,129 active hospitals in the U.S. Among those facilities, 2,978 are nonprofit, and 1,235 are for-profit hospitals. The number of for-profit hospitals in America is growing every year, and more and more nonprofit hospitals are exploring potential transitions to an investor-owned financial model in the future.

While traditional wisdom once held that nonprofit hospitals maintain a firm advantage over for-profit hospitals, the tides seem to be turning.

Nonprofit hospitals vs. for-profit hospitals

There are several foundational and functional aspects that set nonprofit and for-profit hospitals apart from one another.

  • Ownership. As said above, for-profit hospitals are typically owned by private entities or corporations. Nonprofit hospitals may be owned by academic institutions, religious groups, or charitable organizations.
  • Tax-exempt. Nonprofit hospitals are not required to pay income or property taxes at federal, state, or local levels.
  • Financial objectives. Nonprofit hospitals must invest any profits ‘into the community,’ which can include facility improvements or paying executive salaries. For-profit hospitals may prioritize generating profit for shareholders.
  • Access to funding. Due to their charitable nature, nonprofit hospitals may rely on tax exemptions, philanthropic donations, and government grants. For-profits rely on investments, patient fees, and insurance reimbursements.
  • Services provided. Typically, nonprofit hospitals focus on offering services that benefit the community, like home healthcare, emergency psychiatric services, drug addiction recovery, and trauma wards. These services tend to provide smaller profit margins, so they may not be highly desirable for for-profit hospitals, which may prioritize services that bring in more revenue.

What’s not different between nonprofit and for-profit hospitals?

From a patient’s perspective, there is likely to be very little difference between a nonprofit and a for-profit hospital. According to veteran doctors and executives who have led at both types of facilities, there is no significant difference in operational efficiency, administrative structure, or quality of care. The objective of both for-profit and nonprofit hospitals is to provide the best possible care to as many people as possible.

Both types of facilities exist on lists of the best hospitals in the U.S., indicating that tax exemption status has little correlation with how a hospital functions.

Whether a hospital is nonprofit or for-profit should be of interest to the communities it serves and its staff. A nonprofit or for-profit designation can help people understand how the hospital allocates its resources and plans to reach its goals.

Check out our Healthcare Insight on nonprofit vs for-profit hospital payor mix for more information.

Learn more

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Ethan Popowitz

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Ethan Popowitz

Ethan Popowitz is a Senior Content Writer at Definitive Healthcare. He writes data-driven articles about telehealth, AI, the healthcare staffing shortage, and everything in…

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