Non-profit finances deserve second look


Looked at one way, it's easy to see why an agency like Moody's would be less than enthusiastic about the financial prospects of not-for-profit hospitals. Just consider what's going on in many instances:

  • Falling revenue
  • Worsened liquidity
  • Increases in charity care burdens
  • Capital availability issues due to tightening of the credit markets

It's a pretty depressing picture, I'll admit, and one that shouldn't be taken lightly. These forces have indeed managed to sink some non-profits already, and will, without a doubt, impact more heavily.

In fact, looking at stories like the one below, in which a for-profit HCA rode in on its white horse and pumped more than a half-billion in capital into a former non-profit chain, you might think that the solution to U.S. healthcare woes is to go for-profit all of the way.

However, that would be far too narrow a reading of the facts. If you look at the non-profit sector in terms of its effectiveness, you'll get a much different picture. As any non-profit hospital exec would tell you, they may be operating at a deficit, but they're providing a lot to their community, including direct charity care, community education and other benefits.

I understand why ratings firms like Moody's look only at the metrics that interest for-profit investment houses; that is, after all, what they're paid to do. But it seems to me that relying too heavily on such ratings provides a distorted picture of the mission and financial structure of non-profits.

As for me, as an analyst I'd be far more interested in an analysis that included some sort of "mission" index (how effectively the hospital was fulfilling its charitable purpose). Certainly such an index would have to include calculations that weighed its ability to deliver financially. But the metric would weight delivery of community benefits far more heavily.

What do you think? Should non-profits take control of how their financial story is told, and how much emphasis is placed on their charitable accomplishments?  Write to me and let me know. - Anne

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