Nonprofit hospitals may drive up healthcare costs

money suitcase

Are nonprofit hospitals driving up costs throughout the healthcare sector?

Yes, says Robert M. Doroghazi, M.D., a Missouri physician, in a piece (PDF) in the American Journal of Medicine. Doroghazi, who is the publisher of the Physician Investor Newsletter, noted that seven of the 10 most lucrative hospitals in the United States are nonprofits, including the top four on the list.

But Doroghazi also noted that most nonprofit hospitals have fallen short of their goal to spend 5 percent of revenue on charity care, spending just 1.9 percent in 2013.

And Doroghazi also criticized the profit motives of these providers' top executives.

“The executives of 'non-profit' health chains have seized some of the tax-exempt advantage for their own personal enrichment,” he wrote. He noted that in recent years, 30 executives at nonprofit hospital systems were paid more than $4 million in a single year, with a mean total compensation of $6.5 million. Two executives made more than $10 million, and one made more than $20 million.

As a result of the path taken by hospitals in the U.S., Doroghazi said there were only a limited amount of ways to generate a surplus: Provide more efficient care (for which he is skeptical); charge more; or cherrypick patients based on their potential profitability.

Doroghazi has therefore concluded that Congress must intervene and define a nonprofit institution as one that makes no profit, aside from that required to maintain quality operations, prudent reserves, and fund future capital needs; and that compensation of top executives should be closer to other nonprofit enterprises, such as the Boy Scouts of America or the Salvation Army.

Whether any public pressure can be borne on hospitals to rein in their costs remain to be seen. When the most expensive hospitals in Florida were recently called out for their high costs, nothing happened.