Academic journal article Health and Social Work

Stewardship: Distinguishing Characteristic of Not-for-Profit Health Care

Academic journal article Health and Social Work

Stewardship: Distinguishing Characteristic of Not-for-Profit Health Care

Article excerpt

If criticism is the spur of reform, the future of not-for-profit hospitals is bright. Not long ago they were being criticized for inefficiency. Now, after years of struggling to survive by enforcing fiscal responsibility, they are being criticized for acting too much like businesses. Recent efforts to eliminate their "charitable" exemption in some communities are a case in point. The issue boils down to whether not for-profit hospitals are businesses generating "profit" in pursuit of self-interest or charitable institutions generating "benefit" for the community.

At first glance, the issue is simple. Not-for-profit hospitals should lose their tax exempt status - pay their fair share of income, sales, and real estate taxes - when they cannot demonstrate that what they do directly benefits the community. But like most social issues, the profit versus benefit issue is complex. Powerful forces outside the community put enormous pressure on not-for-profit hospitals to operate in the black, like profitable businesses. In the process, many of these institutions lose sight of their primary obligations.

We believe that not-for-profit hospitals can survive and thrive in today's highly competitive health care environment by embracing, rather than jettisoning, their communal obligations as charitable institutions. But this requires "stewardship." As stewards of public resources, not-for-profit hospitals must ensure that the social capital they generate delivers community benefit. A powerful avenue for them to elevate stewardship to the status of first principle is the health care foundation.


To put the issue in perspective, both not-for profit hospitals and for-profit hospitals are expected to produce social capital - a portion of their corporate wealth, profit, or revenues is used to benefit the community at large. However, not-for-profit hospitals have a greater opportunity to shape the local community through the direct deployment of their social capital than do for-profit hospitals. The reason is that

[T]he private (for-profit) sector hospital must distribute a portion of earnings and profits as taxes and dividends: mandatory taxes extracted and disseminated as social capital for the public good through the public (governmental) sector, and dividends compelled by private owners for purposes of increasing personal wealth. Any private (for profit) sector corporation, including a hospital, may voluntarily choose to contribute up to 10% of pre-tax net revenues to independent sector organizations for the benefit of the public good.

In essence, the private (for-profit) sector hospital is incapable of shaping the local community through the direct impact of its social capital, unless a portion of net revenues is donated to independent sector organizations by the private owners of the hospital. Taxes paid go to the public sector for disbursement and use cannot be influenced except through the obvious imprecision of the ballot box.

In contrast, all independent (not-for profit) sector hospital revenues ("profits") are considered social capital for the public good. These hospitals are exempt from paying taxes because "profits" are owned by the public and used directly or indirectly to the benefit of the public good. The independent (not-for-profit) sector hospital has complete control over the use of net revenues and the worthwhile communal impact of social capital. (Maynard & Walters, 1995, insert in newsletter.)

There is a great deal of debate over "Who benefits?" from the social capital generated by not-for-profit hospitals. Although some critics argue that the chief beneficiaries are the hospitals themselves (through improved facilities) and their users (through enhanced services), it should not be forgotten that this was in line with their original charge from communities and is still their primary charge today. Nevertheless, as Kelly (1998) pointed out in the August issue of this journal: "Although hospitals traditionally have been regarded as dominant charitable institutions, they have mixed success in meeting the needs of their communities. …

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