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HCA 807 Week 3 Discussion Question Two

HCA 807 Week 3 Discussion Question Two


Should individual health care be provided at public expense? Why or why not?

Although state laws under which not-for-profit organizations are incorporated vary in their requirements, a not-for-profit corporation is barred by its charter from “distributing its net earnings, if any, to individuals who exercise control over it, such as members, officers, directors, or trustees” (Hansmann, 1980:838). This key characteristic is referred to as the “nondistribution requirement,” and a variety of managerial and organizational behaviors are thought to follow from it. On the one hand it is seen as providing some assurance of quality and proper performance to consumers who lack the knowledge or information with which to monitor

HCA 807 Week 3 Discussion Question Two

HCA 807 Week 3 Discussion Question Two

performance adequately. Thus, Hansmann suggests that not-for-profit organizations are a response to contract failure in circumstances that make contracts between consumers and suppliers impractical to write or too costly to monitor. On the other hand the nondistribution constraint is sometimes alleged to cause indifference to consumers and inattention to efficiency, except where resources are tight.

Despite their label, not-for-profit organizations are not prohibited from earning profits (usually caned “surpluses”) from their operations; however, these surpluses generally must be devoted to the further financing and production of the services that the organization was formed to provide. There is debate about whether not-for-profit organizations should be restricted to certain traditional charitable purposes (Hansmann, 1980:839; U.S. Small Business Administration, 1983), but the provision of medical care and the conduct of teaching and research, are clearly qualifying purposes.

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Related to, but distinct from, the question of not-for-profit status is the availability to not-for-profit organizations, under certain conditions, of exemptions from federal income taxes (under Section 501(c)(3) of the Internal Revenue Code) and from state and local income, property, and sales taxes. Since many not-for-profit organizations own valuable property and earn healthy surpluses, these are significant advantages.

Not-for-profit organizations can be distinguished from each other by two attributes: their control and their financing. “Membership” or “mutual” not-for-profit organizations (such as country clubs or professional associations) are controlled by the organization’s patrons or members, who elect the board of directors (Hansmann, 1980:841; Horty and Mulholland, 1983:20). “Non-membership” not-for-profit organizations are controlled by a self-perpetuating board, which is a common pattern among not-for-profit nursing homes and hospitals. On the financing side, not-for-profit organizations can be distinguished according to the degree to which they derive their income from donations or from charges for the services they provide. The not-for-profit organization that derives its income primarily from charges for services is largely a creature of the post-World War II period, when the growth of private and public third-party payment programs effectively monetized health care (Ginzberg, 1984).

Many statements have been made over the years about the goals and ideals that not-for-profit health care organizations (and their boards) should pursue—they should be responsive to community health care needs, they should be responsible and efficient custodians of the resources entrusted to them, they should provide service to all who need it without regard to ability to pay, and so forth. Over the years certain criticisms have been recurrent—that administrators and trustees (1) are insufficiently critical of physicians’ requests for new equipment and facilities, (2) are motivated not by trying to meet all of the community’s medical needs but by a growth imperative stemming from the desire for prestige and power, and (3) are not interested enough in sound management, in part because the nondistribution requirement prevents their sharing any surplus that might be created and because association with independent hospitals tends to tie administrators to a particular community rather than to put them on the career ladder of a larger organization.

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