Health Care 2.0: Where non-profit may mean no profit

In the Wall Street Journal today, there was an article today discussing the duality that exists in our health care system, maximizing revenue or serving the charitable mission. Interestingly enough, the article compares two non-profit hospitals in Chicago, Mount Sinai and Northwestern Memorial Hospital. This is especially important to me, because my parents began their medical careers at Mount Sinai, my mom working as a nurse in Recovery Room, and my father, as an Emergency Room resident physician. Additionally, when I have an ailment and need medical attention, outside of the care of my dad, I go to Northwestern Memorial hospital.

Mount Sinai, located on the west side of Chicago, is not in what most people would consider the best of areas. The Wall Street Journal says that Mount Sinai is “Located amid the blight of Chicago’s West Side“. In contrast, Northwestern Memorial hospital, located on the Gold Coast of Chicago, is in one of the wealthiest neighborhoods of Chicago. Both hospitals have the non-profit status, with one of the hospitals generating significant profits on a nice foundation of cash on hand and real estate assets, and the other hospital has barely over a week of cash on hand, with puny profits in comparison.

Guess which hospital is doing well?

Obviously, it’s Northwestern Memorial Hospital. To quote the figures, Northwestern Memorial hospital had a $140 million profit last year, whereas Mount Sinai had a $4.7 million profit last year. Given the size of these institutions, the Mount Sinai profit margin is much less than what you would think on first blush. Mount Sinai is sitting on $6.7 million of cash on hand, which amounts to about 8 days of operating income, with Northwestern Memorial hospital sitting on $1.8 billion amounting to 432 days of cash on hand!

I hope everyone is as shocked in the disparity as I am. One of the things I wish the article did was to show how many patients go through the doors of both facilities, making it more of an apples to apples comparison. Or even a comparison with the University of Chicago hospitals. Perhaps the facts are more skewed if Northwestern Memorial hospital takes on an order of magnitude more patients than Mount Sinai. Assuming that the patient throughput is approximately the same, as you’d imagine the reason for the disparity in profit margin is due to the fact that 70% of the patients at Northwestern Memorial have private insurance compared to 10% at Mount Sinai, 60% of patients at Mount Sinai are Medicaid compared to just 6% at Northwestern Memorial, and only 2% of patients at Northwestern Memorial have no insurance, compared to a staggering 12% at Mount Sinai.

Needless to say, this isn’t fair. Northwestern Memorial is a machine, and Illinois could sure use the tax dollars. The challenges with non-profits in general is that if you don’t run them like a profit-maximizing business, you significantly increase your chances of failing. At the same time, as a non-profit, there should be more initiatives to serve a charitable mission. With Northwestern Memorial hospital, according to the figures given by the WSJ, it appears as an outsider that they are doing very little to provide high quality medical care to those that may need it most. Perhaps they are doing quite a bit, but it would be better if the article addressed some of those initiatives. I look at the cash on hand, and I think of all the things that could be done to address the health care ills that Mount Sinai has a tough time fighting.

I know I am just starting my public policy Master’s degree program, but looking at this, there are some changes that need to be made. In my research on working on SavvyDoc, I’ve seen far too many non-profit hospitals with boatloads of cash, and no incentive to provide additional care and serve the charitable foundation they were founded upon.

Here’s what I propose for non-profit hospitals to retain their non-profit status:

Any hospital with over 180 (half of a year) days of cash on hand has to allocate the remaining amount to programming to serve the community and help with programs to provide health care services to blighted communities. They can also elect to do a luxury tax type of scenario that is used in professional sports, where the cash goes to the non-profit hospitals that aren’t making significant profit and are at risk of being eliminated by any external economic shock. Executive salaries can’t increase significantly from the previous year to prevent hospitals from giving higher salary and bonuses to their executives since they can’t keep the cash on hand.

The risk for this scenario is that you may have potentially removed all incentives for the hospital to see more patients, generate more revenue, etc. after the 180 mark has been reached. I’m not sure how to reconcile this fact.

What do you think? Does this seem reasonable?

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2 responses to “Health Care 2.0: Where non-profit may mean no profit

  1. Interesting comparison, b/w health care and “sports” (what else?).

  2. Pingback: Where’s the Pareto efficiency in Illinois health care? « These two cents by Emile Cambry Jr

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