Profit vs. Nonprofit: Hospital officials discuss difference in Hamblen County’s health care models

By John Gullion, Tribune Managing Editor 
Citizen Tribune

The Morristown-Hamblen Healthcare System Board’s job is to make decisions about the future of the hospital. According to Board Chairman Carl Storms, the board decided in 2008 not to pursue a for-profit model as they moved forward.

Instead, they limited their choices to nonprofit capital partners and elected to move into an exclusive contract to negotiate with fellow nonprofit Covenant Health.

Covenant’s offer of nearly $100 million dollars over seven years, including $28 million to pay off MHHS’ debt, seems to have attracted the attention of Community Health Systems, the for-profit Franklin based owner of MHHS’ rival Lakeway Regional.

With a very public, 11th-hour campaign, CHS officials are questioning the board’s aversion to a for-profit model and calling for more transparency in the still-under-negotiation Covenant/MHHS merger.

The for-profit vs. nonprofit issue? Lakeway officials call it a smokescreen while MHHS officials say it is at the heart of community-based health care. But what does it really mean?

In the simplest terms, the differences between for-profit and nonprofit are just what they say.

A for-profit hospital is investor owned. The profits go to the corporate entity. At a nonprofit facility, the hospital is required to reinvest profits into healthcare, hospital operations or a charitable foundation.

A for-profit hospital pays taxes while a nonprofit is expected to take the money that it would spend on taxes and use it to pay for charitable care.

Both forms of hospitals have to treat anyone who shows up in need of immediate medical care regardless of ability to pay.

After that, the differences get a little more complicated.

As Covenant President and CEO Anthony Spezia points out, his nonprofit health care provider has a billion dollars in budgeted revenue. But, he says, a nonprofit like Covenant uses those services that make money to cover for needed services that don’t.

"We’re a community benefit organization," Spezia said. "This is why we exist."

Spezia points to Covenant-run Peninsula, a behavioral (mental) health facility.

"We’re in behavioral health. We lose a lot of money in behavioral health. Everybody else is out of the business," Spezia said. "Peninsula is an inpatient facility. It’s one of the 10 largest by way of admission psych hospitals in the country. We struggle there financially. It’s a very impossible payer mix."

Spezia says more than half the patients are committed and the facility has sheriffs driving people there from 24 counties but Covenant is trying to make it work, using money from its more profitable services to cover for the facility where a for-profit hospital would not likely make the same commitment.

"We say we’ve got a big tent here and that’s something we need to do because if we didn’t do it, there would be no option," he said. "I’ve told the board, if I tell you I can’t make it there, you all need to be mad at me because it’s a part of what we’re delivering to the community … that’s the right thing for us to do."

Spezia said that is the crux of the argument between for-profit and nonprofit hospitals.

"When we start talking about the differences between CHS and us? That’s really where the rubber meets the road. We’re going to provide all the services the community needs. We’re going to try and make it work."

Lakeway Regional CEO Priscilla Mills says the difference isn’t quite so cut and dried. She says her hospital is willing to carry services the community needs, even if they don’t prove profitable and will use profitable lines of service to make up the difference.

"Most hospitals don’t make money at one service line or another, but we do it for the community," she said. "We don’t say ‘no, we’re not going to do the service,’ if the community need is there. You just have to be efficient like any other business does. I think it can be done."

Mills says Lakeway has earned its reputation as a community partner over the years and does more than its fair share of giving back to the community.

"With CHS, I think it’s proven, they’ve been here 17 years investing in the hospital, investing in the community and it’s a strong company. By their proposal, (which includes a plan for a $50 million charitable foundation) I think it’s evident that they’re willing to invest in the community because it’s a community they want to be in."

MHHS president and CEO Richard Clark points to the facilities that his hospital has added to improve area health care as a clear difference between the two models.

"By design we have reinvested all our earnings to recruit new physicians and to develop new programs and services," he said. "As a result, we now deliver more healthcare services locally and have also doubled the size of our workforce … Our heart and cancer programs are just two examples of new services that we took the initiative to develop while avoiding duplication."

In addition to the cancer and heart programs, MHHS officials point to the Spine Center and outpatient diagnostic center as local improvements in the 13 years since Lakeway’s last push to buy MHHS.

Mills counters by saying CHS and Lakeway listens to local physicians and strives to provide them needed equipment.

"Even though we have a corporate office in Nashville, we make decisions at a local level," Mills said. "We have managers talk to employees. We talk to physicians and we ask ‘What do you need?’ Years ago, we needed a new GI (gastro intestinal) suite. We requested that and we got it.

"A year or two later we decided we’re outgrowing our surgery suites and we need a new day surgery area … we got that. This last year we upgraded the women’s pavilion that was close to $300,000. We’re in the process of building a fourth OR because we don’t have the space to do the surgeries.

"Surgeons want to come to our hospital to do surgeries and we don’t have the space. We estimate that will be about a $4.8 million investment.

"Anything that I think we’ve needed, I have not been turned down. I’m an RN and I choose to stay there. They do listen to doctors."

Mills says the difference between for-profit and nonprofit isn’t as big as it is made out to be by those in the nonprofit world.

"The difference, we say at the hospital, you can say we’re for-profit and they’re not-for-profit, but patients get treated the same. We pay taxes and they don’t pay taxes."

The practical upshot? According to the Joint Annual Reports filed with the state of Tennessee for the 5-year period between 2004 and 2008, MHHS paid $9,224,426 in charitable care. Lakeway paid $3,044,407 over the same period.

However, Lakeway officials point to the same report and say that in 2008 the numbers, because Lakeway serves fewer total patients, were much closer by percentage.

According to the JAR, Lakeway spent about 10 percent of its net patient revenue in charity and uncompensated care while MHHS invested about 17 percent. In addition, CHS has offered to maintain MHHS’s current indigent care policies in any purchase of the hospital.

Mills says that Lakeway paid about $800,000 in taxes each of those years.