I had an interesting email exchange with a reporter from the Winston-Salem Journal about the hospitals that Novant and WFU Baptist Medical Center are proposing to build in Clemmons (Novant’s) or Advance (WFUBMC).  When I wrote that I’d really like to see Baptist build a new hospital on the site in Mocksville where it currently has an old hospital that by all accounts is old and in need of mothballs, she replied that Baptist can’t afford to build there because it is hemorrhaging money and market share.  I’m sure she’s right about that and I understand the business implications in both companies’ building proposals, but I think one issue that needs to be discussed is the fact that both companies are non-profits.  As non-profits shouldn’t the companies’ goals and agendas involve more than market share and profit?

In thinking about this I came to the realization that although I’ve worked in the non-profit industry for a long time I really don’t know what non-profits are supposed to be.  I decided to do a little research and when I Googled "history of nonprofits in america" the first listing was a 1998 USIS article titled Nonprofit Organizations: America’s Invisible Sector written by Dr. Lester M. Salamon, director of the Center for Civil
Society Studies at the Johns Hopkins University.  He provides a basic definition of non-profits:

As a first step in this process, it is necessary to clarify
exactly what the nonprofit sector is. In the United States, 26
different types of organizations are identified as worthy of tax
exemption, ranging from business associations through charitable
organizations and social clubs. Behind these 26 categories,
however, lie five critical features that all these entities
share. To be considered part of the nonprofit sector, therefore,
an entity must be:

organizational, i.e., an
institution with some
meaningful structure and permanence;

nongovernmental, i.e. not part
of the apparatus of
government;

non-profit-distributing, i.e.,
not permitted to
distribute profits to its owners or directors, but rather
required to plow them back into the objectives of the
organization;

self-governing, i.e., not
controlled by some entity
outside the organization; and

supportive of some public
purpose.

While all organizations that meet these five criteria are
formally part of the nonprofit sector in the United States, an
important distinction exists between two broad categories of
these organizations. The first are primarily
member-serving organizations. While serving some public
purpose, these organizations meet the interests, needs and
desires of the members of the organization. Included here are
social clubs, business associations, labor unions, mutual benefit
organizations of various sorts and political parties.

The second group of nonprofit organizations are primarily
public-serving organizations.  These organizations exist
exclusively to serve the needs of a broader public. Included here
are a variety of funding intermediaries such as charitable,
grant-making foundations; religious congregations; and a wide
range of educational, scientific, charitable and related service
organizations providing everything from nursing home care to
environmental advocacy.

This distinction between member-serving and public-serving
organizations is far from perfect. Nevertheless, it is
sufficiently important to find formal reflection in American law.
Thus, public-serving organizations fall into a special legal
category — Section 501(c)(3) of the U.S. tax code — that makes
them eligible not only for exemption from federal income taxation
and most state and local taxation, but also for tax-deductible
gifts from individuals and corporations, that is, gifts that
the individuals and corporations can deduct from their own income
in computing their tax liabilities. It is these organizations
that most Americans have in mind when they think about the
"nonprofit sector" and it is these that we will focus on here.

If we accept this definition, and I think it’s pretty good, then we accept that both Baptist and Novant are public serving organizations.  And since a requirement of non-profits is to plow their profits back into meeting their objectives then a natural question would be "Are Novant and WFU plowing their profits back into their mission?"

Originally I was going to detail a bunch of numbers from both organizations’ 990 filings.  These are the forms that non-profits file with the IRS (kind of like an individual’s 1090) and they highlight the non-profit’s financial performance for the year.  But instead of getting into the details I’m going to provide you with links to the filings (see the bottom of this post) and simply say that without question both organizations are highly profitable and both could probably stand to spend more money on the community no matter what they say about how much they write off in serving the indigent and poor.  Believe me, they show a healthy profit even after accounting for those expenses.

So given that Novant and WFUBMC are already profitable should they look only at market share and profitability when building these facilities?  Baptist wants to build in Advance because they say they will be serving Davie county and the majority of Davie lives in that area.  Maybe, but it’s also true that the majority of high income Davie residents live in Advance and it’s no secret that they’d like to poach some of the high income Clemmons residents from Novant as well.  Novant claims that they already serve something like 60% of the residents in the area proposed to be served by either hospital so it makes more sense to give them their shot in Clemmons, but if Baptist gets to build their hospital those numbers could change.

The reality is that Novant and WFUBMC are businesses that happen to be designated non-profits, or in other words they are non-profits in name only.  If they were non-profits in the sense that I think an average person with common sense would think of a non-profit then they wouldn’t dicker about the Downtown Health Plaza and they would spend more money on operations that serve poorer and more rural communities.  They would also acknowledge that they already make plenty of money off of their existing operations in Winston-Salem and actually look at how they can serve communities in need and not just at market share. 

I’d like to see the state offer Baptist and Novant the following deal:  you can build your hospitals if you agree to set them up as for-profit subsidiaries that will allow the counties to collect property tax OR you can build your hospitals if you expand/improve your facilities and services in at least two rural operations.  With the first proposal the state would be saying to the organizations that we’re going to call a spade a spade, and with the second they’d be pushing the organizations closer to fulfilling their intended roles as non-profits.  Of course I’ll be ice skating in hell before either happens.

Links:

North Carolina Baptist Hospital 2004 990
WFU Health Sciences 2004 990
WFU BMC 2004 990
Novant’s 2004 990