Conversion Of HMOs And Hospitals: What's At Stake?

PROLOGUE: “The debate about for-profit health care is fueled as much by values as by evidence,” wrote Brad Gray and Walter McNerney in The New England Journal of Medicine. “Some objections to for-profit health care stem from the belief that it is fundamentally inconsistent with the values and purpose that should animate health care organizations … on behalf of the needs of patients and communities.” Although these words were written in 1986, their veracity still resounds more than ten years later. In this paper Brad Gray frames the debate as it exists for the 1990s. He refrains from making a judgment on the desirability of nonprofit versus for-profit status and conversions from one to the other. Instead, he offers the health policy community a reasoned, well-organized framework within which to examine this often contentious issue. Gray is director of the Division of Health and Science Policy at the New York Academy of Medicine. He came to the academy in 1996 after eight years on the faculty of Yale University, as a professor of public health and director of the Institution for Social and Policy Studies and the Program on Non-Profit Organizations. He received a doctoral degree in sociology from Yale. Previously he served as a senior staff member and study director at the National Academy of Sciences' Institute of Medicine (IOM). He edited the IOM's influential 1986 book, For-Profit Enterprise in Health Care, and has published extensively on matters pertaining to the ethics of human experimentation, for-profit and nonprofit health care, and the changing conditions of medical professionalism. ABSTRACT: Because for-profit conversions of nonprofit organizations are regulated under trust law at the state level, their health policy implications have generally not been part of the process. This paper provides a health policy framework for assessing conversions of hospitals and health maintenance organizations (HMOs). It begins with basic differences in ownership forms and identifies considerations on both sides of the conversion question. The analysis turns on the extent of the social benefits of nonprofits: the regulatory tool provided by tax exemptions, trustworthiness in the presence of informational asymmetries, and community benefit activities. The analysis and the evidence suggest that the nonprofit form continues to hold significant advantages in health care that bear consideration by policymakers faced with conversion proposals.