Commercialism in nonprofit hospitals

The private nonprofit hospital is the dominant organizational form in the U.S. hospital industry. Various reasons have been advanced for its high market share. As hospitals undergo massive changes due in large part to changes in payment practices, there is widespread concern that nonprofit hospitals may become less committed to noncommercial activities. This may even be more likely when such hospitals convert to for-profit status. The empirical evidence indicates that, on average, hospitals of nonprofit and for-profit ownership are similar in the provision of uncompensated care, the quality of care, and the adoption of technology. Conversion of a nonprofit to for-profit status does not adversely affect the provision of uncompensated care on average. However, for-profits are more likely to be located in areas where consumers have the ability to pay for care. As hospital markets become more competitive and the opportunity for cross-subsidizing more unprofitable, collective-good activities will become increasingly difficult. Support for such activities, if they are to exist, will have to come from explicit public subsidies.     

Conversion from nonprofit to for-profit legal status: Why does it happen and should anyone care?

The conversion of a nonprofit firm to the for-profit form is commercialism carried to an extreme. Conversion is increasingly common, most notably in health care. We seek to advance understanding of why nonprofit conversions occur and what public policy should be toward them. A transfer of control—the essence of a conversion—over nonprofit assets can be accomplished in various ways. Thus, it would be a public policy mistake to focus narrowly on formal legal conversions or outright sales. We explore the possible motives for conversion, and speculate about the reasons for the flurry of conversion activity in hospitals and health maintenance organizations (HMOs). We conclude that there are three central public policy questions raised by conversions: (1) under what circumstances is conversion appropriate—when does it represent an efficient reallocation of resources and when only a redistribution of wealth?; (2) how should the nonprofit's assets be valued?; and (3) what should happen to the financial assets that remain after a conversion?     

The "common sense" of the nonprofit hospital tax exemption: a policy analysis.

Although rarely discussed prior to the 1985 Utah Supreme Court ruling against Intermountain Health Care Inc., the question of whether to grant tax exemptions to nonprofit hospitals is currently being debated by federal, state, and local legislators, and by the courts. Changes to current policy seem likely. This policy analysis: (1) presents the historical and legal background; (2) examines the economic, political, and organizational implications of current tax-exemption policy; and (3) offers three alternatives to this current policy. The analysis indicates that the current policy provides little incentive for nonprofit hospitals to make contributions of charity care. Of the alternatives, eliminating the exemption is not politically feasible at this time; regulating hospital operations and outputs portends an implementation nightmare; and tying tax subsidy levels to output levels of charity care--perhaps the strongest and most efficient incentive--would require an unlikely political consensus on what constitute valid and reliable measures of charity care. If there is a movement toward subsidies, then linking subsidy amounts to levels of charity care will depend on whether policy analysts can design satisfactory empirical measures. With the advent of universal health coverage, the demand for charity care will decrease. The problem for tax-exempt hospitals will then become justifying the exemption by demonstrating the extent to which they generate community benefits at no or reduced cost to society.     

Reengineering Nonprofit Financial Accountability: Toward a More Reliable Foundation for Regulation

The annual Internal Revenue Service Form 990 tax filing is the principal disclosure mechanism for nonprofit organizations. Although considerable efforts have been made to improve the accuracy and accessibility of Form 990, questions remain as to whether this data source is the most desirable foundation for a system of nonprofit accountability. Taking a broad perspective on financial accountability, this article assesses not only the quality and availability of the financial data, but also the entire financial–reporting model. The article develops a framework for thinking critically about nonprofit financial accountability. After examining the current structure of nonprofit financial reporting and contrasting it with alternative systems developed for other industries, the article concludes with recommendations for reengineering nonprofit financial accountability.     

Local Officials’ Support for PILOTs/SILOTs: Nonprofit Engagement,Economic Stress,and Politics

Nonprofit property tax exemption has become a major policy issue as the collapse of the housing market, the Great Recession, and property tax caps have threatened local tax collections. Consequently, many local governments have sought to obtain payments in lieu of taxes (PILOTs) from charities that are formally exempt from property taxes. Using a 2010 survey of local government officials in Indiana, this article examines whether support for PILOT policies is related to officials’ personal involvement with nonprofits, their views on government–nonprofit relationships, the type of position they hold, the level of economic distress in the county, local political conditions, and local nonprofit wealth. The findings support most of these hypotheses but also show that attitudes toward PILOTs appear to be shaped by somewhat different concerns than attitudes toward services in lieu of taxes (SILOTs).     

The convergence of nonequity housing models in Canada: Changes to housing policy since 1990

Abstract

This study examines the impact of housing policy convergence on the nonequity housing system in Ontario, Canada. Ontario has four distinct nonequity housing models— public, nonprofit cooperative, municipal nonprofit, and private nonprofit. This article argues that since 1990, housing policy in Canada, and particularly in Ontario, has become increasingly influenced by the neoconservative agenda of downsizing and decentralization of government functions found in the United States.

The findings reveal that changes to housing policy have caused the convergence of nonequity housing models in the areas of management and administration. Drawing on the present findings and on an experimental project in tenant management, this article argues that the trend toward convergence will continue and will likely result in one nonequity housing model in Canada. This pattern is interpreted in light of the neoconservative agenda of both countries that emphasizes private sector solutions to housing low‐income families.     

The future of the nonprofit sector: Its entwining with private enterprise and government

The nonprofit sector—neither private enterprise nor governmental—is growing rapidly, and not only in the United States. This article explores three questions about the sector, which includes large elements of such service industries as universities, hospitals, nursing homes, day-care centers, museums, social services, and organizations promoting medical research, environmental protection, and the arts. These questions are: (a) Why is the nonprofit sector expanding worldwide?; (b) How is the growth of nonprofits affecting other parts of the economy?; and (c) What evidence is there that nonprofits make a difference, that they perform functions which private firms or government cannot perform? A major theme is that the sector's growth necessitates finding ways to increase revenues, and that has brought side effects, particularly as nonprofits have become more and more “commercial.” In the process, borders between the nonprofit and both the for-profit and public sectors are being crossed increasingly, and with consequences that often pose problems.     

Organizational form and performance: An empirical investigation of nonprofit and for‐profit job‐training service providers

While research on the distinctions between for‐profit and nonprofit organizations and their changing service sector shares is vast, there is comparatively little empirical evidence on the consequences of their differing attributes for social program outcomes. This article presents research on publicly subsidized for‐profit and nonprofit job‐training service providers, namely whether organizational form influences client enrollment, service delivery activities, or performance, as measured in terms of participant outcomes. The findings show that nonprofit providers were not more likely to serve more disadvantaged clients and that neither for‐profit nor nonprofit service providers were consistently more effective in increasing participants' earn‐ings and employment rates. When performance incentives were included in service providers' contracts, contractors of all forms performed significantly better across all participant outcomes examined. © 2000 by the Association for Public Policy and Management.     

More Similarities or More Differences? Comparing Public and Nonprofit Managers’ Job Motivations

Existing research on career motivations tends to focus either on the difference between private and public organizations or on the difference between nonprofit and for‐profit firms. Although commonalities exist, the literature suggests that there also are many differences in what motivates public and nonprofit employees. Employing data from the National Administrative Studies Project III, this research examines how seven motivational aspects correlate with the choice between public and nonprofit employment. The authors find that managers who value advancement opportunities, a pension and retirement plan, and the ability to serve the public in their jobs are more likely to accept a job in the public sector, whereas managers who value family‐friendly policies and increased responsibility are more likely to accept a position in the nonprofit sector. Participation in volunteering is positively associated with nonprofit employment. The authors suggest a possible link between volunteering and the unique nonprofit motivation that is differentiated from public service motivation.     

Strengthening Effective Government–Citizen Connections through Greater Civic Engagement

Citizens are more trusting of government since the terrorist attacks of September 11, 2001, but their civic behaviors are little changed. One reason is that they mostly have been asked for monetary gifts to fund disaster relief and to serve others through existing nonprofit organizations. Available theoretical and empirical analyses suggest the three factors of motivation, skills, and network connections contribute to increased civic engagement, which is defined by behaviors such as seeking to persuade others to join in mobilizing commitment and resources to address a collective problem. Responses to 9/11 have not addressed these three factors. Increased civic engagement strengthens democracy and can contribute to the development of public judgment, which is critical to sustaining support of efforts to thwart terrorism. Success in any effort to increase civic engagement requires different strategies and actions by public officials.     

The Public Service Mutual: Theories of Motivational Advantage

Public service mutuals are a form of employee‐led organization in which service workers spin out of the public sector to form “mutuals” that contract back with government to provide a service. This article draws on economic and psychological theory to demonstrate that mutuals can align both self‐interested and altruistic or public service motivations so as to serve the social good; moreover, by offering greater autonomy to public service professionals, mutuals are predicted to encourage energetic and persistent behaviors. In both cases, there is an advantage over alternative forms of organization such as the public sector bureaucracy, the shareholder‐owned private firm, or the nonprofit organization. The employee‐led mutual form, however, may not appeal to risk‐averse workers, its collective decision‐making systems may be inefficient, and external mechanisms may be required to ensure that organizational outcomes are always directed toward the social good.     

Managing in the Regulatory Thicket: Regulation Legitimacy and Expertise

Although the influence of government regulation on organizations is undeniable, empirical research in this field is scarce. This article investigates how the understanding of and attitudes toward government regulation among public, nonprofit, and for‐profit managers affect organizational performance, using U.S. nursing homes as the empirical setting. Findings suggest that managers’ perceptions of regulation legitimacy—views of regulation fairness, inspectors’ effectiveness, and internal utility of the mandates—positively affect service quality. Subgroup analysis suggests that managers’ views of regulation matter in nonprofit and for‐profit organizations but not in public organizations. In nonprofit homes, performance declines when managers report higher regulatory expertise—better knowledge of the regulatory standards. In for‐profit facilities, frequent communication with regulators lowers quality. These findings suggest that the regulated entities’ views of government regulation are central to their success, which necessitates improvements in the regulatory process.     

Measuring the Growth of the Nonprofit Sector: A Longitudinal Analysis

Scholars have examined the effects of various environmental factors on the nonprofit sector to elucidate the role of nonprofits in modern society. However, researchers report a paucity of information on nonprofit growth using longitudinal data, especially outside the United States. This article analyzes 40 years of political, economic, and sociodemographic data in South Korea to test theories of nonprofit growth and to determine whether the concepts and theories developed for Western societies can be successfully applied in South Korea. The results show that demand‐ and supply‐side economic theories account for variations in nonprofit growth, but the existing socioeconomic explanations fail to recognize the political influences on nonprofit development. Nonprofit organizations have emerged from social and economic necessity but have also been nurtured within a political framework.     

The Financial Viability of Housing for Mentally Ill Persons

Abstract

Although persons with serious mental illness experience significant unmet housing needs, basic information on how housing is successfully financed, developed, and operated for them is lacking. It is possible that standard housing rules of thumb may not apply to this population. (For example, community opposition may raise development costs.) This lack of information may be a stumbling block to policy makers, planners, and developers.

This article attempts to close the gap by examining the financial profile of 153 properties developed for persons with serious mental illness by five nonprofit housing corporations between 1988 and 1992. Our analysis suggests that although this housing may require more management attention, it is not fundamentally different from market‐rate housing for low‐income tenants. After more than 10 years, the nonprofit housing developers continue to thrive, and virtually all of the properties continue to serve persons with mental illness, demonstrating that such housing can be successfully developed and operated.     

Competition,commercialization, and the evolution of nonprofit organizational structures

This article explores competition both in settings where nonprofits compete among themselves and where they compete with for-profits. Growing competition among nonprofits raises questions as to the impacts of this rivalry. How does competition affect nonprofit behavior and does it cause nonprofits to become more commercial in orientation? Does it alter organizational structures and does it cause nonprofits to become less focused on their charitable missions? The answers to these questions can influence public policy toward the nonprofit sector. A definition of competition is presented and Porter's five competitive forces are introduced and used to explore competition in nonprofit marketplaces. Conditions under which commercialization is likely to occur are discussed and the nature of competition is then examined in settings where nonprofits compete in mixed (for-profit/nonprofit) markets. Organizational structures from the health care industry are then used to highlight the evolving legal structures that nonprofits employ in competition with for-profits. Five policy implications of the analysis are examined and the need for additional information is highlighted.     

Does the public sector outperform the nonprofit and for‐profit sectors? Evidence from a national panel study on nursing home quality and access

Are public and private organizations fundamentally different? This question has been among the most enduring inquiries in public administration. Our study explores the impact of organizational ownership on two complementary aspects of performance: service quality and access to services for impoverished clients. Derived from public management research on performance determinants and nursing home care literature, our hypotheses stipulate that public, nonprofit, and forprofit nursing homes use different approaches to balance the strategic tradeoff between two aspects of performance. Panel data on 14,423 facilities were analyzed to compare measures of quality and access across three sectors using different estimation methods. Findings indicate that ownership status is associated with critical differences in both quality and access. Public and nonprofit organizations are similar in terms of quality, and both perform significantly better than their forprofit counterparts. When compared to nonprofit and, in some cases, for‐profit facilities, public nursing homes have a significantly higher share of Medicaid recipients. The paper proposes strategies to address the identified long‐term care divide. © 2008 by the Association for Public Policy Analysis and Management.     

Research in Context: Measuring Value Change

Abramson and Inglehart find a significant trend toward postmaterialist values in Western Europe, which they argue is largely driven by the gradual processes of generational replacement. Clarke, Dutt, and Rapkin argue that this trend is a methodological artifact of the wording of Inglehart's four-item measure of materialist/ postmaterialist values. They claim that because this battery does not include a question about unemployment, in periods of high unemployment respondents tend to choose postmaterialist goals. The long-term trend toward postmaterialism in Western Europe, they argue, results from rising levels of unemployment during the past two decades. Abramson and Inglehart point out that increases in inflation have a short-term impact on decreasing postmaterialism, but maintain that the positive relationship between unemployment and postmaterialism is spurious. As this analysis shows, Clarke, Dutt, and Rapkin find a positive relationship between unemployment and postmaterialism by building a model that has little theoretical justification and that is not robust to changes in specification. As this analysis demonstrates, unemployment is actually linked with support for materialist goals, and the trend toward post-materialism is robust in the face of alternative time frames, models, and specifications. The weight of the evidence demonstrates that the long-term trend toward postmaterialism in Western Europe is driven by generational replacement.     

How nonprofits grow: a model.

When nonprofit organizations operate in a field of service that might otherwise be provided by government or by for-profit organizations, such as schools, hospitals, or museums, their decisions on the type and amount of services to be delivered are motivated by factors that are quite distinctive. Because they must operate on a break-even basis with revenues raised on a voluntary basis, nonprofit organizations typically take on activities from which they derive no satisfaction in order to subsidize activities that they regard as of higher value. As a result, the mix of services they offer and the charges they impose will generally be quite different from those of a government institution or a for-profit organization.     

Nonprofit equity: a behavioral model and its policy implications.

This article assumes that nonprofit decisionmakers have an incentive to earn and accumulate surpluses, and it suggests six reasons for this being the case. Based on the assumption that both the program outputs and the equity of a nonprofit yield satisfaction to its decisionmakers, a behavioral model is developed. This is used to derive a demand function for equity, which is then applied to a national sample of 6168 charitable nonprofits drawn by the Internal Revenue Service for the 1985 taxable year. The results substantiate the hypothesis that nonprofit decisionmakers consciously plan to increase their organization's equity. Currently, evidence of continued equity buildup is not sufficient to call into question a nonprofit's exempt status, because federal tax laws assume that surplus accumulations will ultimately be used in support of program mission. However, equity accumulation can become excessive. We present several criteria to define excessive equity accumulation and discuss why large equity accumulations may not be in the best interest of society.     

Dynamics of Sector Switching: Hazard Models Predicting Changes from Private Sector Jobs to Public and Nonprofit Sector Jobs

Policy makers and public managers emphasize the importance of bringing private sector experience and skills into the public and nonprofit sectors. One result is an increased focus on privatization and contracting out, developments to which researchers have been attentive. However, the long-standing practice of hiring people with industrial experience into the public and nonprofit sectors has received remarkably little attention. This study, based on questionnaire responses from mid- and upper-level personnel in public and nonprofit sector organizations, attempts to understand the dynamics of sector switching from the private into either the public or nonprofit sector. Using event history analysis, the article looks at switching patterns. The probability of switching into the public sector is much higher for those who held a managerial occupation in their previous private sector job than for those who held professional and technical positions. Having more subordinates in a previous private sector job is associated with a lower likelihood of switching into a public sector job. By contrast, switching into the nonprofit sector is more often associated with a promotion.