“For-profit” versus “non-profit” in health care

The overall goal of health care is to ensure quality of life and sustainable clinical outcomes for patients. Historically, the popular perception has been that nonprofit hospitals invariably meet health care needs and protect patient interests more effectively than private health care hospitals, which are essentially for-profit. The premise of making nonprofit hospitals tax-exempt rests on the logic that profits will be reinvested to improve facilities and improve bottom lines, and not distributed as dividends.

I am advancing here a contrary point of view based on my experience. If a for-profit hospital does not distribute dividends, it has a bigger, better, and more lasting impact on the overall health care segment of a country. As we all know, nearly 76% of India’s healthcare needs are provided by private hospitals.

I remember my talk presented at Harvard Business School, which did a detailed case study on the philosophy, essence, and value proposition of HCG. I had raised a simple question: “What is the difference between for-profit and not-for-profit?” In elaborating, I had also explained the main differences between the two: one of them is that administrators of non-profit hospitals do not receive any personal remuneration. The money comes mainly from grants and donations, as well as bank loans. These subsidies are not regular and the bank loans often prove to be exorbitant. This uncertainty puts enormous pressure on nonprofit entities. As tax laws governing donations are ambiguous and tax exemptions limited, donations are also not guaranteed.

On the expenditure side, not-for-profit entities, just like private hospitals, need to acquire real estate and infrastructure to build a quality hospital. Money is vital to employ doctors, nurses, paramedics and support staff and to purchase medical equipment. Some of it, no doubt, could come from donations. Many non-profit and medical school-run hospitals charge patients almost the same as private hospitals.

Reliance on grants and donations naturally limits the growth of a nonprofit hospital in terms of clinical excellence, technology, and network.

Speaking of for-profit hospitals, they build quality infrastructure, acquire disruptive technologies, pay competitive salaries to doctors and other staff. That said, the biggest difference in my opinion is that private hospitals can raise funds from private equity funds, high net worth individuals and angel investors – all of these private investors in turn expect a return on their investment. They seek constant appreciation in value, and at some point they make informed decisions based on the growth in value of their investment. Either they exit the investment after earning the desired profit margin, or they continue the investment as before. They may even take a larger stake if the growth is promising.

The benefits of this nimble financially powered system are key. While the system ensures flawless fiscal accountability and proper accounting of revenue and expenditure, it also takes a growth-centric approach to healthcare through economies of scale. Most importantly, it helps physicians realize their aspirations to usher in emerging technologies, gain specialization and in-depth knowledge in key areas of research and development, and move up the science and service value chain. medical. The biggest beneficiary of this setup is of course the patient who receives the best high quality treatment at the right time.

However, if the private hospital does not distribute any dividend, then there is little difference left on the question of ensuring the greatest good of the patients, their health and their well-being. HCG is an example that does not distribute dividends.

In my opinion, a private hospital that reinvests reserves and surpluses into the system to strengthen its core, maintains high quality of treatment and facilities, uses the best of technology, ensures that cost consciousness does not does not conflict with quality consciousness, and treats patients as their primary stakeholders, presents a safe, secure and sustainable model of healthcare, thereby creating a much better social impact on a larger scale compared to hospitals at non-profit.

(The author is Executive Chairman, Healthcare Global Enterprises Limited)

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