People frequently assume that when they hear the term “nonprofit hospital,” these medical centers are run solely for charitable purposes. Nonprofit hospitals can and do, in fact, turn a profit, but they are required to put that money back into the facility and the community they serve. We will discuss the implications for American healthcare and whether nonprofit hospitals can turn a profit in this post.
Let’s start by defining the term “nonprofit hospital.” These hospitals are set up as nonprofit businesses, so they don’t have owners or shareholders that benefit financially from the hospital’s activities. Instead, all profits made by the hospital must be invested in both the facility and the neighborhood it serves. Federal income tax is not required to be paid by nonprofit hospitals, and they also get some other tax breaks.
Do charitable hospitals generate a profit then? Yes, they can, is the response. In actuality, a lot of nonprofit hospitals make a sizable profit. What happens to that profit, though, is what sets nonprofit hospitals apart from for-profit ones. The profit made by a for-profit hospital is distributed to its owners or shareholders. Profits from a nonprofit hospital are intended to be put back into the facility and the neighborhood it serves.
Nonprofit hospitals frequently have joint ventures or subsidiaries with for-profit companies, which could complicate the situation. These subsidiaries may be profitable, but the nonprofit hospital is required to make sure that any earnings are donated to charity or reinvested back into the facility.
What about academic medical centers? Do they earn a profit? The hospital and university are what determine the answer. The same regulations that apply to other nonprofit hospitals also apply to some university hospitals that operate as nonprofit organizations. Some might be a part of a broader university network that runs for-profit businesses. In certain situations, the hospital may make money that is used to further the broader goals of the institution.
In conclusion, nonprofit hospitals can and do turn a profit, but what happens to that profit distinguishes nonprofit from for-profit hospitals. Any revenues made by nonprofit hospitals must be reinvested in the facility and the community they serve. Depending on its organizational structure and the objectives of the university they are associated with, university hospitals may or may not turn a profit. Nonprofit hospitals’ main objective is to serve the community by offering high-quality healthcare services, not to make money for its owners or shareholders.