Your Guide to the World of Nonprofit Finance-part 1

By Tara Fugate

MNA Strategic Researcher

Something that still manages to shock a lot of people in the US is the growing number of similarities between nonprofits and for-profit hospitals. In 2013, 7 of the 10 most profitable hospitals in the country were classified as nonprofit. A 2013 study published in Health Affairs, examined factors contributing to hospital profitability. The study examined data from Medicare Cost Reports submitted by 2,993 acute care hospitals and produced a list of the top ten hospitals in the country with the highest profit from patient care (for fiscal year 2013).[1]

Let’s let that sink in, 7 out of the 10 most profitable hospitals in the country are run as nonprofit facilities. What is happening to that excess money that other companies call “profits?” Is it being reinvested into appropriate staffing and support for bedside RNs? Or is it being used to increase executive pay? And how can we tell? This is the first post in a series that will provide some insight into the complicated and often hypocritical world of nonprofit hospital finance.

Hospital finance and tax lingo can be like a foreign language for some. Let’s start with some translations. Here are some need to know definitions when trying to read between the nonprofit lines:

• Form 990:
  • This is a tax form that all nonprofits are required to submit to the IRS. The formal title is, ‘Return of Organization Exempt from Income Tax’. This form is publicly available and includes financial information (such as profit and revenue) about the organization. (guidestar.org is a good resource to find these forms)
• Schedule H:
  • Nonprofit hospitals have an extra required form attached to the 990 called Schedule H. Schedule H requires reporting on a variety of ‘community benefit’ categories including: net unreimbursed costs of charity care, participation in government programs such as Medicaid, health professions education, research, subsidized health care, community health improvement activities, and cash or in-kind contributions to community groups (e.g. sponsoring a blood drive).
• Bad Debt:
  • The Schedule H worksheet also requires hospitals to report money uncollected from patients who did not qualify for charity care, referred to as ‘bad debt’. The higher a hospital’s bad debt, the more likely they are using debt collection services, which have become controversially aggressive.
• Profit v. Revenue:
  • Revenue: This can be divided into two different categories;
    • Patient Care Revenue (Program Service Revenue on 990):
      • Money that comes into the hospital from direct patient care activities (if an RN is involved, it’s part of the patient care revenue).
    • Total Operating Revenue:
      • The amount of revenue from all sources, including patient care, but also including money from investments, gift shops, parking, renting out space to Starbucks in the food court etc.
    • Profit (often called ‘income’):
      • This is referred to as ‘revenue less expenses’ on the 990 form and refers to the money that is left over after all expenses, including salaries and overhead costs, are paid.

Nurses in nonprofit hospitals across the county recognize this shift towards a profit driven model. They see it in cuts to nurse staffing, ancillary staff, quality of supplies, and the list goes on. When profit is the number one goal, both patients and nurses suffer. Nurses here in Minnesota and across the country are using their collective voice to organize, bargain collectively and advocate in state legislatures on behalf of patients. When nonprofit healthcare operates as such in name only, nurses are on the front lines of keeping hospitals accountable. These definitions are meant to provide some tools to support that advocacy, look out for more to come.

Next time, we’ll talk about municipal bonds and how they support nonprofit hospitals.

[1] http://content.healthaffairs.org/content/35/5/889/T2.expansion.html