Why do non-profit hospitals compete with each other?

While we are talking about things that drive health care costs up, this one has bothered me since I was in practice years ago. I am a believer in competition, I think it forces us to be creative and provide better, cheaper, more efficient products and services.

But there is the mindset of leadership at play as well. Are we competing to provide better patient services to improve patient care, or are we doing anything we can to take as many patients away from one health system and get them into ours? Would we be happiest if we just flat put the other guys out of business and ruled? Do we cooperate with other systems on things that are non-competitive?

When I was in practice as a neurosurgeon, every hospital I went to was non-profit. Each one wanted to be a Level 2 Trauma Center. Note that in Kansas City we had two Level 1 Trauma Centers, and pretty much every other hospital in town was Level 2. That’s not how the trauma system was intended to work. Since neurosurgery is critical for trauma, they all wanted a commitment from one group or another to provide coverage. Problem is, there were not enough neurosurgeons to go around. On top of that, none of these second-tier facilities even had an actual trauma team. They just felt that to be competitive, they had to have the label.

So, if we are here to provide care to those who need it, and they are getting it just dandy somewhere else, what is the motivation to get that patient to come see us instead? Do homeless shelters compete to see who can get the most people lined up out front? Do soup kitchens come up with better recipes to get people to stop going to their “competitor”? What’s the difference?

In the case of trauma centers, there is expensive duplication of services and lower quality of care since none of the hospitals sees a steady enough volume to be really good at the care processes required for major trauma. And the specialists are stretched thin trying to cover them all. So I’m not sure this was positive competition.

Recently I worked with a health system in a large metro area. There’s another hospital about 8 miles up the highway from them, who has positioned a large billboard advertising their services at the exit ramp to the first hospital. Now, that’s not competing on quality, cost or services. That’s one non-profit (a religious order I might add) targeting another non-profit.

It happens that both systems are installing the same Electronic Medical Record, and a fair number of physicians practice at both hospitals. I suggested that I have seen other similar circumstances where the two project teams coordinate their implementation so that things like units of measure, frequencies and even some workflows are common. This is done so that physicians who work at both hospitals don’t see two EMRs that look similar but work differently. That just seems like an invitation for error and patient harm. However, I was informed that the hospital does not do anything cooperatively with “that other hospital”. And the billboard was specifically mentioned.

Non-profit hospitals are coming under scrutiny in many parts of the country as their behaviors begin to look more like a for-profit. The California Healthcare Foundation noted on their California Healthline that several hospitals in Alameda and Contra Costa Counties are under scrutiny for the low amount of charity care they provide.

New regulations in the Affordable Care Act increase the reporting requirements and may challenge the tax-exempt status of many systems. Illinois denied tax-exempt status to 3 hospitals in August and has 15 more reviews in the pipeline. Much of this considers the amount of charity care provided.

What drives this behavior? Is it ego on the part of leadership? Is it part of human nature to try to win at anything we do, even when the bigger outcome hurts? Do you get a bigger salary when your health system gets bigger? Is the animosity part of the tribal us-versus-them mentality that seems to crop up so often?

I worked in a church-owned health system a few years ago. I pointed out to one of the leaders that the information systems we were implementing could be used to help create a market advantage for the health system. Not in any untoward way – we discussed things like offering support for private physicians to use our EMR and thus make it easier to keep their patients in the system. There are some significant patient-care advantages in this model, and the small practices were pleading for help with new technologies. But her response was quick – she did not believe we should compete based on data systems or “locking people in”. We would compete by providing higher levels of patient satisfaction, higher quality in our programs, better access for underserved populations and other care-related criteria. We would execute our mission to the best of our abilities and the highest standards. We would provide services where we saw unmet needs. If we grew as a result of that, then good for us.

I think there is a deeper question here, and I am not sure how to balance the healthy aspects of competition that drive us to deliver better care against the unhealthy aspects that result in one non-profit targeting another over financial and market-share concerns. But I do fear that this is another of the contributors to higher cost and lower quality if we don’t get it right.

Joe Ketcherside is a former neurosurgeon and President and CEO of Cognovant.

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  • http://twitter.com/redbirds12 John Key

    In thirty years of practice I never saw any significant operational difference in for-profits and non-profits:  both we equally interested in making money and disinterested in providing uncompensated care.  The for-profits were just a little more honest about it.  This seems to operate in the non-healthcare arena too.  Non-profits are merely tax favored, and offer a comfortable rest for holier-than-thou types.

  • http://www.drjshousecalls.blogspot.com Dr. Mary Johnson

    What John Key said.

    A better question to ask is WHY is this country/its governement is allowing “non-profit” hospitals (more-often-than-not under the absolute control of local political & social cabals) to lie and cheat and steal (destroying the lives and work of good doctors in the process) under the cover of “charity” in order to capture their precious “market share”?

    But you won’t see those stories – or doctors – featured on Kevin MD.

  • http://drpauldorio.com Paul Dorio

    I also agree with John Key.

    Money talks. And everything seems to be about money. Unfortunately that translates into a near-complete disregard for anything else, including quality.

  • Anonymous

    As a former hospital administrator, the best answer I ever heard to this one was from a fellow graduate student when he interviewed at a Baptist hospital for his requried residency and was asked what he thought the difference was between a for profit and not for profit hospital. He calmly said “They pay their shareholders and you pay your bondholders.” He did not get that residency but went on to a long and successful health care career.

  • Anonymous

    As a healthcare consultant for the last 18 years, I see the problem as non-profit systems rewarding every CEO for their year end bottom line profits.  There is no incentive to create a system where hospital specialties are distributed based solely on care models;  every administrator wants every money making program he can get and damn the duplication.  And the comments already listed are correct  as to the minimal difference between non- and for-profit;  certainly my clients can not see any difference other than the non-profits using “IRS regs” as their excuse when they want to avoid doing things, often the right things.   The profit-driven 501A environment only encourages this kind of activity among non-profits, too.

  • Anonymous

    Good questions and comments, Dr. Ketcherside.  Hooray for the quality-focused administrator you described.
    A more central question might be: why are hospitals involved in so much medical care in the first place?  The most pervasive medical problems can be treated in Health Departments and Outpatient Centers.  When a patient enters a hospital-based system, care costs two or three times as much as in outpatient centers unassociated with hospitals.  Yet we have a regulatory environment that rewards both for-profit and non-profit hospitals, at the expense of outpatient centers. 
    If outpatient-focused, non-hospital based organizations were rewarded for efficient and effective care, immediate cost savings would be realized, and real competition enhanced.  And you would need only one trauma center and good transport.

    • http://twitter.com/joeketch Joe Ketcherside

      Good questions. Seems like the hospitals make every effort to bring in more people. One of my current pet peeves, soon to be the topic of another rant, is the mobile apps one of our local for-profit chains is advertising on the radio and billboards. They have a mobile phone app that tells you which ER has the shortest wait so you can pick where to go. 

      Seems to me that if you have time to figure out which ER to go to, you probably don’t need to be going to the ER. How can this blatant solicitation of inappropriate ER misuse be considered a good thing?