The Dying Rivalry: How For-Profit and Nonprofit CEOs Are Becoming More Compatible

Written by Molly Gamble | Becker’s Hospital Review, October 01, 2012

There are two longstanding groups in healthcare, and neither are related to the 2012 election: non-profit and for-profit executives. Despite the objective distinctions between the two sectors, cultural differences between for-profit and non-profit healthcare are dwarfing, according to professionals with experience in both sides of the industry.
Healthcare reform's emphasis on collaboration among providers paired with increased consolidation has made relations between the two sectors more nimble. For-profits are honing in with laser-like focus on quality metrics, while more non-profits are running their organizations as efficiently as investor-owned corporations. Even the most black-and-white factor — tax status — has become more ambiguous in the past year. Here, leaders within the hospital industry who have both non- and for-profit hospital experience reflect on how the two sectors are beginning to blend.
The evolving relationship between for- and non-profit hospital leaders
As with any industry, the for- and non-profit sectors of healthcare are riddled with respective assumptions. A 2010 paper from a trio of academic researchers from Stanford University, University of Minnesota and University of Pennsylvania found that — across all industries — consumers generally perceive non-profit organizations as more trustworthy than for-profits, but less competent. For-profits were seen as more competent, but less socially aware. Furthermore, professionals and experts outside healthcare have suggested that employees working for non-profits are often promoted for demonstrating loyalty to the organization's mission, whereas for-profit employees are promoted because they show competence and managerial skill.
Despite such well-studied albeit generalized distinctions, the two sectors share a more cordial relationship today than they have in the past. Chuck Lauer, former publisher of Modern Healthcare, remembers the palpable tension between non- and for-profit hospital CEOs at industry events when he began work in healthcare media in 1976.
"Back in the 1970s and 1980s, [non-profit and for-profit leaders] despised each other," he says. "For-profits were considered to be in it for the money. They would come in and grab market share. Now there have been people in non-profit groups, but because of an affiliation with a for-profit organization, they've had to go to the other side. Relations have improved because the objective is the same — take care of the patient — and [executives] don't know who they'll be working for now."
Hospital CEO turnover averaged at 16 percent nationwide in 2011 — a rate Thomas C. Dolan, PhD, president of the American College of Healthcare Executives, described as "too high." This rate is only expected to accelerate as baby boomers retire. Furthermore, the average tenure of a hospital CEO is 5.6 years with a median of 3.6 years, meaning these men and women see a fair amount of movement both within and outside their organizations.
The heightened rate of hospital mergers, acquisitions and other affiliations is also changing the traditional relationship between non- and for-profit leaders. Joint ventures like Duke LifePoint Healthcare, based in Brentwood, Tenn., illustrate an unorthodox but emerging dynamic between the two sectors. The non-profit academic healthcare system and for-profit hospital operator partnered in January 2011 after working together for three years, when LifePoint asked Duke to strengthen the cardiovascular program at one of its hospitals. The leaders have said the for-profit joint venture benefits from LifePoint's management skills and Duke's capabilities around clinical program enhancement.
Tom Quinn, vice president for the Boston office of executive search firm Witt/Kieffer, says he is observing an unprecedented "blending" between non- and for-profit leadership. "Non-profit leaders are running hospitals like a business, like for-profit executives to a much larger degree. And for-profit executives are paying much more attention to quality, patient experience and community perception than they have in the past."

Alan Channing has served as president and CEO of Sinai Health System in Chicago, a non-profit system that has a payor mix of 60 percent Medicaid, 20 percent Medicare and 13 percent uninsured, for more than seven years. He says today there is a lot less animosity between people on different sides of the aisle, and professionally, the skill sets are much more similar regardless of sector.
"From a managerial perspective, I think non-profits today are as tightly managed as for-profits because of the nature of the environment. But, if you really want to learn management with scarce resources, the work is being done in safety nets," he says.
How measurement, assessment differs
A good part of the discussion around differences between non- and for-profit CEOs has little to do with the qualities of the men or women in these roles. Instead, there are more noticeable differences in how CEOs are assessed in each sector. For-profits' analytical tools and methods by which they measure productivity tend to be more advanced than those of non-profits', plus they generally keep a closer eye by tracking these figures daily. Non-profits have traditionally channeled a significant portion of their measurements toward clinical quality.
"The measurements of success are similar around quality and patient satisfaction. They're all measured on those dynamics," says Mr. Quinn. "But if CEOs worked for for-profits their whole career, they're measured by how profitable their hospitals are. In the non-profit side, CEOs have to make a margin, but there is less emphasis — success-wise — on financials. It's more about how you work on teams, how you advance the mission and how you respond to the community."
Erik Wexler, CEO of Saint Vincent Hospital in Worcester, Mass., part of Nashville, Tenn.-based Vanguard Health Systems, voiced a similar observation, noting that one of the more evident differences in working for a for-profit is the quality of data available. "The metrics and data to which I have access are considerably better on the for-profit side. Part of that has to do with having 28 hospitals across the United States," says Mr. Wexler. "I believe that the for-profit sector has expectations that are somewhat higher. These accountabilities may be enhanced because we are experienced at measuring results and using data to make decisions."
Before Mr. Channing began work with Sinai, he held a management position with an investor-owned hospital for a short period of time. He's noticed a few differences between his non- and for-profit tenures — specifically the role of "numbers."
"I was in a multi-hospital, investor-owned system, and it was quite clear there was a set of numbers you were expected to hit. Those numbers, and by numbers I mean financials, were checked weekly. Then, on a quarterly basis, there would be a significant review by senior-level folks," he says.
The focus on financials is perhaps one of the largest distinctions between non- and for-profit cultures, but just because for-profit hospitals may scrutinize their "numbers" more frequently and intensely doesn't mean non-profit hospitals are less financially competent. Rather, this index plays a different role in these organizations and may not serve as the main tenet in strategic decision-making. "It's not to say in a non-profit world, we're not careful about our financials. But that's not the hardest driving element in the conversations," says Mr. Channing.
Transitioning to the other sector
Although differences between leaders of non- and for-profit hospitals are narrowing, leaders tend to be more predisposed toward one sector or the other. "Non-profit people, if they're good operators, they usually can be successful in for-profit settings once they know how they're measured," says Witt/Kieffer's Mr. Quinn. "It can be good experience for a couple of years, and then they usually go back to non-profit organizations. I don't really see the inverse that much. In general, I think people who like for-profits like for-profits. From what I've seen, for-profit hospitals look for for-profit experience."
Erik Wexler is an exception to this pattern. He spent 20 years in the non-profit sector of healthcare before becoming CEO of St. Vincent Hospital in July 2011. He assumed his position at the top of the hospital with no prior for-profit experience. Although he had initial hesitations about the change, Mr. Wexler has since found the for-profit sector to be a comfortable fit.
"Having not worked on the for-profit side, I think it's natural to have a bit of trepidation. 'Will this change be a match for what I personally aspire to?'" says Mr. Wexler. "There is a misperception that the for-profit industry is only looking at profit and loss statements each month, and that is a totally incorrect assumption. I'm finding a very strong balance between quality, service, employee engagement and financial indicators at Vanguard. While my experience in financial management is certainly helping me, I'm challenged every day to make sure quality and safety lead the pack."
Battle of the taxes
The largest regulatory difference between non- and for-profit hospitals is obviously their tax status, but even that has been questioned by federal and state authorities in the past year. Non-profit hospitals in Illinois, North Carolina and California came under state- and city-level scrutiny over whether they provide enough community benefit to justify their tax-exempt status.
In California, the Institute for Health and Socio-Economic Policy found that non-profit hospitals delivered charity care at levels below their for-profit counterparts and used "aggressive" debt collection methods. In North Carolina, an investigation led by The Charlotte Observer and The News & Observer of Raleigh found non-profit hospitals received tax breaks worth roughly 4.4 percent of their expenses, but about two-thirds of those hospitals spent less than that on charity care.
In June, Illinois Gov. Patrick Quinn signed into law new charity care regulations for hospitals to quality for property tax exemptions. In order to qualify, non-profit hospitals must now provide charity care that equals or exceeds the estimated value of a hospital's property tax exemption, which is calculated with a formula based on fair market value. Aside from the new state regulations, Chicago Mayor Rahm Emanuel also proposed stripping some non-profit hospitals' free water and sewer service to help lessen the $636 million hole in the city's budget.
These widely publicized events have prompted taxpayers to question whether non-profits' status is merely a guise. Non-profit hospitals' moral high ground took a hit in many respects, as non- and for-profit hospitals' charity care looked remarkably similar in some of these states.
Mr. Channing said tax status can generally be broken into three categories. One is for-profit hospitals, in which owners often recognize taxes as the cost of maintaining a company. Second is non-profit hospitals that are faring remarkably well financially, largely because of their surrounding demographics and a board that constantly challenges management to maintain positive bond ratings. Third are non-profit hospitals that are referred to as safety-nets and clearly serve the community in a way that justifies tax exemption — without question.
"The big difference is that we pay taxes. I'm proud of that," says Mr. Wexler. "I feel we are making a contribution to the good workings of the cities and towns our hospitals are located in."
Conclusion
The cultural gap between hospital leaders seems to be narrowing, as CEOs mesh traditional non- and for-profit sensibilities to reinforce the outstanding quality of care and financial durability necessary to thrive under healthcare reform.
And although leaders are closely aligning their priorities, hospitals' access to analytical and clinical resources remains a determining factor in how leaders blend their leadership style. As it stands, for-profit organizations still possess more sophisticated analytics to track fiscal performance on a regular basis, but non-profit hospitals are shaking any notion that this makes them less financially competent. In a time of rapid hospital consolidation and affiliations, time will tell whether conventional non- and for-profit leadership styles persist, or if healthcare will see a new class of hospital CEOs who master both of these tenets instinctively, having known no other way to lead.

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