Catholic Health Care Advocates Papers
Making the Case for Not-for-Profit Healthcare
Cardinal Joseph Bernardin
Cardinal Joseph Bernardin, Archbishop of Chicago and a member of the Board of Trustees of the Catholic Health Association of the United States, addressed the Harvard Business School Club of Chicago, January 12, 1995.
Cardinal Bernardin, in that address, detailed a persuasive case for the need to preserve and strengthen the role of not-for-profit institutions in the nation's healthcare system. His remarks come at a time when not-for-profits face mounting threats, and the issue of not-for-profit versus investor-owned is growing in importance.
In responding to these circumstances, the Cardinal suggests new ways to better understand, value, and protect America's not-for-profit tradition of providing essential healthcare services. He appropriately questions whether the growth of investor-owned healthcare organizations by acquiring not-for-profit facilities is in the long-term best interest of patients, communities, and, by implication, the Church's healing ministry.
Good afternoon. It is a privilege to address the Harvard Business School Club of Chicago on the critical, but often conflicted issue of healthcare. Because of its central importance to human dignity, to the quality of our community life, and to the Church's mission in the world, I have felt a special responsibility to devote a considerable amount of attention to healthcare at both the local and national levels.
In the last year, I have spoken at the National Press Club on the need to ensure access to adequate healthcare for all; I have issued a Protocol to help ensure the future presence of a strong, institutional healthcare ministry in the Archdiocese of Chicago; and in order to be more in touch with ongoing developments in the field, I have joined the Board of Trustees of the Catholic Health Association of the United States -- the national organization that represents more than 900 Catholic acute and long-term care facilities.
In the interest of full disclosure, I must warn you that this considerable activity does not qualify me as a healthcare expert. Healthcare policy is challenging and extraordinarily complicated, and in this area I am every bit the layman. But because of its central importance in our lives -- socially, economically, ethically, and personally -- we "non-experts" avoid the healthcare challenge at our peril.
I come before you today in several capacities. First, as the Catholic Archbishop of Chicago who has pastoral responsibility for numerous Catholic healthcare institutions in the archdiocese -- though each is legally and financially independent. Second, as a community leader who cares deeply about the quality and availability of healthcare services throughout metropolitan Chicago and the United States. And third, as an individual who, like you, will undoubtedly one day become sick and vulnerable and require the services of competent and caring medical professionals and hospitals.
The Growing Threat to Not-for-Profit Healthcare. In each role I am becoming increasingly concerned that our healthcare delivery system is rapidly commercializing itself, and in the process is abandoning core values that should always be at the heart of healthcare. These developments have potentially deleterious consequences for patients and society as a whole. This afternoon, I will focus on one important aspect of this problem: the future vitality and integrity of not-for-profit hospitals.
Not-for-profit hospitals constitute the overwhelming majority of Chicagoland hospitals. They represent more than three quarters of the nonpublic acute-care general hospitals in the country. Not-for-profit hospitals are the core of this nation's private, voluntary healthcare delivery system, but are in jeopardy of becoming for-profit enterprises.
Not-for-profit hospitals began as philanthropic social institutions, with the primary purpose of serving the healthcare needs of their communities. In recent decades, they have become important non-governmental "safety net" institutions, taking care of the growing numbers of uninsured and underinsured persons. Indeed, most not-for-profit hospitals regard the provision of community benefit as their principal mission. Unfortunately, this historic and still necessary role is being compromised by changing economic circumstances in healthcare, and by an ideological challenge to the very notion of not-for-profit healthcare.
Both an excess supply of hospital beds and cost-conscious choices by employers, insurers, and government have forced not-for-profits into new levels of competition for paying patients. They are competing with one another, with investor-owned hospitals, and with for-profit ambulatory facilities. In their struggle for economic survival, a growing number of not-for-profits are sacrificing altruistic concerns for the bottom line.
The not-for-profit presence in healthcare delivery is also threatened by a body of opinion that contends there is no fundamental distinction between medical care and a commodity exchanged for profit. It is argued that healthcare delivery is like other necessary economic goods such as food, clothing, and shelter and should be subject to unbridled market competition.
According to this view, economic competition in healthcare delivery is proposed as a welcome development with claims that it is the surest way to eliminate excess hospital and physician capacity, reduce healthcare prices, and assure the "industry's" long-term efficiency. Many proponents of this view question the need for not-for-profit hospitals since they believe investor-owned institutions operate more efficiently than their not-for-profit counterparts and can better attract needed capital. Thus, they attack the not-for-profit hospital tax exemption as an archaic and unwarranted subsidy that distorts the healthcare market by providing exempt institutions an unfair competitive advantage.
This afternoon, I will make three arguments: first, that there is a fundamental difference between the provision of medical care and the production and distribution of commodities; second, that the not-for-profit structure is better aligned with the essential mission of healthcare delivery than is the investor-owned model; and third, that leaders in both the private and public sector have a responsibility to find ways to preserve and strengthen the not-for-profit hospital and healthcare delivery system in the United States. Before making these arguments I need to clarify an important point.
The Advantages of Capitalism and Free Enterprisen. In drawing the distinction between medical care and other commodities on the one hand, and not-for-profit and investor-owned institutions on the other, I am not expressing any general bias against capitalism or the American free enterprise system. We are all beneficiaries of the genius of that system. To paraphrase Pope John Paul II: If by capitalism is meant an economic system that recognizes the fundamental and positive role of business, the market, private property, and the resulting responsibility for the means of production -- as well as free human creativity in the economic sector -- then its contribution to American society has been most beneficial.
As a key element of the free enterprise system, the American business corporation has proved itself to be an efficient mechanism for encouraging and minimizing commercial risk. It has enabled individuals to engage in commercial activities that none of them could manage alone. In this regard, the purpose of the business corporation is specific: to earn a growing profit and a reasonable rate of return for the individuals who have created it. The essential element here is a reasonable rate of return, for without it the commercial corporation cannot exist.
Society's Non-Economic Goods. That being said, it is important to recognize that not all of society's institutions have as their essential purpose earning a reasonable rate of return on capital. For example, the purpose of the family is to provide a protective and nurturing environment in which to raise children. The purpose of education at all levels is to produce knowledgeable and productive citizens. And the primary purpose of social services is to produce shelter, counseling, food, and other programs for people and communities in need. Generally speaking, each of these organizations has as its essential purpose a non-economic goal: the advancement of human dignity.
And this is as it should be. While economics is indeed important, most of us would agree that the value of human life and the quality of the human condition are seriously diminished when reduced to purely economic considerations. Again, to quote Pope John Paul II, the idea that the entirety of social life is to be determined by market exchanges is to run "the risk of an ‘idolatry’ of the market, an idolatry which ignores the existence of goods which by their nature are not and cannot be mere commodities." (Emphasis added.)
This understanding is consistent with the American experience. In the belief that the non-economic ends of the family, social services, and education are essential to the advancement of human dignity and to the quality of our social and economic life, we have treated them quite differently from most other goods and services. Specifically, we have not made their allocation dependent solely on a person's ability to afford them. For example, we recognize that individual human dignity is enhanced through a good education, and that we all benefit by having an educated society; so we make an elementary and secondary education available to everyone, and heavily subsidize it thereafter. By contrast, we think it quite appropriate that hair spray, compact disks, and automobiles be allocated entirely by their affordability.
Healthcare: Not Simply a Commodity. Now it is my contention that healthcare delivery is one of those "goods which by their nature are not and cannot be mere commodities." I say this because healthcare involves one of the most intimate aspects of our lives -- our bodies and, in many ways, our minds and spirits as well. The quality of our life, our capacity to participate in social and economic activities, and very often life itself are at stake in each serious encounter with the medical care system. This is why we expect healthcare delivery to be a competent and a caring response to the broken human condition -- to human vulnerability.
To be sure, we expect our physician to earn a good living and our hospital to be economically viable, but when it comes to our case we do not expect them to be motivated mainly by economic self-interest. When it comes to our coronary by-pass or our hip replacement or our child's cancer treatment, we expect them to be professional in the original sense of that term -- motivated primarily by patient need, not economic self-interest. We have no comparable expectation -- nor should we -- of General Motors or Wal-Mart. When we are sick, vulnerable, and preoccupied with worry we depend on our physician to be our confidant, our advocate, our guide and agent in an environment that is bewildering for most of us, and where matters of great importance are at stake.
The availability of good healthcare is also vital to the character of community life. We would not think well of ourselves if we permitted healthcare institutions to let the uninsured sick and injured go untreated. We endeavor to take care of the poor and the sick as much for our benefit as for theirs. Accordingly, most Americans believe society should provide everyone access to adequate healthcare services just as it ensures everyone an education through grade twelve. There is a practical aspect to this aspiration as well because, like education, healthcare entails community-wide needs which it impacts in various ways: We all benefit from a healthy community; and we all suffer from a lack of health, especially with respect to communicable disease.
Finally, healthcare is particularly subject to what economists call market failure. Most healthcare "purchases" are not predictable, nor do medical services come in standardized packages and different grades suitable to comparison shopping and selection -- most are specific to individual need. Moreover, it would be wrong to suggest that seriously ill patients defer their healthcare purchases while they shop around for the best price. Nor do we expect people to pay the full cost of catastrophic, financially devastating illnesses. This is why most developed nations spread the risk of these high-cost episodes through public and/or private health insurance. And due to the prevalence of health insurance, or third-party payment, most of us do not pay for our healthcare at the time it is delivered. Thus, we are inclined to demand an infinite amount of the very best care available. In short, healthcare does not lend itself to market discipline in the same way as most other goods and services.
So healthcare -- like the family, education, and social services -- is special. It is fundamentally different from most other goods because it is essential to human dignity and the character of our communities. It is, to repeat, one of those "goods which by their nature are not and cannot be mere commodities." Given this special status, the primary end or essential purpose of medical care delivery should be a cured patient, a comforted patient, and a healthier community, not to earn a profit or a return on capital for shareholders. This understanding has long been a central ethical tenet of medicine. The International Code of the World Health Organization, for example, states that doctors must practice their profession "uninfluenced by motives of profit."nnThe Advantages of Not-for-Profit InstitutionsnnThis leads me to my second point, that the primary non-economic ends of healthcare delivery are best advanced in a predominantly not-for-profit delivery system.
Before making this argument, however, I need to be very clear about what I am not saying: I am not saying that not-for-profit healthcare organizations and systems should be shielded from all competition. I believe properly structured competition is good for most not-for-profits. For example, I have long contended that the quality of elementary and secondary education would benefit greatly from the use of vouchers and expanded parental choice in the selection of schools; similarly, the Catholic Health Association's proposal for healthcare reform envisions organized, economically disciplined healthcare systems competing with one another for enrollees.
Second, I am not saying that all not-for-profit hospitals and healthcare systems act appropriately; some do not. But the answer to this problem is greater accountability in their governance and operation, not the extreme measure of abandoning the not-for-profit structure in healthcare.
What I am saying is that the not-for-profit structure is the preferred model for delivering healthcare services. This is so because the not-for-profit institution is uniquely designed to provide essential human services. Management expert, Peter Drucker, reminds us that the distinguishing feature of not-for-profit organizations is not that they are non-profit, but that they do something very different from either business or government. He notes that a business has "discharged its task when the customer buys the product, pays for it, and is satisfied with it," and that government has done so when its "policies are effective." On the other hand, he writes: "The non-profit' institution neither supplies goods or services nor controls (through regulation). Its product is neither a pair of shoes nor an effective regulation. Its product is a changed human being. The non-profit institutions are human change agents. Their product' is a cured patient, a child that learns, a young man or woman grown into a self-respecting adult; a changed human life altogether." In other words, the purpose of not-for-profit organizations is to improve the human condition, that is, to advance important non-economic, non-regulatory functions that cannot be as well served by either the business corporation or government. Business corporations describe success as consistently providing shareholders with a reasonable return on equity. Not-for-profit organizations never properly define their success in terms of profit; those that do have lost their sense of purpose.
This difference between not-for-profits and businesses is most clearly seen in the organizations' different approaches to decision making. The primary question in an investor-owned organization is: "How do we ensure a reasonable return to our shareholders?" Other questions may be asked about quality and the impact on the community, but always in the context of their effect on profit. A properly focused not-for-profit always begins with a different set of questions:
- What is best for the person who is served?
- What is best for the community?
- How can the organization ensure a prudent use of resources for the whole community, as well as for its immediate customers?
- Access
- Medicine's patient-first ethic
- Attention to community-wide needs
- Volunteerism
First, there is the need for access. Given healthcare's essential relationship to human dignity, society should ensure everyone access to an adequate level of healthcare services. This is why the United States Catholic Conference and I argued strongly last year for universal insurance coverage. This element of healthcare reform remains a moral imperative.
But even if this nation had universal insurance, I would maintain that a strong not-for-profit sector is still critical to access. With primary accountability to shareholders, investor-owned organizations have a powerful incentive to avoid not only the uninsured and underinsured, but also vulnerable and hard-to-serve populations, high-cost populations, undesirable geographic areas, and many low-density rural areas. To be sure, not-for-profits also face pressure to avoid these groups, but not with the added requirement of generating a return on equity.
Second, not-for-profit healthcare organizations are better suited than their investor-owned counterparts to support the patient-first ethic in medicine. This is all the more important as society moves away from fee-for-service medicine and cost-based reimbursement toward capitation. (By "capitation" I mean paying providers in advance a fixed amount per person regardless of the services required by any specific individual.) Whatever their economic disadvantages, fee-for-service medicine and cost-based reimbursement shielded the physician and the hospital from the economic consequences of patient treatment decisions and, thereby, provided strong economic support for a patient-first ethic in American medicine. Few insured patients were ever undertreated, though some were inevitably overtreated. Now we face a movement to a fully capitated healthcare system that shifts the financial risk in healthcare from the payers of care to the providers.
This development raises a critically important question: "When the provider is at financial risk for treatment decisions who is the patient's advocate?" How can we continue to put the patient first in this new arrangement? This challenge will become especially daunting as we move into an intensely price competitive market where provider economic survival is on the line everyday. In such an environment the temptation to undertreat could be significant. Again, not-for-profits will face similar economic pressure but not with the added requirement of producing a reasonable return on shareholder equity. Part of the answer here, I believe, is to ensure that the nation not convert to a predominantly investor-owned delivery system.
Third, in healthcare there are a host of community-wide needs that are generally unprofitable, and therefore unlikely to be addressed by investor-owned organizations. In some cases, this entails particular services needed by the community but unlikely to earn a return on investment, such as expensive burn units, neonatal intensive care, or immunization programs for economically deprived populations. Also important are the teaching and research functions needed to renew and advance healthcare.
The community also has a need for continuity and stability of health services. Because the primary purpose of not-for-profits is to serve patients and communities, they tend to be deeply rooted in the fabric of the community and are more likely to remain -- if they are needed -- during periods of economic stagnation and loss. Investor-owned organizations must, on the other hand, either leave the community or change their product line when return-on-equity becomes inadequate.
Fourth, volunteerism and philanthropy are important components of healthcare that thrives best in a not-for-profit setting. As Peter Drucker has noted, volunteerism in not-for-profit organizations is capable of generating a powerful countercurrent to the contemporary dissolution of families and loss of community values. At a time in our history when it is absolutely necessary to strengthen our sense of civic responsibility, volunteerism in healthcare is more important than ever. From the boards of trustees of our premier healthcare organizations to the hands-on delivery of services, volunteers in healthcare can make a difference in peoples' lives and "forge new bonds to community, a new commitment to active citizenship, to social responsibility, to values."
Role of Mediating Institutions. In addition to my belief that the not-for-profit structure is especially well aligned with the central purpose of healthcare, let me suggest one more reason why each of us should be concerned that not-for-profits remain a vibrant part of the nation's healthcare delivery system: They are important mediating institutions.
The notion of mediating structures is deeply rooted in the American experience: On the one hand, these institutions stand between the individual and the state; on the other, they mediate against the rougher edges of capitalism's inclination toward excessive individualism. Mediating structures such as family, church, education, and healthcare are the institutions closest to the control and aspirations of most Americans.
The need for mediating institutions in healthcare is great. Private sector failure to provide adequately for essential human services such as healthcare invites government intervention. While government has an obligation to ensure the availability of and access to essential services, it generally does a poor job of delivering them. Wherever possible we prefer that government work through and with institutions that are closer and more responsive to the people and communities being served. This role is best played by not-for-profit hospitals. Neither public nor private, they are the heart of the voluntary sector in healthcare.
Earlier, I identified several reasons why I believe investor-owned organizations are not well suited to meeting all of society's needs and expectations regarding healthcare. Should the investor-owned entity ever become the predominant form of healthcare delivery, I believe that our country will inevitably experience a sizeable and substantial growth in government intervention and control.
Until now, I have made two arguments: first, that healthcare is more than a commodity -- it is a service essential to human dignity and to the quality of community life; and second, that the not-for-profit structure is best aligned with this understanding of healthcare's primary mission. My concluding argument is that private and public sector leaders have an urgent civic responsibility to preserve and strengthen our nation's predominantly not-for-profit healthcare delivery system.
This is a pressing obligation because the not-for-profit sector in healthcare may already be eroding as a result of today's extremely turbulent competitive environment in healthcare. The problem, let me be clear, is not competition per se, but the kind of competition that undermines healthcare's essential mission and violates the very character of the not-for-profit organization by encouraging it -- even requiring it -- to behave like a commercial enterprise.
Contemporary healthcare markets are characterized by hospital overcapacity and competition for scarce primary care physicians, but also, and more ominously, by shrinking health insurance coverage and growing risk selection in private health insurance markets. These latter two features encourage healthcare providers to compete by becoming very efficient at avoiding the uninsured and high risk populations, and by reducing necessary but unprofitable community services -- behavior that strikes at the heart of the not-for-profit mission in healthcare. Moreover, the environment leads some healthcare leaders to conclude that the best way to survive is to become for-profit or to create for-profit subsidiaries. The existence of not-for-profits is further threatened by the aggressive efforts of some investor-owned chains to expand their market share by purchasing not-for-profit hospitals and by publicly challenging the continuing need for not-for-profit organizations in healthcare.
Advancing the Not-for-Profit Healthcare Mission
Each of us and our communities have much to lose if we allow unstructured market forces to continue to erode the necessary and valuable presence of not-for-profit healthcare organizations. It is imperative, therefore, that we immediately begin to find ways to protect and strengthen them.
How can we do this? Without going into specifics, I believe it will require a combination of private sector and governmental initiatives. Voluntary hospital board members and executives must renew their institutions' commitment to the essential mission of not-for-profit healthcare. Simultaneously, government must reform health insurance markets to prevent "redlining" and assure everyone reasonable access to adequate healthcare services. Finally, government should review its tax policies to ensure that existing laws and regulations are not putting not-for-profits at an inappropriate competitive disadvantage, but are holding them strictly accountable for their tax exempt status.
Let me conclude by simply reiterating the thesis I made at the beginning of this talk. Healthcare is fundamentally different from most other goods and services. It is about the most human and intimate needs of people, their families, and communities. It is because of this critical difference that each of us should work to preserve the predominantly not-for-profit character of our healthcare delivery in Chicago and throughout the country.
Bibliography Bernardin, Joseph L. "The Consistent Ethic of Life and Health Care Reform," Origins: vol. 24, June 9, 1994. Dougherty, Charles J. "The Costs of Commercial Medicine," Theoretical Medicine: vol. 11, 1990. Drucker, Peter F. Managing the Non-Profit Organization: Practices and Principles, HarperCollins Publishers, New York, NY, 1990. John Paul II "Centesimus Annus," Origins: vol. 21, May 16, 1991. Relman, Arnold S. "What Market Values Are Doing to Medicine," The Atlantic Monthly: March 1992. Seay, J. David, Vladeck, Bruce C., Mission Matters, United Hospital Fund of New York, NY, 1987.
For additional copies, contact:
Office of Communications Archdiocese of Chicago P.O. Box 1979 Chicago, IL 60690-1979 312-751-8233 Fax 312-751-5306 The Catholic Health Association of the United States Attn: Order Processing Department 4455 Woodson Road St. Louis, MO 63134-3797 314-253-3458 Fax 314-427-0029
Copyright 1995 Cardinal Joseph Bernardin
