What Does It Even Mean Be a “Nonprofit” Hospital Anymore?

One of the oldest and truest axioms in consumer advertising is that the most successful and persuasive messaging finds a way to turn a feature into a benefit. Nowhere is this on greater display than in health care, and smart public relations professionals have known this for years. The fact that your hospital operates a 24-hour emergency department is a feature. The fact that “we’re here to take care of your child at 3 a.m. when you don’t know where to turn” is a benefit.

It is peculiar, then, that these same smart communicators who follow this strategy in so much of their daily messaging often find it challenging to apply an equivalent approach when talking about their not-for-profit status. While most nonprofits are very conscious to always include the words “nonprofit” or “not-for-profit” in their boilerplate description, many do a poor job of explaining precisely what that means in a way that is meaningful and compelling to their audience.

Are they missing a chance for differentiation and, if so, how can not-for-profit institutions turn their legal status into a competitive advantage as it relates to attracting patients, medical staff, and employees?

Given the reality that most health care is covered by a third-party payer, do consumers even factor the hospital’s status into their equation when choosing a provider? And given our age of cynicism and diminished trust in the health care system, will people take the time to listen and ultimately believe what the hospital has to say on this topic?

Here, we’ll share perspectives from three veteran strategic communications and business development professionals with widely differing views on the subject.

Tax Status – Meaningless to Consumers

Peggy Frank has overseen public relations for two of Southern California’s most widely-respected not-for-profit hospitals — Cedars-Sinai Medical Center in Los Angeles and Providence St. John’s Health Center in Santa Monica. Now president of Frank Public Relations, she says that “there was an illusion at one time that not-for-profits would give kinder care because they were not in business to make a profit, but that’s ridiculous. Every business needs to make a profit or you’re soon out of business (remember the old cliché ‘no margin, no mission’?).”

She continues, “Many not-for-profits started as religious institutions providing indigent care and focused on community good. But whether that is still true depends on the hospital, where it’s located and what the needs of the community are. It is also complicated by the fact that more and more charity care is being taken care of by state or federal government programs and that helps to blur the distinction between not-for-profits and for profits.”

Recent facts support her contention…and in fact paint an ever-starker picture.

Nonprofit hospitals are exempt from paying property tax, most federal and state taxes, and sales tax. They can issue tax-exempt bonds and can receive tax-deductible contributions. They are also not subject to the earnings pressure demanded by the stock market or venture capitalists. In exchange for these benefits, nonprofit hospitals are expected to return any additional capital to the direct benefit of their surrounding communities.

Yet, as reported in the June issue of Health Affairs, recent studies reveal that some nonprofit health systems are reducing staff, demanding payment from patients who qualify for charity care, and shifting services from low-income to high-income neighborhoods while increasing profits. The study also noted that nonprofit hospitals’ spending on charity care actually decreased from $6.65 million in 2012 to $6.36 million in 2019, whereas for-profit hospitals increased their charity care spending from $2.29 million to $6.30 million during the same period.

“The distinction between not-for-profit and for-profit hospitals is simply a tax status and is meaningless to most end consumers,” says Frank. “What people ultimately care about is going to a hospital that has the programs and staff to provide the care they need. Besides, people go where their doctor tells them to go.”

Nonprofit Status Builds Trust with Community and Employees

As director of business development for Mid-Columbia Medical Center (MCMC, part of the Adventist Health System) in Oregon, Travis Dray says that in his rural community people may not fully understand all of the nuances of being not-for-profit, but they certainly would understand if the hospital were for profit.

“We’re a small community and if we were a for-profit hospital, I truly believe there would be suspicion on what we’re charging and how much are we driven by a bottom line,” he says. “As a nonprofit we have a good story to tell — and we do make it a point to tell — that any profits are reinvested back into the hospital for equipment, building upgrades, staffing, and such. Being a not-for-profit also allows us to take a longer view and invest in programs that might not have an immediate bottom-line return but serve the public good.”

As an example, Dray points to the hospital’s SOMOS program — Serving Oregon and its Migrants by Offering Solutions — which earlier this year was honored by the National Rural Health Association. Launched in 2016, SOMOS provides a vehicle for MCMC to partner with local community organizations and other resources to address the health care needs of the nearly 20,000 migrant workers who annually come to Wasco County during various harvest seasons.

In addition to programs such as this, Dray also believes that being not-for-profit is “very important to our workforce. We have many employees who have said that they wouldn’t work for a for-profit — that’s not why they are in their profession, and they don’t want to be held to strictly bottom-line standards,” he says.

Commitment to a Cause a Selling Point

Sharing this view of “employee benefit” is Hans Eckardt, a marketing strategist and former corporate vice president of marketing and strategic communications for SCAN Health Plan, one of the nation’s foremost not-for-profit Medicare Advantage plans serving more than 285,000 members in California, Arizona, Nevada, and Texas.

Eckardt says SCAN used non-profit “as a way to recruit people who are committed to our cause and as a rallying cry for focusing our collective efforts on the people we serve. This is the main power of being a non-profit. Internally, we always tried to tie our non-profit status directly to the performance of our mission and to forming a culture that is ultimately felt by those who use our services.” External communications, however, was a different story.

“Some people immediately ‘get it,’ and see nonprofit as a positive, while others find the notion hard to believe and question how a company can exist without profit,” says Eckardt. “Also, some consumers associate ‘nonprofit’ with entities that are funded by donations, or that they are there just for the underprivileged. This can be a negative for a health plan.”

He continues, “For that reason, we promoted the concept of nonprofit with a light touch, usually combined with (but not specifically linked to) measures of quality and service. It is part of a larger way of thinking and operating, not a selling point unto itself.

“Timing is important, too,” he says. “Nonprofit may have limited appeal to someone who has not yet experienced a product or service, but it can be powerful to a member or patient who has received excellent care or service.”

Is Skepticism Winning?

The issue of how, when, and why to promote nonprofit is nothing new. A quarter of a century ago I was working with a not-for-profit health care organization, and we decided to tackle this challenge head-on with a direct advertising campaign explaining precisely what it means to be nonprofit and why people should care. We went so far as to have the campaign designed, the copy written, and space reserved. The CEO loved the creatives but killed it before we could pull the trigger. His reason was simple: he didn’t think people would believe our message or trust what we were saying.

Sadly, his skepticism would be even greater today as contrary to a commonly-held belief, data shows that for-profit hospitals tend to serve lower-income populations, while nonprofit hospitals generally serve communities with higher average incomes and fewer uninsured patients. What’s more, the for-profit model in health care has become more popular than ever. The number of  for-profit hospitals in America is growing every year, and more and more nonprofit hospitals are exploring potential transitions to an investor-owned financial model in the future.

While traditional wisdom once held that nonprofit hospitals maintain a firm advantage over for-profit hospitals — potentially indicated by the 3:1 nonprofit-to-for-profit ratio in the U.S. — the tides seem to be turning.

So where does that leave nonprofits in telling their story? Or, as ironic as this phrase may be, what’s the bottom line in this storytelling?

“Nonprofit must not just be said, it must be demonstrated in the context of a larger brand proposition,” says Eckardt. “There is an argument that consumers have a right to be cynical and mistrustful of health care in this country, and that is only amplified by social media. Executives need to think carefully about how to position their non-profit status as part of a well-crafted, honest brand story.”

Ross K. Goldberg is president of Kevin/Ross Public Relations and former chairman of the board of trustees at Los Robles Regional Medical Center in Southern California. He the author of the books “I Only Know What I Know” and “Food on the Table.” He is a member of the editorial advisory board of Strategic Health care Marketing.