Hospital Ownership Types And Impacts On Healthcare Finance


The hospital industry in the United States is a sector where three types of ownership have long existed. Many studies have focused on the differences between private non-profit, commercial, and public hospitals in terms of efficiency and treatment outcomes. Financial indicators also depend on the type of ownership of the medical institution. Understanding the dependence of a financial indicator on the kind of ownership is essential for structuring the management and financing system. The main challenge is that public and non-profit hospitals provide cheaper or accessible care, which results in more clients and a more comprehensive range of services (Alumran et al., 2021). Firstly, it is necessary to find a balance in the distribution of consumers of health services between different types of hospitals. Financial difficulties negatively affect the performance of any hospital, so it is crucial to identify ways to eliminate them to improve the quality of medical care. The search for ways to optimize costs and revenues is complicated by the urgent need to maintain and improve the quality of healthcare services.

Defining Ownership Types

The form of hospital ownership directly affects the profits of healthcare organizations. In the United States, three forms of ownership of a medical institution successfully exist private, private non-profit, and public, including district and county hospitals. Since healthcare is a profitable industry, private individuals organize medical institutions aimed at making a profit for the owner. Private hospitals are not owned by the government and are funded by patients and insurance companies. This form of ownership is common in most countries worldwide and successfully operates, making a profit.

A non-profit hospital does not directly profit from patient care for the owners and operates on voluntarily collected funds. Charities or non-profit corporations often own non-profit hospitals. District and county hospitals are state-owned; a district hospital is usually the main medical facility in its region, with a significant number of intensive care and long-term care beds. A county hospital can be any county-approved facility that provides medical services. Non-profit and public hospitals are not for-profit and are intended to provide affordable healthcare options to the public.

Challenges and Problems: Impacts on Healthcare Finance

The key differences between for-profit, non-profit, and public hospitals provide a basis for discussing the impact of ownership on financial hardship. Non-profit private hospitals are not subject to federal, state, or local taxes. In keeping with their purpose and community focus, non-profit hospitals are often affiliated with a particular religious denomination or non-profit charitable organization. Non-profit hospitals, on average, provide more pro bono care than for-profit hospitals. However, for-profit hospitals tend to serve low-income populations, while non-profit hospitals are located in communities with less poverty, higher incomes, and fewer uninsured patients (Alumran et al., 2021). Public hospitals are underfunded and forced to provide affordable care, often lacking the resources to support it.

In addition to the fact that commercial hospitals pay significant amounts of taxes, their costs of attracting consumer services are much higher. For example, commercial hospitals spend much more resources on advertising and marketing. While public and non-profit hospitals do not need to engage in customer acquisition. Whether a hospital is non-profit or commercial, the community it serves must understand how the hospital operates and allocates resources. Non-profit and public hospitals provide more affordable services; at the same time, commercial hospitals may have the resources to offer unique and rare services. The main difficulty is the uneven distribution of consumers, resulting from which commercial hospitals do not bring enough profit. Non-profit and public hospitals have difficulty serving a large number of patients due to a lack of resources.

Review of the Literature

The literature on the impact of hospital ownership type on hospital performance is quite diverse. However, the financial side of the issue is less affected. To understand the topic of the economic situation and difficulties of the hospital, a detailed study of the specific literature was required. In addition, it was essential to understand how the services of hospitals with different types of accommodation differ since they form a cost. Thus, Berger establishes a direct link between service quality and financing (2014). It becomes clear that lack of funding and inefficient allocation of resources is a common problem for all types of healthcare institutions. A study by Alumran and his colleagues aims to examine the quality of care in private and public hospitals (2021). The researchers conclude that visitors to private hospitals expected a higher quality of care (Alumran et al., 2021). These results suggest that public hospitals either lack funding and resources or have a more increased patient flow that hinders the provision of better care.

Discussion of the impact of not taxing non-profit and public hospitals is raised in the academic literature. Bai et al. conclude that philanthropic aid is not eligible for preferential taxation (2021). That is, the preferential tax regime does not correspond to the quality of medical care (Bai et al., 2021). Non-profit and public hospitals have a much broader patient base, and their funding is still not enough to serve everyone. When analyzing the financial situation of hospitals, it is necessary to consider related factors. Thus, Khullar et al. update their study on the impact of the pandemic on US hospitals (2020). Coronavirus exposed all the system’s weaknesses and contributed to a significant redistribution of forces in the healthcare market (Khullar et al., 2020). Non-profit and public hospitals had more intensive care resources than private commercial ones.

Finally, the literature used was supposed to offer solutions to emerging financial difficulties in the healthcare sector. One common theme in exit patterns is the use of new technologies to streamline hospital processes. Wang et al. argue that investing in health information technology improves the financial performance of hospitals (2018). Artificial intelligence and cloud technologies will also optimize hospital processes and reduce the waste of material and human resources (Yuan et al., 2022). Although the implementation may take considerable time and effort, the result of using technological solutions should be positive on the financial side of the issue.

Critical Analysis

Private hospitals operate on an understandable principle, along with any other business, responsible to shareholders and investors. Public and non-profit hospitals, in turn, must take care of the underserved population (Bai et al., 2021). Despite the difference in management approaches and forms of ownership, all types of hospitals can experience financial difficulties. Non-profit clinics regularly face a lack of funding and the need to provide services in a cheaper segment. It can be challenging for private clinics to find a balance between attractive prices for clients and decent earnings to continue developing their businesses. Public clinics cannot always boast of reputable services, and funding from the state is limited.

Surprisingly, non-profit hospitals are often the most successful and profitable. The not-for-profit label comes from being exempt from federal and local taxes in exchange for providing a certain amount of public goods (Bai et al., 2021). The public benefit of hospitals should be more clearly defined in terms of tangible health benefits for residents. Indeed, non-profit private hospitals are more profitable than for-profit private hospitals due to several government benefits (Bai et al., 2021). If a private business does not have to pay taxes, its costs will be lower. Since non-profit hospitals are defined as charitable institutions, they can benefit from tax-free donations from donors and tax-free bonds for capital projects, which for-profit hospitals cannot do (Bai et al., 2021). The real question with non-profit hospitals is whether the benefits to society are equal to what taxpayers donate to these hospitals in the form of tax credits.

It is essential to recognize the extreme disparity in the financial situation of hospitals. Many non-profit hospitals, especially in rural areas, are experiencing significant difficulties; dozens of rural hospitals have closed and hundreds more are abandoned (Khullar et al., 2020). At the other end are hospitals that earn several thousand dollars per patient. The most profitable non-profit hospitals tend to be part of substantial healthcare systems. Consolidation is one of the drivers of high profits, as monopoly hospitals are known to charge higher fees than non-monopoly hospitals.

Public hospitals across the country are facing multiple financial problems, causing some institutions to declare bankruptcy and others to close. Public hospitals in states that have not expanded Medicaid programs are under a lot of pressure because they tend to have a higher proportion of low-income patients. Some public hospitals face financial problems as fewer patients seek care at their facilities (Khullar et al., 2020). Community hospitals need to monitor falling patient numbers closely and determine if their market is shrinking or if they are losing patients to competitors.

Hospitals need a cost accounting department or tools that allow them to take a deeper look at their finances to determine if a referral is profitable. While the accounting system is costly, such investments can decide whether a hospital remains viable or closed (Berger, 2014). By knowing the cost of each component of patient care, community hospitals have more leverage in negotiating with payers and can formulate plans to cut costs.

Commercial hospitals are seeking to earn a return on equity. They do this through a business model that relies on solid and stable cash flow. Secondly, they target more profitable sectors such as less expensive elective surgeries and more difficult patients (Berger, 2014). For-profit hospitals tend to place more emphasis on planned emergency care than other types of hospital ownership; they may experience a shortage of clients. The collapse in stock prices for commercial chains of hospitals reflects the financial difficulties faced by the private sector.

A possible solution to financial problems will be using technology to solve everyday problems. Management can use the data to determine where appropriate personnel changes should be made to improve efficiency and reduce costs (Wang et al., 2018). Management needs to evaluate the current organizational structure to pinpoint the circumstances under which levels of command and control may be reduced. Another effective tool can be to provide decision-makers with training, tools, and support to effectively oversee their units and quickly respond to critical issues that can significantly positively impact the bottom line of a business. Core processes need to be streamlined to provide fast and efficient assistance. In cloud storage, the medical staff can easily organize data from financial indicators to patient cards (Yuan et al., 2022). Despite their high cost, technological solutions will provide serious financial simplification later. To successfully implement technical solutions, hospital staff must be educated and prepared.

From patient flow to emergency department operations, core practices are essential for staff accountability, effective communication, and teamwork across departments. It can be effective to review supply chain management and non-labor costs to identify additional opportunities to reduce them. Areas for evaluation include medical and surgical supplies, purchased goods and services, and inventory. Reducing costs in a hospital is a challenging task, as finding a balance between quality and price is necessary. Proper allocation of funding for public hospitals should be a key priority. For-profit private hospitals should focus on reducing costs through restructuring and additional staff training. Non-profit hospitals must recognize the social value and align with other healthcare sectors.

Implementation of Solutions

Making significant changes in any organization is a complex process in which both the team and senior management must work together. Implementing new plans to overcome financial difficulties should begin with management’s conviction in the correctness of the decisions made. Management must understand that improved staff education, restructuring, and the use of technology will lead not only to increased profits but also to greater customer satisfaction. The next step is to develop a detailed change implementation plan. It will also require a conversation with the staff to help identify inefficient employees.

Management needs to review the supply chain, evaluate equipment and recognize the need for restructuring to achieve better financial performance. The introduction of new solutions should also be accompanied by a proper evaluation of the model’s effectiveness. The assessment can be carried out using a customer satisfaction survey and a quantitative indicator. The number of clients is easy to estimate using an electronic database. Patient satisfaction with the services offered may indicate that the quality of services has not declined when costs have been reduced.

Justification of Solutions

The study demonstrated a significant impact of ownership type on hospitals’ financial performance. Currently, there is a substantial preponderance of forces toward non-profit private hospitals. Public and private hospitals are losing customers and profits, which affects the quality of services and the position of medical staff. Changes are needed to find a balance that will lead to an adequate distribution of forces in the service market to provide affordable assistance to all citizens. Attracting customers, raising the level of education, and using technological advances will allow hospitals to equalize in quality of services. In this case, it will be possible to count on an equal distribution of costs and profits.


There is a significant difference in the level of the financial well-being of private, non-profit, and public hospitals. Private hospitals are often facing a lack of solvent clients. Non-profit hospitals create a significant gap in the distribution of patients due to the low cost of services and the absence of the need to pay taxes. Public hospitals suffer from inadequate funding and resource allocation. Balancing profitability and not losing the quality of services is a complex undertaking for a hospital of any type. The right decision in this vein would be to introduce technological solutions to optimize hospital processes. It is also necessary to review supply chains for efficiency and the correct distribution of intrahospital resources. It is required to increase the level of staff training so that they can cope with technological innovations.


Alumran, A., Almutawa, H., Alzain, Z., Althumairi, A., & Khalid, N. (2021). Comparing public and private hospitals’ service quality. Journal of Public Health, 29, 839-845.

Bai, G., Zare, H., Eisenberg, M. D., Polsky, D., & Anderson, G. F. (2021). Analysis suggests government and nonprofit hospitals’ charity care is not aligned with their favorable tax treatment. Health Affairs, 40(4), 629-636.

Berger, S. (2014). Fundamentals of Health Care Financial Management: A Practical Guide to Fiscal Issues and Activities, 4th Edition. Wiley.

Khullar, D., Bond, A. M., & Schpero, W. L. (2020). COVID-19 and the financial health of US hospitals. Jama, 323(21), 2127-2128.

Wang, T., Wang, Y., & McLeod, A. (2018). Do health information technology investments impact hospital financial performance and productivity? International Journal of Accounting Information Systems, 28, 1-13.

Yuan, X., Shi, C., & Wang, Z. (2022). The optimization of hospital financial management based on cloud technology and wireless network technology in the context of artificial intelligence. Wireless Communications and Mobile Computing, 2022, 4(1), 1–11.