The conversion of nonprofit hospitals, health systems and health plans has drawn increasing public attention over the last few years. In 1994, that requirement was dropped. As of 1997, five member plans have converted to for-profit status. Plans in 17 states are currently contemplating or attempting conversion to for-profit status. Investor-owned entities generally distribute their excess revenues to shareholders.
Nonprofits have no shareholders.
They can utilize their excess revenues in a number of ways, and towards a number of ends. For instance, these revenues can be used to improve services, provide uncompensated care, provide community outreach or educational services, or otherwise be redistributed into enhanced services. On the other hand, nonprofits can, and often do, put these revenues into capital expansion projects or CEO salaries. In an increasingly competitive environment, they can also hold on to these revenues in order to fund future mergers or acquisitions, to increase their creditworthiness or to build more formidable advertising budgets. In short, whether a health care entity is nonprofit or for-profit does not in and of itself predict exactly how excess revenues are to be used.