Why we need not-for-profit health care.

Predictably, Mark Pauly has written a thoughtful and provocative article. Nevertheless, I find it unpersuasive because it is based on dubious assumptions and an unrealistic description of the way hospitals and other health care delivery organizations work. Furthermore, the article leaves me confused at the end by offering two apparently contradictory conclusions while providing no possible solutions. Hospitals versus Integrated Delivery Networks To begin with, Pauly lumps hospitals together with "integrated delivery networks" (IDNs), as if the issues of community benefit and charitable donors were equally relevant to both kinds of organizations. But this is obviously not the case. Donors may be an important source of capital for some not-for-profit hospitals, but they do not contribute much to IDNs. Most IDNs are investor-owned (and therefore would not attract donors), but even not-for-profit IDNs rarely get significant charitable donations. They generate capital through borrowing and from operating revenues. Furthermore, IDNs do not have the close association with particular communities that hospitals do and they are not expected to provide the kind of community benefits that hospitals offer. IDNs are basically medical insurance companies combined with medical delivery systems, or they provide medical care through contracts with medical insurance companies and large employers. Their services therefore go only to their subscribers, not to the community as a whole, and this is true regardless of ownership. To my knowledge, no one has ever suggested that IDNs have service obligations to those who are not subscribers to their network, except perhaps in special emergency situations. In short, Pauly's analysis, to the extent that it has any relevance to the current health care scene, applies only to the hospital sector and not to IDNs. I am puzzled by his assumption to the contrary. Why does he choose to use the term "hospitals" in this piece to "include service delivery systems of all types," when IDNs and hospitals are so clearly different with respect to their community functions, their financing, and their dependence on donors? In some respects, the business operations of hospitals and IDNs may overlap. Some hospitals are organizing physician-hospital networks (PHOs), and many have contracts with other types of IDNs, but for the most part, hospitals and IDNs are basically quite distinct kinds of organizations. Blurring this distinction only serves to confuse the discussion. Differences Between Not-for-Profit and For-Profit Hospitals Pauly makes other dubious assumptions. He asserts that the primary difference between notfor-profit hospitals and for-profit hospitals is their source of capital. He further claims that donors supply capital to not-for-profit hospitals in expectation of "donor-pleasing activities," just as investors supply capital to for-profit hospitals in the expectation of generating profits. He adds to these assertions the additional claim that not-for-profit hospitals provide community benefits not because they want to but because they have to, in order to attract donor capital. None of these propositions is supported by any credible evidence of which I am aware. They are simply opinions. As such, they reflect a purely economic view of individual and organizational behavior-a view that Pauly acknowledges at the outset to be constraining and arguable but which he nevertheless seems to accept without question throughout the remainder of his discussion. As a non-economist who believes that we live primarily in a society, not in an economy, and who is convinced that health care is not simply a marketable service, I challenge all of these assumptions. They may be based on standard economic theory, but they are abstract and bloodless, and I do not believe they square with the experiences of those who know and use the hospital system. The essential difference between for-profit and not-for-profit hospitals is not defined by their sources of capital. …