Competition presents opportunity for not-for-profit systems

Though they face similar challenges in adapting to a competitive environment, investor-owned and not-for-profit (NFP) health care systems react differently. The investor-owned strategy reflects a philosophy that regards patient care and economics with equal concern, while NFPs' management decisions are rooted in a tradition of community service. For-profit chains are perceived as more efficient than NFP chains because they respond to marketplace demand. Studies, however, show that while operating expenses are about the same, for-profits charge more per admission. On the other hand, NFP systems, by allowing affiliates to participate in service expansion decisions, are able to maintain lean corporate staffs and thereby minimize administrative and fiscal costs. The NFP organizational structure enforces economic discipline in a way that for-profit chains--where corporate staff alone make service decisions--cannot achieve. The major difference, of course, between for-profits and NFPs is in philosophy, not in management techniques. NFPs should communicate to the public their commitment to serve all patients and remind consumers that their charges are comparable with for-profits'. Developing a capitation plan would provide NFP systems another opportunity to emphasize their service orientation. An effective capitation plan is a means to influence the marketplace toward chain affiliates, since subscribers under the terms of the plan use contract hospitals and physicians. In addition to sufficient capital, such a venture requires expert management. NFP systems will have to offer incentives such as executive stock ownership plans to attract and keep top talent. In the future, management and governing boards must base strategic plans on the public's needs, attitudes, and economic status, not on myths about the competition.