Study fails to prove for-profits' superiority

A recent article by Regina E. Herzlinger and William S. Krasker, "Who Profits from Nonprofits?" (Harvard Business Review, January-February 1987), reported research results on about two thirds of the hospitals in 14 for-profit or not-for-profit hospital chains and concluded that not-for-profit hospitals do not perform as well financially as for-profit hospitals, nor do they compensate for this by achieving other meaningful social results. However, the study is conceptually and methodologically flawed. The authors fail to build on any prior work that has analyzed the differences between not-for-profit and for profit hospitals or to discuss why their results conflict with prior industry research. Their comparison of local, regional, and national providers is virtually meaningless because factors affecting health care delivery, competition, and performance are unique to the local market. The not-for-profit and for-profit hospitals analyzed are not necessarily comparable either within the two groups or between them. Furthermore, the relevance of their findings and conclusions based in 1977 and 1981 data is questionable because of dramatic changes in the industry since 1981. Herzlinger and Krasker's first conclusion--that not-for-profits are less efficient and more short-term oriented that for-profits and require societal investment to keep them afloat--remains unproven. Their attempts to adjust for factors that affect both income and level of investment were inadequate, as they failed to account for or quantify the impact of social subsidies to for-profits, price, uncompensated care, magnitude and scope of unprofitable services, and differences in reimbursement.(ABSTRACT TRUNCATED AT 250 WORDS)