Who really profits from not-for-profits?

In a Harvard Business Review (1987) article, Herzlinger and Krasker suggested that not-for-profit hospitals do not return more benefit to society than do for-profit hospitals, and the authors questioned the legitimacy of social subsidization of not-for-profits. Our article reports findings from an empirical reconsideration of the question, "Who profits from nonprofits?" We used hospital data from the same time period (1982) as that used by Herzlinger and Krasker; however, our investigation analyzed a larger data set (including both system and nonsystem hospitals) and used a different statistical technique (discriminant analysis). Our findings suggest that not-for-profits return more social benefit (e.g., in the areas of services provided, access to care, and involvement in professional education) than do for-profits. Like Herzlinger and Krasker, we find that for-profit hospitals may be more efficient than not-for-profits. We caution that public policy regarding social subsidization of not-for-profit hospitals should be made only after more intensive study and thoughtful consideration.