Connecticut shouldn’t fear for-profit hospitals

About one hospital in five across the U.S. is for-profit. Connecticut — in keeping with regional tradition — is dominated by nonprofit hospitals. 

Across the country, the share of for-profit hospitals is growing, although the majority of hospitals are still nonprofit. Since 2000, the rate of for-profit ownership has increased from one in seven to one in five, according to the Kaiser Family Foundation.

All but two of Connecticut’s 32 hospitals are nonprofit. Sharon Hospital is for-profit. John Dempsey Hospital at the UConn Health Center is state-run.

Connecticut is likely to reach the national average soon. That would mean about six for-profit hospitals. We already would have been close if the Department of Public Health had not put unreasonable conditions on the sale of four struggling nonprofit hospitals, killing the plan to invest $500 million in our state. 

Massachusetts and New Jersey have seen significant transitions toward for-profit ownership. Both now approximate the national average. (New York effectively bans corporations from owning shares in for-profit hospitals, although technically an individual or group of individuals could own the shares.)

Recognizing that this trend may reach Connecticut soon, I sat down with Sharon Hospital CEO Peter Cordeau and CFO Christian Bergeron to learn more about the for-profit hospital model. 

The first thing that stood out: no public affairs person. I scheduled the meeting through Cordeau and sat down with just him and Bergeron. 

The pair said there is essentially no difference between for-profit and nonprofit hospital ownership from a patient’s perspective. For-profit owners might make minor operational changes when they take over. Regardless of ownership, they explained, hospitals serve every patient regardless of their ability to pay, and they have charity policies that offer assistance to patients who can’t afford health care.

“It doesn’t affect us at all,” Bergeron said, explaining that the parent company acts as a capital partner, funding investments in the hospital. “Many hospitals wish to be in our position right now.”

Sharon Hospital went from being nearly bankrupt as a nonprofit to 14 successful years as a for-profit company. (When a for-profit buys a nonprofit, the buyer pays the purchase price to another nonprofit. The conversion of Sharon Hospital to a nonprofit resulted in the creation of the Foundation for Community Health.)

Cordeau said for-profits seek “administrative efficiency” and tend to have less bureaucracy. “There is only one manager and a staff nurse between me and the patient,” he said. 

Sharon Hospital profits by meeting the community’s needs, and in turn the profits allow it to continue to meet those needs. “You need margin to continue the mission,” Cordeau said. 

Right now, lawmakers are trying to tackle problems that for-profit hospitals could help to solve. For example, the drive to tax hospital property becomes a non-issue if the hospital is for-profit. All for-profit hospital property is taxed. By opening up for-profit ownership, at least some hospitals will start paying property taxes. 

Otherwise, the state is forced into deciding which nonprofit hospitals are actually nonprofits, or which components fail to meet that criteria. This risks turning into judgments of which nonprofits are “good” — or politically favored.

For-profits could also help to alleviate hospital consolidation, which is often driven by financial challenges and the need for the capital partner that for-profit ownership provides.

Recently, Gov. Dannel Malloy froze hospital consolidation in Connecticut by executive order. While this intervention may not prove effective, policymakers should respond to this troubling trend. Fortunately, lawmakers have a response right at their fingertips. They’ve given power to the Department of Public Health to control the supply of health care in Connecticut. Instead of strictly limiting the number of hospitals through certificates of need (CON), lawmakers should allow more flexibility. 

Bergeron said the CON process should be more consistent and streamlined, although he wasn’t as critical of the policy as I am. 

“It seems like it’s used more as a political vehicle,” he said.

Connecticut’s nonprofit hospitals regularly work miracles, saving or improving the lives of many. Unfortunately, as institutions, they seem to have lost their identity in their bureaucracy. They have become closely affiliated with state government, but that relationship isn’t going well for them at the moment (see my previous column). 

It would be a shame if Connecticut entirely lost its tradition of nonprofit hospital ownership, but it would also be a shame if our steady habits got in the way of access to better health and well-being.

Should Connecticut fear for-profit ownership of more of its hospitals? No. It seems to me that Sharon Hospital serves the community well; so well, in fact, that you might forget it’s any different.

Zachary Janowski writes for the Hartford-based Yankee Institute, Connecticut’s free-market think tank.