There are several factors that people need to put into consideration before forming a healthcare organization. The main consideration is the ownership form for the organization because it will have an impact on the operations of the organization. The ownership form determines the organization’s mission, legal, and business-related imperatives. There are four forms of healthcare organization ownerships which are, not-for-profit business-oriented organizations, governmental HCOs, non-governmental, nonprofit HCOs, and for-profit HCOs. For-profit healthcare entities are divided further into, sole proprietorships, investor-owned, limited liability partnerships/limited liability companies, limited partnerships, and professional corporations/professional associations.
The not-for-profit is also known as a non-profit health care organization is owned by an entire community and not an investor. The objective of non-profit HCO is to serve the community in which they are established. The community expects to go get healthcare services of high quality but a lower cost. These organizations are run as businesses so that they can have long-term financial viability (Cleverley et al., 2011). Excess revenue that is over expenses is retained in the organization so that the maintenance and growth of the HCO can be done rather than sharing it among the stakeholders. People expect that healthcare services should be provided even if a person does not pay. Owners of such entities are industries, special interest groups, and churches. The advantage of not-for-profit HCOs is that they are tax-exempt when it comes to federal income taxes and property taxes. They are allowed to get donations, investments, and grants from nonprofit organizations without paying tax. They are also required to pay less equity capital than for-profit HCOs (Cleverley et al., 2011). The main disadvantage is that they have limited access to capital. The law does not allow them to raise capital from the equity market.
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For-profit HCOs are focused on achieving profits as they provide healthcare services. Their motivation is mainly to increase their revenue base. They work hard to offer quality healthcare services so that they can maximize their profits. They can raise capital easily through share capital and risk based equity capital. Investor-owned entities are under for-profit HCOs and are further divided into two, publicly traded companies and privately held companies. An example of a for-profit organization is HCA, Inc, which is a profit healthcare organization that is established nationally.
Publicly traded companies provide shares for trading in the stock exchange, open market, and OTC market. The owners of these organizations are private and institutional shareholders who owned shares in the company. The shares in the equity ratio determine the number of shares they own. The advantage of publicly traded companies is that they have more access to financing compared to other forms because they can raise capital fast by offering additional shares (Verulava et al., 2018). Privately help HCOs are organizations whose shares are held by a few investors and they are not accessible to the general public. When it comes to reporting, they have little regulations issued by the Securities and Exchange Commission. Both the publicly traded companies and the privately held entities, the investors expect to profit from the shareholders’ wealth.
A professional corporation or professional association is a form of for-profit HCO whereby professionals who want to gain advantages of incorporation come together and start a buiness. It does not protect the owners from professional liability. This form of HCO has been mostly been used by physicians and other healthcare providers.
A sole proprietorship is an unincorporated organization whose ownership is of a single person. For example, a single physician who owns a healthcare facility is a sole proprietor. The advantage of this HCO is that they are easy and cheap to set up. Since there is no sharing of profits, the sole proprietor controls the finances. There are few regulations from the government and there are no special taxes and they are not only easy but also cheap to resolve (Cleverley et al., 2011). The main disadvantage of a sole proprietorship is that it has unlimited liability and it has limited capital.
A partnership is an unincorporated business that is owned by two or more individuals. Physicians and other healthcare providers tend to set up this form of HCO because it offers them a platform to practice as a group. Partnerships are easy to form and they have few government regulations (Wright, 2017). The disadvantage of partnership is that there are high chances of conflict between the partners which are difficult to resolve. They also have limited liability and they are difficult to resolve.
Government HCOs are public organizations that are owned by the local government or the state. Their focus is to serve the society in which they are established. There exist a variety of that kind of ownership called public benefit organization. The accumulated revenue and the assets of a public non-profit benefit organization are owned by the public or the beneficiaries to whom the charity was entrusted to serve. For example, the Nassau County Medical Center located at Long Island, New York, had a capacity of 1,500 beds and was converted into a public benefit organization from the ownership of the county in 1999 (Cleverley et al., 2011). It was converted into a public benefit corporation so that it would have more autonomy in matters of governance and decision making. The conversion gave it a better chance to compete with the large private-owned healthcare facilities.
Government HCOs have an advantage because they can get additional capital from revenue raised by the state through taxes. They are also exempted from property and income taxes. However, like the not-for-profit HCOs, governmental HCOs do not allow to raise capital through equity investments. The main challenge that faces these organizations is political interference and the pressure of their revenues is high (Rutherford, 2011). Instead of the hospital reinvesting if there is a surplus in productivity, there may be the pressure that the facility returns the surplus to the community or reduce prices or even introduce programs that are not financially feasible.
Nonprofit, non-business-oriented HCOs offer voluntary services in their society and they are therefore referred to as voluntary health and welfare organizations. Their source of funding depends on public donations and they are exempted from taxes. For example, the American Cancer Society and the American Red Cross.
The best form of ownership that is suitable for the fifty doctors in the professional corporation. The reason for that is that when professionals, in this case, doctors, come together, they have a lot in common and they will be able to share knowledge and have mutual growth (Rutherford, 2011). This form of business organization will help in offering effective healthcare services to their clients under one organization which will give them a better chance of competing with other organizations.
In conclusion, it is critical to have an understanding of the different ownership forms of healthcare organizations so that a person can make the right decision when choosing what form of ownership he or she should use. All the forms have advantages and limitations and therefore depending on other factors, an individual or a group of people can choose the best form that would work best for their organization. For, example, a group of doctors would succeed more if they formed a professional HCO because they would be able to pool resources, knowledge and expertise which would make them more competitive.
References
Cleverly, W., Cleverly, J., & Song, P. (2011). Essentials of Health Care Finance (7th ed.). Jones & Bartlett Learning.
Rutherford, K. (2011). Choosing a business form. Overdrive, 51(11), 22. Retrieved from ProQuest database.
Sudbury, MA: Jones & Bartlett. Retrieved from https://www.vitalsource.com
Verulava, T., Jorbenadze, R., & Dangadze, B. (2018). The role of non-profit organizations in the healthcare system: World practice and Georgia. Georgian Med News , 274 (1), 178-182.
Wright, M. (2017). Innovation and ownership variety. Innovation , 19 (1), 74-79.
