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The For-Profit Versus Nonprofit Conundrum

The senior living industry offers an interesting opportunity to observe both for-profit and nonprofit organizations.

For example, of the nation’s 15,677 nursing homes, 69% are for-profit owned, while 31% are either nonprofit or government owned. There is generally considered to be a divide in the quality of care provided and consequently, unfortunate stereotypes have developed:

  • Nonprofit Stereotype─The common belief is that nonprofits do not focus on their bottom lines. As a result, they are generally less efficient and are perpetually facing resource shortages.
  • For-profit Stereotype─By contrast, for-profits are often accused of being overly focused on the bottom line and the efficiencies that bring them about.  As a result, concerns arise about for-profits not always providing the same level of patient care as nonprofits.1
Opportunities to Learn

As with most stereotypes, these are oversimplifications of a broad industry. For example, four of the five largest nonprofit senior living organizations, each with more than 4,000 residents, maintain investment-grade ratings by Standard & Poor’s.  The largest, the Evangelical Lutheran Good Samaritan Society with close to 19,000 seniors under their care, maintains an A credit rating that reflects their success in balancing their mission driven goals with prudent long-term financial goals.   

By contrast, while nonprofits often seem to win a majority of patient-care-related prizes, without the capital being provided by the for-profit industry, the nation would not nearly be able to meet the housing needs of its exploding senior population. According to the U.S. Census Bureau, 10,000 baby boomers turn 65 every day for the next 17 years. The for-profit industry and its access to capital will be crucial to serving this exploding population. Their track-record of successful expansion, which provides access to additional resources, is one indicator that for-profits are indeed meeting the patient care demands of seniors and their families.

The key is not accepting the tyranny of an “either/or” choice. Establishing a sound business plan, with a firm understanding of financial goals and maintaining a strong set of values, whether it is through a mission statement or through a value driven culture, are of equal importance for long-term success. To provide perspective, it is interesting to review two distinguished management authors.

Motivating Knowledge Workers

“Efficiency is doing the thing right. Effectiveness is doing the right thing.” ― Peter F. Drucker

Management consultant and author Peter F. Drucker published more than 35 books and countless articles on effective management and organizations.  He came to prominence with books, such as The End of Economic Man (1939) and The Future of the Industrial Man (1942). In 1959, Drucker coined the term “knowledge worker” to reflect those with a deep background in education and experience, for example nurses, lawyers or architects. Over the subsequent half century, he dedicated a large amount of research to addressing the question of how knowledge workers could be most effective. 

Drucker’s consulting work on this topic would involve such major corporations as General Motors, General Electric, Coca Cola, and Proctor and Gamble, to name a few. However, in July 1989, he published an article in Harvard Business Review entitled “What Business Can Learn from Nonprofits,” and this theme would take up the bulk of his interest through his passing in 2005.

As he lays out in the article, successful nonprofits must have “organization and leadership, for accountability, performance and results.”  But their key strength is clear missions that establish a foundation for success. Throughout the article Drucker provides examples of nonprofit organizations, large and small, with big and small challenges, which effectively manage their resources and continue to expand services.   

At the conclusion of the Harvard Business Review article, Drucker brings nonprofit learnings back to his knowledge worker concept. Through a clear mission, balanced with financial accountability, both nonprofit and for-profit organizations can meet the challenge of motivating employees and producing value for those they serve.  

Hedgehogs

“Good is the enemy of great. And that is one of the key reasons why we have so little that becomes great…” ─Jim Collins

Born nearly 50 years after Drucker, James (“Jim”) Collins is a best-selling business author whose first book, Built to Last (1995), explored key habits of companies that have enjoyed prolonged success.  Although focused on for-profit corporations, whose success could be judged by stock returns, the books include chapters entitled “More Than Profits” and “Cult-like Cultures,” that emphasize the need for mission and purpose beyond the bottom-line.

Further exploring the drivers of success, Collins published in 2001 Good to Great, which reportedly has sold 2.5 million hard copies. Four years later, he published Good to Great and Social Sectors, which outlined how the same concepts used by successful for-profits can be applied by nonprofits. An example is the Good to Great Framework: 
  • Stage 1 – Disciplined People
  • Stage 2 – Disciplined Thought
  • Stage 3 – Disciplined Action
  • Stage 4 – Building Greatness to Last
The inflection point for greatness, in Collins’ model, occurs in Stage 2, when an organization identifies the simple, coherent “hedgehog concept,” a notion that allows an organization, by doing one thing and doing it well, “to attain piercing clarity about how to produce the best long-term results.” Comparing for-profits to nonprofits, he finds two of the three components of the Hedgehog Concept the same: 1) doing something you are deeply passionate about; and 2) identifying what you can be the best in the world at. The third, what drives a business’s economic engine or bottom line, presented the biggest challenge of acceptance by nonprofits.

Collins writes about the irony of this challenge because even nonprofits must pay the light bill. He found a solution in shifting the definition from purely economic, for example profit and losses, to resources, for example the ability to continue or expand an organization’s mission. The shift remains true to the old adage, “no margin, no mission,” and furthermore, how similar most successful organizations, whether for-profit or nonprofit, truly are.

Tale of Two Providers

In Kansas, two senior housing organizations that represent a commitment to values and stewardship of resources are Brewster Place and Medicalodges. Brewster Place is a nonprofit continuing care retirement community located in Topeka. Medicalodges is a for-profit multisite provider of nursing and assisted living services, headquartered in Coffeyville, but serving Kansas, Oklahoma and Missouri.  Examples of these organization’s long-term successes and similarities include:
  • Both have established track records: Medicalodges just celebrated its 50th anniversary and Brewster Place will achieve that milestone in 2014.
  • Each has recently won a PEAK (Promoting Excellent Alternatives in Kansas) award from the Kansas Department of Aging, reflecting their support for culture change in nursing homes.
  • In addition, both have achieved a coveted five-star rating on the Centers for Medicare & Medicaid Services (CMS) nursing home comparison website.
  • Finally, each continues its financial success: Brewster Place recently completed a refinancing with near-investment-grade interest rates; and Medicalodges continues to expand, now providing care for seniors at more than 30 rural facilities.

Medicalodges Gardner

 

Medicalodges Gardner was one of four of the provider's facilities to receive five stars in U.S. News Best Nursing Home Rankings in 2013.




    Each organization has found its niche and continues to grow financially and in its outreach to seniors and their families. Whether through Brewster Place’s disciplined financial benchmarking or Medicalodges adherence “to deliver superior service to our clients,” both providers demonstrate the fallacy of for-profit/nonprofit stereotypes.

    In many respects, the competition between for-profits and nonprofits is healthy and important to ensuring a balance between care and resources.  As reflected by the growth of competing trade organizations, such as LeadingAge, the American Seniors Housing Association and the American Health Care Association, there should be little concern that one or the other type of ownership will come to dominate the senior living industry. With an open mind focused on building successful long-term organizations, both have much to learn from each other.

    1 “LTC Stats: Nursing Facility Operational Characteristics Report.” American Health Care Association. December 2012.


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