Retired cardiologist calls for Congress to redefine nonprofit status for hospitals

A retired cardiologist argued in a recent editorial that hospitals’ competition for profits has been a major reason healthcare costs in the U.S. have become the highest in the world and continue to increase. He also called for Congress to redefine what a “nonprofit” hospital means.

Robert M. Doroghazi, MD, published his commentary in the November 2016 issue of the American Journal of Medicine. Doroghazi, who practiced cardiology from 1982 to 2005, now lives in Columbia, Missouri and is the owner and publisher of The Physician Investor Newsletter.

Seven of the top 10 most profitable hospitals in 2013 were nonprofit institutions, according to Doroghazi. He added that hospitals must spend at least 5 percent of their revenues on charity care to qualify for nonprofit status, although he cited a 2013 study that showed charity care represented 1.9 percent of nonprofit hospitals’ operating expenses.

Doroghazi blames some of the increases in healthcare costs on executives of nonprofit hospitals who earn exorbitant salaries. He noted that 30 nonprofit hospital executives earned more than $4 million in 2011 or 2012.

“I do not believe the average chief executive officer on that list is more valuable to society than 100 registered nurses,” he wrote.

As for for-profit hospitals, which first launched in 1967, Doroghazi wrote that those institutions earn profits and satisfy their investors by providing better, more efficient care and by charging more for services. However, he said “there is no reason to expect” for-profit hospitals to deliver better care and noted that 49 of the 50 highest-charging hospitals in the U.S. are for-profit institutions.

Doroghazi suggested that Congress intervene and define nonprofit hospitals as those that earn no profit except for money needed to “maintain quality operations, prudent reserves, and fund future capital needs.” He also said that salaries for non-profit hospital executives should be more in line with non-profit organizations in other industries.

“I believe current hospital competition has done nothing but drive up costs: new hospitals are often described by locals as a Taj Mahal, with spacious, well-appointed rooms, art work on the walls, and lobbies larger than in-door football fields,” Doroghazi wrote. “Hospitals add high-end, expensive technology that benefits few, and then unleash their Madison Avenue-size advertising budget to tell everyone they are the fourth in the area to have a helicopter.”