Non-profit? For-profit? What’s The Best Way To Organize Your SUD Treatment Center?
1. A macroeconomic and historical perspective:
The introduction of the Affordable Care ACT (ACA) brought two important segments of the U.S. healthcare system to light.
On one hand, the ACA demanded that insurance companies cover SUD and behavioral health treatment while on the other hand, the Federal government subsidized this coverage expansion.
These positive steps were quickly met with three major hurdles. First, the demand for SUD and behavioral health treatment was far greater than initially projected. Second, costs quickly went out of control. Third, politicians managed to keep the program in a financial straightjacket, forcing insurance companies to bear the brunt of the financial shortfall.
It took over 10 years for governmental authorities to intervene. It finally happened this year when Congress appropriated substantial funds to help with the current SUD crisis.
These additional resources are greatly appreciated as providers face reductions in claim reimbursements, reductions in allowed lengths of treatment, and soon, an immediate link between outcomes data and claim reimbursements (all those measures make sense from an insurer’s perspective, but unfortunately they may impact quality of care and length of treatment offered to clients).
Unfortunately, the relief is funneled through a complex and slow moving bureaucracy (from federal government to state governments, from state governments to counties, and finally, from counties to providers, favoring non-profit organizations). The immediate consequence for SUD and behavioral health treatment providers is a need for expertise in non-profit financing.
Because non-profit organizations are favored financially, most providers must work through both non-profit channels and for-profit channels. The immediate choices providers face can be summed up as follows:
- Do I supplement my current for-profit operations with a non-profit organization?
- If so, what does it take to be successful?
- Do I switch from a for-profit to a non-profit organization?
- Can I rely only on the constantly shrinking portion of the population that can afford treatment costs?
2. A practical perspective:
Can a provider rely only on the constantly shrinking portion of the population that can afford treatment costs?
Since each provider’s operations differ, the answer to this question varies. However, the following issues must be taken into account:
- Competition will need to increase its market share, which may reduce one’s own market share
- To maintain a presence in a very coveted market, market costs will increase
- To attract a population that has the ability to choose, additional services/modalities may have to be introduced, therefore increase operating costs
- Insurance payments never match 100% of “in-network contractual rates”
- In parallel to injecting substantial resources in the healthcare system, governmental agencies (state and federal) constantly increase regulatory requirements, which constantly increase operating costs.
Is it worthwhile to convert a for-profit organization into a non-profit organization?
Non-profit organizations’ underlying economics are incompatible with for-profit organizations’ when you consider the following principles:
- Control over the organization is exerted by the Board of Directors subject to expanded fiduciary duties. In other words, control over the organization is never guaranteed to anyone (founder, investor or key personnel)
- All assets are dedicated to the non-profit organization’s purpose regardless of who invested in the organization. In other words, the concepts of dividends, distributions, profits, and capital gains are foreign to non-profit organizations.
- Relationships between the non-profit organization and its directors, officers, and employees are subject to enhanced scrutiny to avoid conflicts of interest.
- The only way principals can be rewarded for their efforts and investments in a non-profit organization is the level of their compensation. Even that benefit is subject to scrutiny to maximize the non-profit organization's efficacy in accomplishing its purpose.
- The only incentive to move from a for-profit organization into a non-profit organization may be of fiscal nature. Such an organization change must be carefully planned with the help of accountants and lawyers to cover all aspects of such conversion.
Do I supplement my current for-profit operations with a non-profit organization?
If the organization can afford it, the answer is definitely yes.
What does it take to be successful?
1. A comprehensive plan:
a. Does the plan call for the creation of a non-profit entity?
b. What are the operational relationships between the non-profit entity and the for-profit entity?
c. What are the financial relationships between the non-profit entity and the for-profit entity?
2. A positive cost/benefits analysis to fine tune the plan:
a. How much does it cost to set up a non-profit entity?
b. How much does it cost to maintain a non-profit entity?
c. What are the HR needs?
i. Operations
ii. Fund raising
iii. Governance
d. At the end of the day, do the non-profit organization's benefits outweigh its costs?
3. Individuals knowledgeable about non-profits governance:
a. Accounting
b. Operations
c. Regulatory
4. Individuals knowledgeable about fundraising:
5. A legal mechanism to funnel fundraising proceeds in the most efficient way:
Stay tuned for answers to these questions