Friday, March 11, 2011

The Real Nature of Non-Profit

Blue Cross Blue Shield of Massachusetts, a non-profit organization, it taking some public flak over the eight-figure golden parachute it recently awarded to departing CEO Cleve Killingsworth and also over the five figure stipends it has been paying to members of its Board of Directors.

One of the Board’s responses has been to suspend its stipends for the rest of the year, during which it will be reviewing its so-called charitable status.

That reminds me of a common misunderstanding about the organizations we refer to as being non-profit and charitable.

The distinguishing characteristic of such organizations does not arise from either charity or profit. Instead, it is based on ownership.

For-profit organizations are owned by their investors, such as stockholders. Non-profits are owned either by the public; i.e., the citizens of the state in which they are incorporated, or by another non-profit, such as a religious organization. In the latter case, ownership is vested in the entity with authority to name the organization’s governing board.

Every organization is ultimately responsible to its owners. I get my Medicare Part D drug insurance from Humana, a for-profit company. So far as I can tell, Humana does a good job of providing me value in my Part D coverage. But its main purpose is to generate a financial return for its stockholders.

I get my Medicare Parts A and B supplemental insurance from Massachusetts Blue Cross Blue Shield, a non-profit. That organization has been very active in a variety of health care issues in Massachusetts and it is clear from the current brouhaha that the public expects it to act in the interests of the general public, not in the interests of its directors and executives.

As we look forward to health care reform and the restructuring of the delivery of care, this difference in ownership forms and the patterns of behavior that result is something that needs to be kept in mind. For example, if my health care is going to be in the charge of an Accountable Care Organization, I think I would rather it be owned by and responsible to the fellow citizens of my state and controlled by a board made up of my friends and neighbors than to an anonymous group of financial investors trying to make money.

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