What’s Love (or Charity) Got to Do With It?

This is a true story. My friend went to a hospital yesterday to have her second baby. She was in the period known as “transition” when she was offered epidural anesthesia for her pain. Most standards of care proscribe that when birth is imminent, anesthesia should not be offered as it slows the process, increasing risks to the infant. Transition is a time when most women will cheerfully admit later that they are out of their minds. My friend said yes. The birth was delayed by more than an hour. Later in a reflection of the event, she asked, “Why would they do that?” The argument might be made that they had more compassion for her suffering than they had concerns about the infant, but the more likely scenario is what is known in retail as “up sell.” Epidural anesthesia will increase the cost of a birth (i.e. add gross revenue) by an average additional $2000. If that sounds cynical, consider the sorry statistics of infant mortality and iatrogenic birth complications in America. We spend more and have worse outcomes than between 25 and 35 other countries in the world, depending on who is gathering the numbers. (http://kuow.org/programs/theconversation.asp?Archive=4-4-2008) But this isn’t about American healthcare or its well-documented problems. It’s about the changing role of non-profit organizations in the United States over the last fifty years. Yes, the hospital where my friend delivered her thankfully healthy baby girl is a not-for-profit health care center that regularly solicits donations, operates with a volunteer governing board and is guided by a religious order, the Sisters of St. Joseph of Peace. Can it be that they are shamelessly seeking profits?
Certainly it is common sense that just because an organization is considered charitable doesn’t mean it can operate at a loss. Budgets must be balanced. Those with insurance must pay the freight for those without. But as Robert Herman and associates discus in The Jossey-Bass Handbook of Non-Profit Leadership and Management, 2nd edition, Medicare and Medicaid are one of the few areas where Federal aid has not been cut. That’s about all that hasn’t changed in the non-profit sector. In Lester Salamon’s chapter, “The Changing Context of American Nonprofit Management” he writes, “Nonprofit management appears to be well along in the process of “reengineering” that calls to mind similar process that large segments of America’s business sector has undergone since the late 1970s.”(82) Even with a 167% increase in Federal Entitlement Program spending for Medicare and a 222% increase in Medicaid spending, non-profit acute care hospitals are having to adjust, although less so than other types of health care, social services, child services, job training and education support. (Salamon, 86) There are many factors that Salamon lists which come as no surprise to anyone alive since the sixties.
By the late seventies, federal support of non-profit programs surpassed individual gifts by 2 to 1. Reaganomics in the 1980’s began to reduce support by about twenty-five percent overall. Although there was some renewal of spending in the 1990’s, it’s been decreasing since 2000. Not just the funding has decreased either. There has been a change in philosophy. Salamon writes, “For one thing, during the 1980s and 1990s, government program managers were encouraged to promote for-profit involvement in government contract work, including that for human services. (84) Some astute observers saw this with the encouragement and popularity of HMO’s and the very aggressive marketing strategies these mostly for-profit agencies had to encourage seniors to assign their Medicare benefits to the HMO. The Federal Drug Bill intended to appease consumers about the rising cost of their medications was also such an assignment of government contracts to for-profit entities. One hardly needs to be reminded of the contracting of services to for-profit agencies in supplying the military with meals and other services for the war in Iraq. With the encouragement of increased contracts and capital, the number of for-profit organizations competitively seeking to meet these needs has also expanded. “The sharp decline in relative nonprofit share occurred among rehabilitation hospitals, home health agencies, health maintenance organizations, kidney dialysis centers, mental health clinics, and hospices…Even the sacrosanct field of charitable fundraising has recently experienced a significant for profit incursion in the form of financial service firms such as Fidelity and Merrill Lynch.” (Salamon, 86.)
At the same time federal spending was both decreasing and shifting its emphasis to the proprietary sector, private giving was slowing. “…Giving for human service, arts, education, health, and advocacy activities lagged behind the overall growth of the economy (62 percent verses 81 percent after adjusting for inflation). (Ibid, 86) Although private giving appeared to be increasing at the time of the publication of Salamon’s chapter in 2005, there can be little doubt that with eighty-four percent of Americans indicating that they feel things are headed in the wrong direction in a recent poll, individual giving will be strongly impacted. (NBC Nightly News, April 4, 2008.) In addition to a general economic downturn, there are other issues affecting non-profit giving.
People aren’t sure that non-profit organizations are effectively using their money or stewarding their causes. Salamon writes, “Reflecting this, the proportion of respondents in recent polls registering “a great deal of confidence” in non-profit organizations stood at only 18 percent as of May, 2002.” A Bank of America Survey of high net-worth household philanthropy conducted in October, 2005, revealed that although most households were either somewhat or very satisfied with the impact of their gifts, none were extremely satisfied. (The Center on Philanthropy at Indiana University, 2006, 23) As the number of non-profit organizations multiplies, so it seems, do the organizations to rate and in some cases, berate them. Websites like Charity Navigator, Charity Watch and the Better Business Bureau’s Wise Giving site might be great ideas, but they would have been unthinkable ten years ago. Salamon cites a 1996 article in The Harvard Business Review. Professor Regina Herzlinger listed the lack of three basic effective and efficient accountability measures that lead to distrust, “self-interest of the owners, competition, and the ultimate bottom-line measure of profitability.” (92)
Big name donors like the Gates Foundation are trying to change that, requiring objective measures of effectiveness. Charity Watch and the other evaluation websites address efficiencies by measuring things like the amount of donor money that is spent for fundraising and how much is spent on program administration as part of their rating standard. These factors must be considered as part and parcel of the change in philanthropy, just as are other market forces. “Nonprofit organizations are increasingly “marketing” their “products,” viewing their clients as ‘customers,” segmenting their markets, differentiating their output, identifying their “market niche,” formulating “business plans” and generally incorporating the language and style of business management into the operation of their agencies.” (Salamon, 94) The result may or may not serve the long term missions of the organizations, but it has created more partnerships and strategic alliances with for-profit businesses. This is one of the new “opportunities” in non-profit management. Another is commercialization. Salamon writes, “The clearest reflection of this is the substantial rise in nonprofit income from fees and charges, indicative of the success with which nonprofit organizations succeeded in marketing their services to a clientele increasingly able to afford them.”(93) Certainly social and demographic shifts in America support this. The baby boomers and all of their assets are coming of age—old age. It’s a double-edged sword. They are likely to support philanthropy but there is no doubt they are going to need traditional non-profit sector services like health care in unprecedented numbers--which brings us back to my friend, her “add-ons,” and some possible explanations.
Hospitals are the poster children for the identity crisis the changing nature of non-profit organizations present. Economic struggles in health care are the canary in the coal mine. “This tension has become especially stark in the health field, where third-party payors, such as Medicare and private HMOs increasingly downplay values other than actual service cost in setting reimbursement rates; where bond-rating agencies discount community service in determining the economic worth of bond issues and hence, the price that nonprofit hospitals have to pay for capital; and where fierce for-profit competition leaves little room for conscious pursuit of social goals…nonprofit institutions have had little choice but to adjust to these pressures…” (Salamon, 96) In a further explanation,Salamom writes “…What start out as sliding fee scales designed to cross-subsidize services for the needy become core revenue sources essential for agency survival.”(97)
What does this mean for the provision of things we have come to think of as essential to the American Way of Life? It may be that the Norman Rockwell picture of charity as good deeds by nice neighbors is gone forever. Capitalism has its trade-offs. Certain aspects and services of society remain at the center of the debate about what is a right in the United States and what is a privilege. Changes in the non-profit sector are symptomatic of our ambiguity about this argument. Perhaps it is time for America to stop thinking the nonprofit sector can do much of what governments provide in other parts of the world. It’s either that or lower our expectations, for which we will certainly need the option of anesthesia.