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Jul 19, 2012

Where does aggressive debt collection fit in the nonprofit hospital business model?

The U.S. Treasury Department has issued new rules aimed at curbing aggressive debt-collection practices at nonprofit medical centers, NPR reports.

The draft regulations released  in accordance with the Affordable Care Act of 2010 would bar debt collection in the emergency departments of nonprofit hospitals and require a clear explanation to patients of ways to secure free or discounted care. Institutions that violate the rules risk losing their tax exemptions.

This is always a difficult issue:  in what areas does a hospital’s mission obligate it to take losses and in what areas must it insist on profitability so that the entire organization has enough revenue to thrive and be sustainable?  This is a mission issue.  The nonprofit business model works because nonprofit high mission activities cannot make money if done well, so nonprofits do additional activities that make enough money to cover the losses that fundraising cannot cover.

Generally the emergency room is high on mission so losses are inherent and aggressive debt collection counteracts the mission purpose to ensure emergency care.  Since oncology is a high profit center, is aggressive debt collection more acceptable for oncology patients?

Nonprofit hospitals need to be frank with themselves where they INTEND to lose money and where they INTEND to make money.  It is a mistake to have the market determine profitability.  Rather, it should result from a careful review of mission criticality.  This is the most important concept in Linking Mission to Money, so I devote chapters 8 and 12 to learning to use the Linking Mission to Money Grid to sort this out.  If your organization has not yet explicitly ranked its activities by mission criticality, doing so should be the focus of your next retreat.