June 20, 2010; Source: Rapid City Journal | If there is a part of the nonprofit sector whose nonprofit bona fides consistently come into question, it is the nation’s nonprofit hospitals. As in this article from Rapid City, South Dakota, the sometimes “record profits” earned by some—not all—nonprofit hospitals catches the attention of the press and public. This is especially true when large hospitals are compared to “small community-based organizations doing charitable work and getting by on a shoestring budget.”

The $400 million Regional Health system is projecting a $45 million profit (plus an additional $25 million in investment income) for FY2010, well over a 10 percent profit. With that news, the hospital’s board of directors voted to raise rather than lower its rates by 5 percent.  While some board members resigned in protest against the rate increase, the hospital’s CEO defended it as a conservative fiscal approach in an unstable health care climate. He noted, “You’ve got to produce a bottom line.”

Iowa Senator Charles Grassley has long criticized some nonprofit hospitals as not quite nonprofit enough. “Tax-exempt hospitals don’t have any measures of accountability for their special status. The law hasn’t given them much direction, so they’ve defined standards for themselves,” Grassley said.  It should be obvious to most readers that nonprofits don’t have to operate in the red in order to be nonprofits. Positive cash flow is not prohibited. But what distinguishes some nonprofit hospitals from their for-profit peers, other than their tax exemptions, is still open to debate in too many cases.—Rick Cohen