October 27, 2005
Faux Morality and Not-For-Profitism
It has been my experience in business that if one’s goal is not to make a profit, you will nearly always be successful.
Much of the US healthcare system operates in what is called the not-for-profit structure. It is a bit of a Faustian bargain in which an organization can operate in a “business” motif and if it eschews “profit” it doesn’t have to pay taxes. Guess what, if you don’t make a profit, you don’t pay taxes anyway. This is already confusing.
My old accounting professor used to say, “Cash is certain, profits are optional.”
This piece of wisdom is dropped upon the unsuspecting student in the study of the profit and loss statement and at least in part explains the obsession in the roaring ‘90’s with operating profits. It may be harder to alter the transparency of this number than it is the famous “bottom line.” And it is, after all, the bottom line upon which the government alters your capital structure by taking that which belongs to Caesar. So the fact that the bottom line is open to interpretation is no surprise.
The idea with the not-for-profit is that if it can show, sometimes through the thinnest of arguments, that it provides some common good, it can maintain its tax exempt status. What does the taxpayer get for their investment? Perhaps it is time to ask.
Not-for-profits tend to hide behind a screen of faux morality. For some reason it resonates with some people that if your goal is not profits, then you must be doing altruistic work and therefore are afforded a level of moral superiority not to mention a tax exemption compared to folks just trying to make a living and thus consciously making an effort to have a surplus in revenue relative to their costs.
The Healthcare Cartel is comprised of both for-profit and not-for-profit entities. This structure provides some of the more interesting tension in the system. The “them” and “us” mentality is at least one of the underlying philosophical burdens of the system and a cause of internal friction, dyscoordination, and non-coherence.
What’s the lineup?
Playing in the middle for the not-for-profits and weighing in at 800 pounds is The Government. To the right are most of the hospitals. And to the left the Blues (as in Blue Cross Blue Shield) and some other insurance purveyors (e.g., Kaiser).
Anchoring the for-profits is Big Pharma. Quite small by government standards and no 800 pounder for sure. But the for-profit side has a wild card in those wily and uncontrollable physicians. And rounding out the lineup are commercial insurance companies and their customers, employers, and a minority of hospitals.
Carrying the water bucket for the not-for-profits are Academic Medical Centers. Existing under the skirt of Government as a wholly owned subsidiary, it is there that arrogance and single perspective gives greatest voice to faux morality.
The kin of not-for-profitism is volunteerism. Although not-for-profit enterprises have been urged by management guru, Peter Drucker, and others to behave more like real businesses (see below), volunteerism saps many of these organizations’ strength. The culture of volunteerism may result in some views that are negative to organizational well-being. Among them are entitlement and egocentrism.
Entitlement derives from the idea that I work for free therefore I am entitled to some advantage. Egocentrism derives from since I work for free I will perform the task when I feel like it, in my way, and in my time. Both are detrimental to the Drucker admonition.
All business operates with a capital structure. Not-for-profits are more like the government model only without the ability to raise taxes. Their capital comes from making a profit (gasp!) or from going into debt. Debt obviously has to be paid back by making a profit (gasp!). They don’t have to pay taxes, which in fact no one does unless they make a—guess what—profit (gasp!). So, no profit, no advantage.
The alternative is to ask for donations. So guilt, appeal to empathy/sympathy, appeal to ego, moral outrage and at times simple goal alignment can be used to motivate others to be altruistic, even if the enterprise per se is not. But is it true altruism? Certainly in some cases. Professional fund raisers know that most givers expect “something in return” for their altruism. Witness the gala and the silent auction. An interesting paradox.
The reality is that, unless they behave in exactly the same way as those whose stated intention is to make a profit, a not-for-profit will cease to exist. The incentives are essentially the same. So where does the moral superiority derive?
Perhaps, it is the good works. But if the same service is delivered with the same quality and reliability and cost but one person’s intension is to make a profit and another’s is to not make a profit, who really has the morally superior position?
And if you are a not-for-profit and you do make a profit and you don’t have to pay taxes and you have no better output, production, quality, or price point, then doesn’t that mean that you are just less efficient than the person who gives up 30+% in taxes with the same outcome?
Which model gives the advantage to the tax payer? How is the public served by the not-for-profit system?
If not the work itself, maybe it’s the intention. Ah, intention. My observation is that malice and incompetence are indistinguishable in the completed product. How does one put a value on intention when the behavior and the outcome must essentially be the same?
For profit, not-for-profit--is it smoke and mirrors, or mirrors and smoke? And what do they smoke anyway? Neither morally superior nor morally inferior. Just stuff, I think.
