With the growing number of seniors in America, advancements in healthcare technology, and the increase in chronic disease, the demand for long-term care facilities and services is at an all-time high. And long-term care is expensive. Still, it is worth asking: Can nonprofit organizations own long-term care facilities? If so, what are the benefits and potential challenges they may face?
In this blog, we will explore the potential benefits and challenges of nonprofit ownership of long-term care facilities. But first, let’s first get a better understanding of nonprofits, which, in a nutshell, are usually mission-diving organizations with strong community ties and the potential to foster collaboration and innovation in the long-term care space.
A basic understanding of non-profit organizations
Non-profit organizations are groups that do not generate profit and don’t distribute income to members, directors, or officers—which is what a for-profit organization does. Instead, non-profits are an entity founded to benefit society.
Any income earned in a non-profit is reinvested into the organization to further its founding mission, which often focuses on addressing social, environmental, educational, or health-related needs. As a result of their efforts—and as a means of encouraging the growth of other non-profits—non-profit organizations enjoy a tax-exempt status granted by the Internal Revenue Service (IRS).
The main types of nonprofits include:
- 501(c)(1) – nonprofits organized by an Act of Congress, e.g., federal credit unions
- 501(c)(2) – title-holding corporations for exempt organizations
- 501(c)(3) – charitable organizations, public charities, foundations
- 501(c)(4) – civic leagues, social welfare organizations, social advocacy groups or local employee associations
- 501(c)(5) – labor, agricultural, and horticultural organizations
- 501(c)(6) – trade or professional associations
- 501(c)(7) – social or recreational clubs
- 501(c)(8) – fraternal societies
- 501(c)(9) – employee beneficiary associations
- 501(c)(10) – domestic fraternal societies and associations
- 501(c)(11) – teacher’s retirement fund associations
- 501(c)(13) – cemetery companies
- 501(c)(14) – state-chartered credit unions and mutual reserve funds
- 501(c)(15) – mutual insurance companies or associations
- 501(c)(16) – cooperative organizations to finance crop operations
- 501(c)(17) – supplemental unemployment benefits trust
- 501(c)(18) – employee-funded pension trusts
- 501(c)(19) – veterans organizations
- 501(c)(21) – black lung benefits trusts
- 501(c)(22) – withdrawal liability payment funds
- 501(c)(23) – veterans organizations established before 1880
- 501(c)(26) – state-sponsored organizations providing health coverage for high-risk individuals
- 501(c)(27) – state-sponsored workers’ compensation reinsurance organizations
- 501(d) – religious and apostolic associations
- 501(e) – cooperative hospital service organizations
Having listed the legally accepted types of nonprofits, we can now answer the question, can nonprofit organizations own long-term care facilities? The answer is: Yes. Nonprofit organizations can be involved in long-term care and own facilities, just as for-profit organizations can.
In fact, nonprofit facilities are subject to the same regulatory requirements of the Health Insurance Portability and Accountability Act (HIPAA), the Centers for Medicare & Medicaid Services (CMS) requirements, and state-specific licensing rules as for-profit facilities.
Financial considerations for non-profit organizations
While non-profit organizations have unique advantages—such as being tax-exempt—they still require finances to not only fund their mission but also start a nursing home. So nonprofits rely on a wide range of funding sources to support their operations. Some of the most popular are:
- Individual donations: According to a recent study, 69% of Americans report that they have individually contributed to a charitable cause or organization. Such contributions can be one-time donations or recurring ones.
- Grants: These are financial contributions to a nonprofit by governments, foundations, or other organizations. Grant applications can be extremely competitive, but successfully obtaining one can be extremely beneficial for a non-profit.
- Corporate sponsorships: Here, a for-profit business partners with a non-profit, with the former providing the needed financial support and resources. Corporate sponsorships in 2021 amounted to $21.08 billion. Of course, this was still dwarfed by individual donations totaling $484.85 billion in the same year.
- Membership fees: Assuming the non-profit is a professional association, museum, or club, they can charge membership fees to individuals or organizations for access to exclusive benefits, resources, or events. This funding source has the benefit of consistency, allowing the non-profit to plan accordingly for future projects.
- Selling goods and services: Merchandise and services can be a lucrative way for nonprofits to generate the finances they need. Examples would be thrift stores operated by charities, ticket sales for cultural events, or fees for educational programs and training.
- In-kind donations: These are non-monetary contributions to nonprofits by individuals or organizations. They include goods, services, or expertise. Examples include donated office space, equipment, professional services, or volunteer labor.
Are Nursing Homes Non Profit or For-profit in Most of America?
In this section, we will answer the question: are nursing homes non profit or for-profit in most of America? We previously answered the question, can nonprofit organizations own long-term care facilities and found that they indeed can.
As for the percentage of nursing homes that are for-profit and those that are non-profit, 65% of nursing homes are for-profit, with non-profit nursing homes accounting for 28% of America’s nursing homes. The remaining 7% are owned by government agencies at the city or county level and are funded by public resources with support from local governments.
Contact us here if you would like to demo our nursing home EHR for your long-term care facility.
Non Profit Nursing Home vs. For-Profit Nursing Home: Quality of Care Comparisons
Before concluding this blog, it is worth discussing the quality of care in a non profit nursing home vs. a for-profit nursing home. As we can now answer the question, can nonprofit organizations own long-term care facilities and understand how non profit nursing homes make money (through donations and Medicaid reimbursements), it is worth looking at the differences between the two.
Nurses, families, and potential residents should be aware of the differences in care between non profit nursing home and for-profit nursing home settings:
- Staffing levels and turnover rates: According to research, non-profit nursing homes tend to have significantly higher staffing levels compared to for-profit nursing homes. For residents, this means better care outcomes and higher satisfaction with the care provided in the long-term care facility. The research also notes that non-profit nursing homes have lower turnover rates, which indicates they provide a better work environment for nurses and carers. Unfortunately, this is something most seniors will not get to enjoy. As we noted when answering the question, are nursing homes non-profit or for-profit in America, most nursing homes are for-profit.
- Quality of care measures: Research shows that, on average, non-profit nursing homes deliver a higher quality of care to residents compared to for-profit nursing homes. These quality of care measures are based on indicators such as health inspection results, staffing levels, and clinical outcomes.
- Resource allocation: There is always pressure to make the most profit possible in private nursing homes and chain-operated nursing facilities. Unfortunately, in an effort to do so, these facilities can sometimes allocate fewer resources to direct resident care, resulting in poorer quality of care.
- Financial surplus: Any profits made in a for-profit nursing home go to the owners and shareholders of the company. This is not true for nonprofits, as the legal authority governing nonprofit organizations requires them to retain or reinvest any surplus. This is great for residents, as their care environment and services are improved, and staff can enjoy working in an environment they love.
It is clear from the above that non-profit facilities offer higher quality care, better staffing levels, and greater resident satisfaction than for-profit nursing homes. Thus, as families consider a nursing home for their loved ones, and as nurses look for a facility where they can passionately serve the elderly, non-profit nursing homes should be top of mind.
Conclusion: Can Nonprofit Organizations Own Long-Term Care Facilities?
So, can nonprofit organizations own long-term care facilities? Yes, they can. Nonprofit organizations stand to make a difference in the lives of America’s seniors as more and more of the population continues to age.
Those who intend to start a nonprofit nursing home should be aware of the many challenges they may face, such as limited resources, financial constraints, and complex regulatory requirements. However, by carefully navigating the process and implementing nursing home software in their facility, they have the potential to drive positive change and improve the quality of care for residents.
For more on recent trends in long-term care, read our blog and subscribe to the LTC Heroes podcast.