Risk Analysis

Risk Analysis

Name

Institution Affiliation

A nonprofit hospital is a facility whose primary aim is to meet the medical needs of the neighboring community. Most of these hospitals are mission-driven and tend to have operated for several years. Some of these facilities receive sponsorship from religious organizations and operate on the directed religious values (Bales, Tiberio, & Tesch). The healthcare industry players are under increasing pressure to compete in the marketplace, enter into partnerships with other providers or offer quality medical care. This pressure causes the nonprofit hospitals to explore the available options to stay viable and solvent. Some of the options include conversion to the for-profit hospital or getting into mergers or joint ventures with the for-profit facilities. This paper makes an analysis of a proposed joint venture between such two hospitals to determine if the organization should convert or create the joint venture.

Characteristics required of nonprofit hospitals that differ from for-profit hospitals

The main feature that differentiates the nonprofit and for-profit hospitals is that nonprofit facilities operate to achieve a charitable purpose and have no stockholder ownership (Herbert, 2012). These organizations are exempt from being taxed policies since they do not make any taxable profits. Their primary source of finances is contributions from people with no expectation of any monetary returns.  Most of these also depend on charitable contributions from the state and federal governments and a variety of other sources to have the necessary funds to meet their expenses.

The Internal Revenue Service is the body mandated to pass income tax exemptions of the nonprofit hospitals. The exemption in made when the facility proves that it will exclusively operate for welfare, educational or charitable purposes. The donors who fund the hospital also receive tax deductions for because of the charitable contributions they make and those who own business enjoy the privilege of acquiring debt financing at lower tax-exempt rates. Therefore, the nonprofit organizations solely aim at engaging in medical activities that further the public purposes but not private interests.

The nonprofit organizations also have the characteristic of nondistribution constraint. This limitation prevents such associations from distributing any or part of the facility’s assets, incomes and profits to its members, workers or managers (Render & Haksever, 2013). The reason for this constraint is to prevent any individual from benefiting from the funds donated to the organization.

Another important characteristic of the nonprofit hospitals is their reliance on volunteers. Since these organizations do not make profits, most of them lack adequate funds to employ the different kinds of workers required. Therefore, they rely on individuals who contribute their time and labor to ensure continuity of the hospital activities.