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Public Benefit Corporations: Does Corporate Structure Impact Patient Well-being?

In the Medical Care Crisis, we have observed that America has the most resourced medical care environment with the best doctors, hospitals, and universities/innovators in the world; yet paradoxically we have the highest patient dissatisfaction. Through our research, we have discovered that the components in the medical care environment are out of balance. In other words, our doctors, hospitals, payors and universities/innovators fail to achieve full integration. As a result, medical care— the interface of the patient and the healthcare system—and patient well-being are no longer our ‘North Star’. Using a baseball analogy—like George Steinbrenner’s Yankee’s in the 1980’s, we have the best talent but can’t win the pennant.

We have also observed that the lack of autonomy—self-governance and action in accordance with moral duty rather than self-interest—is a major contributor to our unbalanced medical care environment. More on that in the future. In the meantime, this report will examine another possible contributor: corporate structural misalignment.

Let’s take a closer look.

Of the four components that support a balanced platform for patient well-being—doctors, hospitals, payors and universities/innovators— the universities/innovators are often the ones least directly associated with the concept of patient well-being. However, their contributions are critical to balancing the environment. The universities train the workforce for the entire medical care environment. Innovators devise and test new treatments. They are the entrepreneurs of biotechnology and biopharmacy— collectively comprising the medical-industrial complex. The medical-industrial complex has massive economic impact in our country — responsible for over $1.1 trillion annually. When combined with the economic impact of hospitals and health systems they produce more than $3 trillion benefit — approximately 18% of the US economy. It is impossible to think about balancing the medical care environment without including the medical-industrial complex. That said, some are reluctant to include industry as medical care partners. Their motives are not always aligned with patient well-being. They are about making money—'preying on the misfortunes of others’—right?

Perhaps. But we believe this is unfair.

It is true; the medical-industrial complex, indeed, does consist mostly of for-profit biotechnology and pharmaceutical companies. They are incorporated to make a profit (C-Corps and S-Corps). They are corporately structured differently than most hospitals. Hospitals are usually recognized as nonprofit (501(c)(3)) organizations. Most recent figures show that approximately 58% of hospitals in the U.S. are nonprofit, 21% are governmental, and 21% are for-profit. Nonprofit organizations are required to demonstrate community benefit in order to avoid paying corporate taxes. Obviously, C-Corps/ S-Corps are not required to demonstrate community benefit and are taxed according to their specific IRS Subchapter. Like biotechnology and pharmaceutical corporations, the insurance payors are structured as for-profits companies and pay taxes. Doctors usually structure their practices as PA’s or LLC’s and pay only personal income taxes. Hospital-employed doctors are not separately incorporated and only pay income taxes as well. Lastly, most universities are almost always nonprofit organizations.

As can be seen, the medical-industrial complex is not the only component that has a profit motive. Remember, many hospitals make margins as high as $10 billion each year. Can they legitimately be thought of as nonprofits when this occurs? The medical-industrial complex at least pays corporate taxes. The fact is all the components of the medical care environment are structured to achieve ‘corporate success’ (remembering that corporatization is a symptom of the Medical Care Crisis). Perhaps the bigger point of all this is that the four components that balance the platform responsible for patient well-being are all incorporated differently. And it is easy to see how this could be an impediment to integration of the medical care environment. If integration is the objective, resolving the disparate missions between for-profit and nonprofit corporate structures may, indeed, be an important opportunity for improvement. Perhaps organizations in a medical care environment should all be one or the other.

Or maybe they should find a middle ground.

As it turns out, there is a middle ground—a blend of the nonprofit and for-profit. These are B-Corps and public benefit corporations (PBCs). B-Corps and PBC’s are for-profit corporations, that specify in their bylaws a commitment to spending a portion of the company’s profit to positively impact society—efforts like improving medical care. PBCs are constructed by law as a specific type of corporation. B-Corps are C-Corps that voluntarily agree to run their firms as public benefit corporations. B-Corps are certified by B Lab, a nonprofit network that assesses companies’ commitment to social benefit. B-Corps and PBCs are taxed as for-profit companies. Therefore, they provide societal benefits in two ways: they contribute to society’s tax base, and they direct their profits toward improving society.

In a service industry like medical care, would it not make sense for more companies to incorporate similarly—in a way that demonstrates a public commitment to societal benefit? If so, then in a balanced medical care environment where patient well-being is a priority (a perfect world), the components might be a mix of nonprofit and public benefit corporations.

To that end, Integral Leaders in Health, PBC aims to set an example. As part of the medical-industrial complex in the medical care environment, it has been incorporated as a DE Public Benefit Corporation. We invite others to join us.


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