Insights

Differences Between For-Profit and Not-for-Profit Healthcare Entities

June 6, 2025

One of the unique aspects of healthcare entities is their status as a for-profit or a not-for-profit organization. Private equity interests in a for-profit healthcare entity have become more prevalent as a means to address healthcare challenges like rising costs. Private equity interests in a healthcare entity can provide more capital to allow for access to better technology, expanded facilities, and economies of scale.

Despite these potential benefits, earlier in January, members of the U.S. congress released findings of a bi-partisan investigation into private equity healthcare organizations, specifically the hospital setting. This report found that a number of hospital settings owned by private equity interests reflected negative patient experiences resulting from underinvestment. The impact of patient experiences continues to keep private equity interests in healthcare at the forefront of the public.

On the other hand, one of the hallmarks of a not-for-profit entity is that it has a tax-exempt status. However, the media has been reporting on Harvard University facing threats of its tax-exempt status being revoked. While various procedures must occur before the status can be revoked, not-for-profit entities, including healthcare entities, will need to be watchful of any implications during the ongoing Harvard dispute.

For-Profit vs Not-For-Profit

Because of these trends and headlines, it is helpful to review the differences between for-profit and not-for-profit healthcare entities. One difference is that not-for-profit healthcare entities are exempt from paying federal income tax. However, such entities can still be subject to various taxes which could include the unrelated business income tax, state and local taxes, excise taxes, and employee-related taxes.

When it comes to the differences in financial reporting for not-for-profit versus for-profit healthcare entities, a noticeable distinction would be contributions within the statement of activities of a not-for-profit healthcare entity compared to an income statement of a for-profit healthcare entity, which would not have contribution revenue. Both entity classifications will have net patient service revenues at the top of the statement; meanwhile, a not-for-profit entity may have more grants and contributions on their statement of activities than a for-profit entity would have on their income statement.

However, when the world was impacted by COVID-19, both not-for-profit and for-profit healthcare entities received federal grant funding from programs such as the Provider Relief Fund. These additional funds required many for-profit healthcare entities to be subject to a Single Audit, consistent with the requirement more commonly applicable to the not-for-profit entities. This was a time when not-for-profit and for-profit healthcare statements of activities and income statements looked more similar.

As 2025 unfolds, healthcare entities will continue to assess the benefits and challenges of private equity interests as compared to not-for-profit status. These characteristics shape how the healthcare entities move forward. Understanding these nuances and risks can support an organization in making better operational and financial decisions.

If you have questions about the information outlined above, McKonly & Asbury’s experienced professionals are here to help. Learn more about our Healthcare practice by visiting our Healthcare industry page or by contacting the director of our Healthcare practice, Janice Snyder, Partner.