Introduction
According to Piotrowiski (2002, para. 1), the success of a hospital is determined by its effectiveness in its management. Hospitals can be categorized on the basis of ownership and control. The main categories include nongovernmental hospitals, not-for-profit hospitals, investor-owned hospitals (for-profit hospitals), and public hospitals such as the federal government and non-federal hospitals. In the 21st century, there is an increased shift towards not-for-profit hospitals (Vernon, 2006, p.1).
Most federal governments such as the United States operate different hospitals on the basis of the specific population targeted. For example, some of the hospitals operated in the United States are for serving different parties who including veterans, Native Americans, and military personnel. Some of the hospitals which fall under the United States federal government include the Veterans Affairs Medical Centers which are located in different parts of the country (McCarthy& Schafermeyer, 2007, p. 174).
In an effort to assist its veterans, the United States has implemented a comprehensive health care system under the Department of Veteran Affairs. The department has established 43 domiciliary, 864 outpatient clinics, 137 nursing homes and 172 medical centers. The Veteran Affairs Medical Clinics are not-for-profit organizations. This means that the operations of VAMCSs are not guided by a profit motive. As a result, VAMCs are categorized as charitable organizations.
Despite this, not-for-profit organizations require a substantial amount of money to operate efficiently. In the United States, most of the qualified non-profit hospitals receive financial assistance from the Internal Revenue Services Department of Treasury (IRS) (IRS, 2011, para. 1). In an effort to understand how VAMCs operate, the author sought to evaluate the rationale behind VAMCs receiving financial aid from IRS.
Rationale
According to Agard (2011, p. 410), hospitals are not essentially supposed to be tax exempted. However, a hospital is considered for tax exemption if its operations are geared towards promotion of health. For a hospital to be considered for tax exemption there must be proof that the organization is providing health care benefits to a certain class of individuals. Additionally, the class targeted must be broad. The VAMCs are aimed at honoring all American veterans by providing them with exceptional and high-quality healthcare services. The resultant effect is that VAMCs are able to enhance the health and well-being of the veterans.
A considerable number of qualified non-profit hospitals receive financial aid from the federal government in form of tax exemption. For a firm to be tax-exempt under section 501 (c) (3) of the United States Internal Revenue Code, it must be operated and organized specifically for tax-exempt purposes. In most cases, firms which are tax exempted are those that operate as charitable organizations. Additionally, the earnings generated from the operations of the organizations must not be for the benefit of any individual. As one of the charitable organizations in the US, VAMCs are of more benefit to the society compared to the benefit that the government would receive by taxing these organizations. Therefore, charitable organizations are required to use the money received from the government in benefiting the society. In order for VAMCs to continually be considered as charitable organizations, a high degree of accountability and transparency is required (Laura, 2009, p. 1).
Source of Revenue for VAMCs
VAMCs receive appropriations from the federal government in order to provide treatment and other medical care services to their beneficiaries. The federal government also provides appropriations to train medical interns, administrative and paramedical personnel. For example, in its 2012 budget, the United States government appropriated $ 61, 853 to the Department of Veteran Affairs (Executive Office of the President, 2011, p. 1039). This is in line with the US president’s objective to transform the Department of Veteran Affairs into a veteran-centric, forward looking and result driven department. Additionally, VAMC are able to save a substantial amount of finance received from the government. The resultant effect is that these firms receive tax benefits. This arises from the fact that they are exempted from taxes in the process of procuring their supplies.
VAMCs also source their revenue by charging a minimal amount to the beneficiaries. Considering the fact that VAMCs serve a considerable number of benefits, they are able to collect a substantial amount of revenue. Over years, not-for-profit hospitals have witnessed a rise in their utilization culminating into a rise in their net patient revenue (Bnet, 2002, p.1). This has arisen from effective management of the hospitals.
Conclusion
From the analysis above, it is evident that hospitals can be categorized on the basis of their ownership and control. In the United States, Veteran Affairs Medical Clinics operate as not-for-profit organizations. Their core objective is to help all veterans in the United States of America receive exceptional and high quality treatment. Under the IRS code, VAMCs are categorized as charitable organizations. This is due to the fact that their operation is not guided by profit motive but benefiting a specific group in the society. As a result, VAMCs are eligible for tax exemption. Appropriation from the government through the United States Department of Veteran Affairs forms the major source of revenue for VAMCs. In addition, they also source their revenue by charging a minimum amount to the beneficiaries.
Reference List
Agard, K. (2011). Leadership in nonprofit organizations; a reference handbook. Thousand Oaks: Sage Publications.
Bnet. (2002). 2001 not-for-profit hospital median ratios remain flat in the news. New York: The Gale Group.
Executive Office of the President. (2011). Budget of the United States government appendix FY. Washington: Executive Office of the President.
IRS. (2011). Exemption requirement; section 501 (c) (3) organizations. Web.
Laura, F. Do nonprofit hospitals provide community benefit? A critique of the standards for proving deservedness of federal tax exemptions. Journal of Corporation Law. Vol. 34, issue no. 2. Washington: vLex.
McCarthy, R. & Schafermeyer, K. (2007). Introduction to healthcare delivery; a primer for pharmacists. Sudbury Mass: Jones and Bartlett.
Piotrowiski, B. (2002). A difference of mission; Saint Luke’s parts way amicably with Shawnee. New York: Modern Healthcare.
Vernon, W. (2006). Is there a future for the not-for-profit hospitals? New York: Frontiers of Health Services Management.