The Nonprofit Health Care Cooperative: What is it Anyway?

1. The Nonprofit Health Care Cooperative: What is it Anyway? Lisa Morgan Wallace October 5, 2009

2. Cooperatives Defined • Owned/controlled by their member customers • Members elect their board of director from within the membership. • Return surplus revenues to members proportionate to their use of the cooperative. • Motivated by members' needs for affordable and high quality goods or services • Exist solely to serve their members. • Pay taxes on income kept within the co-op for investment and reserves. • Surplus revenues from the co-op are returned to individual members who pay taxes on that income.

3. Cooperative Types • Consumer Cooperatives - owned by the people who buy the goods or use the services of the cooperative. • Housing, electricity, telecommunications, financial services (credit unions), healthcare, childcare, funeral services. • Producer Cooperatives - owned by people who produce similar types of products to leverage greater bargaining power with buyers and to combine resources to more effectively market and brand their products, improving the incomes of their members. • Farmers, craftsmen and artisans. • Worker Cooperatives— owned and governed by the employees of the business to provide workers with both employment and ownership opportunities. • Employee-owned stores, processing companies, restaurants, taxicab companies, sewing companies, timber processors and light and heavy industry. • Purchasing/Shared Services Cooperatives— owned and governed by independent business owners, small municipalities and state governments that band together to enhance their purchasing power, lower costs and improve competitiveness and ability to provide quality services.

4. Cooperative Principles • Voluntary and Open Membership • Democratic Member Control • Member Economic Participation • Autonomy and Independence • Education, Training and Information • Cooperation Among Cooperatives • Concern for Community

5. “Co-ops are formed by their members when the marketplace fails to provide needed goods or services at affordable prices and acceptable quality….. Throughout the world, cooperatives are providing co-op members with…[goods and] services that would otherwise not be available to them.” -- National Cooperative Business Association

6. Opportunities in Health Care • Health Insurance • Medical Providers & Hospitals • Pharmacies / Pharmaceutical Buyers • States

7. Insurance • Health Maintenance Organizations (HMOs) • Health Insurance Purchasing Cooperatives (HIPCs) • Insurance Mutuals More than 1,000 mutual insurance companies, with more than $80 billion in net written premiums, are owned by their policyholders. (2005)

8. Medical Providers • HMOs • Hospital Group Purchasing Cooperatives • Caregiver-owned Cooperatives • Practitioner-owned Cooperatives

9. Pharmacies & States • Independent Pharmacy Purchasing Cooperatives • State Government Purchasing Cooperatives • Multi-State Buying Groups Public purchasing programs allow states to help seniors, low-income residents and the uninsured to buy prescription drugs that are not covered under federal Medicare and Medicaid programs.

10. Nonprofits Defined • No owners or shareholders. • No distribution of profits • IRS 501(c) status • Requires: public release of financials, governing board (>2 members) Benefits: tax exempt purchases, federal revenue tax exemption, income tax credit to donors

11. Nonprofit Types • Charities (501(c)(3)) • Social Welfare Organizations (501(c)(4)) • Agricultural Organizations (501(c)(5)) • Labor Organizations (501(c)(5) • Business Leagues/Trade Orgs (501(c)(6)) Hospitals and other nonprofit health care delivery and research institutions are 501(c)3 charities.

13. To be or not to be….nonprofit? • Role of nonprofits has declined in the health care sector. • Tax exempt status of nonprofit hospitals is controversial. • Charity care facilities are shutting down. • Nonprofits bear greater risks of failure and can be enslaved to outside donor priorities and demands. • Tax revenues from the health care sector help decrease the federal deficit. • Tax burdens are widely dispersed and offset by user profit gains. • Nonprofits cannot raise capital. • Does a cooperative really need to be a nonprofit to succeed?

14. Cooperative Successes • HealthPartners, Inc. is the nation's largest consumer-owned HMO. 660,000 members. • Group Health Cooperativeis the nation's second largest consumer-governed, nonprofit health care system. 600,000 members. • The Group Health Cooperative of Puget Sound is a nonprofit cooperative for coverage and care from Group Health Options Inc. and KPS Health Plans. Covers more than 500,000 people. • PacAdvantage is the country's largest non-profit small business health insurance purchasing cooperative. Provides coverage to 150,000 people. • The Council on Smaller Enterprises is a purchasing co-op for area businesses, that provides its small business members with access to 25 different health plans and allows employers to offer five (5) to its employees, which saves small businesses $45 million annually in premium costs.

15. Purchasing Cooperative Successes • VHA Inc. owned and governed by community-owned health care systems and their physicians to leverage group buying power for hospital supplies and equipment. 2,200 members. • University HealthSystem Consortium is a purchasing co-op for University-based hospitals. • EPIC Pharmacies gives independent pharmacies the ability to compete on a level playing field with chain drug stores through collective buying power. 500 pharmacy members • Independent Pharmacy Cooperative is the largest independent pharmacy purchasing organization. 1000 affiliates and 4,000 members.

16. Resources • Department of the Treasury Internal Revenue Service (www.irs.gov) • National Cooperative Business Association (www.ncba.coop) • The Heritage Foundation • Edmund F. Haislmaier, Dennis G. Smith, and Nina Owcharenko, “Health Care Co-Operatives: Doing It the Right Way,” The Heritage Foundation WebMemo (No. 2493: June 18, 2009). • Steven Deller, Ann Hoyt, Brent Hueth and RekaSundaram-Stukel, Research on the Economic Impact of Cooperatives (Madison, WI: University of Wisconsin Center for Cooperatives, 2009). • Leiyu Shi and Douglas Sing, Delivering Health Care in America (Gaithersburg, MD: Aspen Publishes, 2001). • William O. Cleverly and Andrew E. Cameron, Essentials of Health Care Finance, 6th Ed., (Boston, MA: Jones and Bartlett Publishers, 2007)