- Pub. Date:
- Health Administration Press
- Pub. Date:
- Health Administration Press
Health-related nonprofit organizations reflect a unique and enduring aspect of the American character, rooted in the concepts of charity and fraternity. Much has changed in the nonprofit sector since the days of Benjamin Franklin and the founding of the Pennsylvania Hospital, but nothing has replaced the dedication, creativity, and hard work of leaders, managers, and volunteers striving to improve the human condition.
The Healthcare Nonprofit: Keys to Effective Management assists leaders and managers as they uphold the nonprofit tradition across a challenging and ever-evolving healthcare and public health landscape. It explores the nature and extent of nonprofit activity in the United States, establishing key principles while noting the impact of economic, sociocultural, and technological trends. Special attention is given to the following:
The importance of the missionPrograms and services that make a difference Staff and volunteer managementEffective board governanceFundraising and donor stewardshipMarketing, public relations, and advocacyLegal, regulatory, and ethical issuesLeadership and crisis management The chapters of The Healthcare Nonprofit, written by accomplished leaders in the field, present essential concepts and principles, as well as more detailed commentary to foster deeper understanding. Ultimately, the book seeks to provide readers with the knowledge and tools they need to begin, run, and sustain effective nonprofit organizations that have a meaningful impact on the people they serve.
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About the Author
Stephen F. Gambescia, PhD, is professor of health services administration in the College of Nursing and Health Professions at Drexel University in Philadelphia. Before working in higher education, he served as a vice president for educational programs for the American Cancer Society and the American Heart Association. Dr. Gambescia has 40 years of experience in health promotion, disease prevention, and public health policy research and advocacy.
Books published by Health Administration Press:
The Healthcare Nonprofit: Keys to Effective Management
Read an Excerpt
NATURE AND EXTENT OF NONPROFIT ORGANIZATIONS IN AMERICAN SOCIETY
Stephen F. Gambescia
The sociopolitical and economic structure in the United States consists of three major sectors: government, private, and nonprofit. The sectors have their own unique histories but are also inextricably linked; each sector influences the others. Most people are familiar with the history and development of the governmental sector, and virtually all people in the country, naturally, are highly invested in and attuned to the private (i.e., personal or organizational) sector. But what about the nonprofit sector? Not as much is known about the rationale for, legal parameters of, and workings of the nonprofit sector, even though nonprofit organizations touch our lives in countless ways, especially in terms of public health and healthcare. In this first chapter, we will explain the overall nature and extent of nonprofit organizations in the United States and, more specifically, the health-related nonprofits that are the focus of this book.
Nonprofits and the American Spirit
At some level, the establishment and operations of nonprofit organizations are unique to the United States. Nonprofits have been part of the American spirit since the country's inception in 1776 — and even before. The purpose and functions of nonprofits are evident in founding documents such as the Declaration of Independence and the US Constitution, and nonprofits played a significant role in the nation's first attempts at practicing healthcare and protecting the public health.
The American ideology is commonly associated with the four classic characteristics of liberty, equality, individualism, and fraternity. Fraternity — often exercised through charity — might not be spoken of as often as the other three characteristics, but it is well established in the country's approach to healthcare and public health. The first American hospital, Pennsylvania Hospital in Philadelphia, was founded in 1751 by Benjamin Franklin and Thomas Bond and supported by charity, demonstrating the vital role of nonprofits that continues to this day. Today, most US hospitals remain as nonprofits; countless small, community-based clinics operate on a nonprofit basis, especially in underserved areas; and much of the health insurance business has been occupied by nonprofits. As each disease, condition, or malady presents itself to the American people, you can be sure a nonprofit organization will form to fight for the cause and help people in need, whether through research, direct care, education, or advocacy.
As noted in the introduction to this book, early observers of "the American way," such as Alexis de Tocqueville, noticed the contributions of associations and works of charity — actions by groups of people that were not organized by government entities or undertaken for private economic gain. Other countries, over time, have developed nongovernmental organizations (commonly called NGOs), but nonprofits in the United States are more pervasive, have greater latitude from governmental parameters, and play a much larger role in the lives of the people than in any other country. Nonprofits, clearly, are part of the American spirit.
Three Sectors of Society
The three sectors of society — government, private, and nonprofit — have political, social, and economic rationales for their establishment and continuing existence, as shown in exhibit 1.1. These rationales influence each sector's function, structure, and impact.
The government sector has its founding and validity in the well-established "social contract" describing what we as a people ask and expect of our government. This sector historically has been limited by our constitutional political framework and its subsequent set of rules, laws, and regulations — of which there are many. Generally, the government sector serves all the people. It is influenced by "we the people," political and civil servant officials, and the political process.
The private, for-profit sector — which preceded the government sector — is focused on economic gain and driven by the philosophy that private individuals and groups should be allowed to freely pursue their interests, serve whomever they want, and keep their rewards. The role of the government in influencing the private sector is generally limited — although the degree of government intervention does vary. Entities in the private sector accept, de facto, the business model of supply and demand. The private sector, by design, wants to answer to its "customers" and let them decide what products and services are worth. Those in this sector are free to do whatever they wish with their gains, economic or otherwise.
The nonprofit sector arose from the American ideology of fraternity and charity — the idea that we are "our brother's keeper"— combined with the American penchant for limited government. A summative description for why we have nonprofits in the United States is that they enhance and improve the human condition for the betterment of individuals and society. Nonprofits exist for the public good; they do good work.
The government approves of nonprofits for two reasons. First, it recognizes the common interest of serving the public. Second, it realizes that the more the nonprofits do to serve the public, the less government has to do, and the less money government has to expend on a particular area of need. The government sector, at both the federal and state levels, grants approval for an organization's nonprofit status after review of a detailed application. A major part of the review involves considering the organization's mission and determining whether the organization is meeting a true unmet need for society. The nonprofit is subject to a set of oversight rules and regulations, which can vary by state. In return for the services it provides, the nonprofit receives a number of accommodations from the government — many involving relief from taxes (discussed further in chapter 7).
The private sector generally leaves the nonprofit sector alone unless it senses that nonprofits are encroaching into its "area of business." Both the private sector and the government want nonprofits to stick closely to the organizations' missions; they do not want nonprofits to morph into entities that look too much like them. In other words, they do not want nonprofits to focus too much on producing products and services that are better left to the for-profit sector, or to resemble government entities that are influenced by the political process. Nonprofits, by design, should be politically neutral. However, these issues often become a challenge, given the complicated, inextricable links among the three sectors.
Entities from the three sectors commonly interact with regard to how money is raised and used, who leads organizations, what programs are offered, and how oversight is applied. Some of these interactions are supportive, whereas others create tension or concern. A nonprofit religious organization, for instance, might receive funding from a government entity to undertake a social service, or a staff member from a nonprofit organization might sit on a government-organized expert panel to decide who receives funding through a government grant. In another example, a nonprofit educational organization might take a significant amount of money from a corporation, potentially raising concerns about conflicts of interest with the nonprofit's mission. Elected government officials might sit on nonprofit boards of trustees, potentially tempering the opinions of other board members, and nonprofit board members might testify in concert with a government agency to support a health measure being reviewed by a legislative body. The interaction of money, leaders, personnel, volunteers, opinions, interests, and influence between and among entities in the three sectors is inevitable. Rigorous oversight by members of each sector — and by the general public — helps ensure that the function and mission of each entity have a high level of fidelity.
Types of Nonprofits
Thomas Wolf (2012, 7) defines nonprofit organizations as "those legally constituted, nongovernmental entities incorporated under state law as charitable or not-for-profit corporations that have been set up to serve some public purpose and are tax-exempt according to the IRS [Internal Revenue Service]." To be officially recognized by the government as a nonprofit, an entity must clearly define its focus area, the people it serves, and the way in which it serves an identified need. Nonprofits can fit into several categories depending on the source of review; categorization may also depend on the language used by a state government. Exhibit 1.2 presents the major focus areas of nonprofit organizations in the United States today.
Of course, charity — doing good for others and expecting nothing in return — is a central focus of the nonprofit sector. However, as you can see from the list in the exhibit, not all nonprofits need to be charitable. Laws at the state and national level, and increasingly at the local level, interpret society's needs and "good works" in a variety of ways. Associating with your neighbor in healthy and productive areas — such as engaging in formal religion, participating in civic activities, or volunteering to improve natural and public spaces — is generally seen as good. But sometimes these needs become the subject of debate or controversy, particularly if people feel a nonprofit has gotten "too political." The government generally looks favorably on organizations that aim to maintain confidence in the political system or support a political ideology while remaining nonpartisan, but it tends to be reserved and watchful of nonprofits that encroach too far into electioneering.
Other issues further complicate discussions about nonprofit status. Well-established universities and hospitals provide unquestionably valuable services to society in the areas of education and health. However, when these institutions start looking too much like for-profit companies and are run like major corporations, many people question whether they deserve nonprofit status and the social and economic accommodations that come with it (e.g., major relief from paying taxes). Similarly, government entities are usually amenable to promoting sports, such as through nonprofit Little League baseball in our communities. However, many people question whether college and professional sports should be allowed to form nonprofit associations that benefit only a narrow group of people.
Section 501(c)(3) of the Internal Revenue Code allows for certain entities to be exempt from federal income taxes if they meet certain requirements. Exhibit 1.3 lists the ten major categories of 501(c)(3) organizations that the IRS uses to identify nonprofits.
Determining the Extent of Nonprofits in the United States
Several organizations track the number of nonprofits in the United States. One would think this task would be a matter of straightforward accounting, given that nonprofits have to officially register and be recognized by a government entity. However, rules vary among the states, and some nonprofits, including many religious organizations, do not need to register with the IRS. Furthermore, new nonprofits are forming weekly, and many nonprofits go out of existence, often without notifying a government entity. Finally, some of the organizations that track nonprofits might not be tracking all types of nonprofits. For example, some groups might only track foundations, which represent only a single category of nonprofits.
Therefore, estimates of the number of nonprofits in the United States involve some degree of guesswork. When reading information about the extent of nonprofits, always consider the source and the way the source defines the types of nonprofits. This section will describe various entities that track the number of nonprofits in the United States. Additional information is available in the Further Reading and Resources list at the end of the chapter.
The National Center for Charitable Statistics (NCCS) — a collective of scholars who analyze the size, scope, and performance of nonprofits — estimates that more than 1.5 million nonprofit organizations are registered in the United States (McKeever 2019). The NCCS website (https://nccs.urban.org/) presents annual briefs and provides users with access to a wide variety of data related to those nonprofits. Candid (2019), an organization that formed through a merger of the Foundation Center and GuideStar, maintains a database of more than 1.8 million IRS-recognized nonprofits. A variety of information can be accessed via the organization's website (http://candid.org).
An Urban Institute / NCSS report titled "The Nonprofit Sector in Brief" discusses "trends in the number and finances of 501(c)(3) public charities and key findings on two important resources for the nonprofit sector: private charitable contributions and volunteering" (McKeever 2019). According to the 2019 brief, approximately 1.56 million nonprofits were registered with the IRS in 2015, representing a 10.4 percent increase since 2005.
The Urban Institute / NCSS report notes that religious organizations with less than $50,000 in annual revenue do not have to register with the IRS, although some do. Additionally, the brief is based on research on 501(c)(3) organizations. Many more nonprofits belong to other legally designated categories, such as foundations and 501(c)(4)s. The latter category comprises civic groups, social welfare organizations, and local associations of employees, which usually function as a type of lobbying organization. (Concerns arise when such organizations go too far in directly favoring a specific political party or candidate; see chapter 17 for discussion.)
The Urban Institute / NCSS brief in 2015 reported that more than 950,000 organizations were classified as public charities in 2013, representing more than two-thirds of all registered nonprofits (McKeever 2015). The report states: "Between 2003 and 2013, the number of public charities grew 19.5 percent, faster than the growth of all registered nonprofits (2.8 percent). The number of registered public charities also grew faster than other nonprofit subgroups during the decade, including private foundations, which declined 8.3 percent, and 501(c)(4) organizations, which declined 0.32 percent." Thus, charities continue to make up the overwhelming share of the nonprofit sector — approaching 70 percent.
The Foundation Center (2014) estimated that the United States had 87,142 grant-making foundations in 2013. Although most people recognize big-name public foundations such as the Robert Wood Johnson Foundation and the Bill & Melinda Gates Foundation, most foundations are smaller, family-run entities.
If we assess the various reports on the extent of nonprofits in the United States, and if we account for variances in tracking and the number of nonprofits likely to be missed, we can conclude that the overall number of nonprofits in the United States could be close to 2 million — and the number is increasing.
During the 1980s the NCCS, in collaboration with major nonprofit groups, developed the National Taxonomy of Exempt Entities (NTEE) to classify nonprofits for statistical, analytical, and comparative purposes (Jones 2019). The NTEE applies four-digit codes to nonprofits, first assigning entities to large genres and then into narrower species. The taxonomy has some 645 codes, which are organized into 26 major groups and then into broad categories. Exhibit 1.4 shows eight major categories in the taxonomy, with the percentage that each functional type represents.
What Do Nonprofits Contribute to the Economy?
Contributions of nonprofits to a country's economy can be assessed based on several markers, such as number of people employed; wages; number of dollars donated, raised, or moved around; and overall contribution to the nation's gross domestic product (GDP). According to the US Bureau of Economic Analysis, the nonprofit sector's share of the US GDP was 5.4 percent of the US GDP in 2015 (McKeever 2019).
Employment is always a good indicator of healthy industry. Employment statistics vary among states, regions, and cities, but people are often surprised by the high percentage of workers who are in the nonprofit sector. According to a 2012 report by the Center for Civil Society Studies at Johns Hopkins University, nonprofit organizations employed nearly 10.7 million paid workers in 2010, representing 10.1 percent of total US employment (Salamon, Sokolowski, and Geller 2012). In terms of employment, the nonprofit sector was the third largest of all US industries, behind retail trade and manufacturing.(Continues…)
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Table of Contents
Chapter 1. Nature and Extent of Nonprofit Organizations in American Society Stephen F. Gambescia,
Chapter 2. Mission Matters Maria Vizcarrondo,
Chapter 3. Good Governance Richard Brown,
Chapter 4. Programs and Services: The Heart and Soul of the Health Nonprofit Michele Bolles and Stephen F. Gambescia,
Chapter 5. Managing the People Who Run Nonprofit Organizations John Chin, Ailin Cao, and Stephen F. Gambescia,
Chapter 6. Managing Volunteers Mark Roithmayr,
Chapter 7. Basic Legal and Regulatory Issues for Nonprofits Toni Moore,
Chapter 8. Program Evaluation Linda Fleisher and Evelyn González,
Chapter 9. No Margin, No Mission: Fundraising for Nonprofit Health Organizations Bruce Makous,
Chapter 10. The Art and Science of Special Events Sylvia V. Bastani,
Chapter 11. The High-Touch Relationship: Understanding Transformational Giving Bruce Makous,
Chapter 12. The Role of Principal and Major Gifts in Healthcare Organizations Lise Twiford,
Chapter 13. Advocating for Your Cause Cicily Hampton,
Chapter 14. Marketing Basics and Preparation Matt Hugg,
Chapter 15. Marketing Tools and Techniques Matt Hugg,
Chapter 16. Getting Your Message Out on Social Media Glenn Ellis,
Chapter 17. Mismanagement, Misdemeanors, and Crimes Stephen F. Gambescia,
Chapter 18. Crisis Communications: Anticipating and Reducing Risk to Protect Your Reputation Christine Reimert,
Chapter 19. Leadership in Today's Nonprofit Organization Bruce Melgary,
About the Editors,
About the Contributors,