October 2023 – Consolidation Trends Among Nonprofit Institutions

All of us who work in or provide services to nonprofit institutions know how special they are. The ideals of service, excellence and working for the greater social good are fundamental to why people choose to work in this sector.

But leaders in the nonprofit sector need to be aware that those in government, the press and the corporate world don’t always see or interpret things in the same way. Lately, the wider societal view of our institutions is not keeping up with our collective self-image.

Higher Ed Takes it on the Chin

The most obvious manifestation of this phenomenon is the precipitous decline in the belief in the value of higher education, despite most of the evidence showing this not to be the case.

Much of this is due to the soaring cost of attending college. Headline numbers in the $60,000’s and political debate about debt relief highlight the unaffordability of a university education. Less well understood is the disconnect between soaring “list” prices and the prices actually paid by most students after institutional discounting, aka “scholarships”. By one count, 95% of students pay $15,000 or less in tuition, though that figure does not account for the ability of the most-prestigious schools to collect list prices from many students, perpetuating a stratified market by income.

The Economist declares that “The consensus view is that America has a college-affordability crisis and things are getting worse”. It then attempts to temper this view with data showing that the lifetime earnings premium for a college graduate is still around a half million dollars for both men and women in America (and about $200,000 in Britain). It goes on to point out that, despite a decline in tuition and fees at US universities of $2,000 in real terms between 2012 and 2022, a July 2023 Gallup poll shows that Americans having “a great deal” or “quite a lot” of confidence in higher ed declined to 36% this June, down from 48% in 2018 and 57% in 2015.

Despite these data, articles keep appearing with titles like “Americans are Losing Faith in the Value of College. Whose Fault is That?”.

Lengthy times to graduate, disappointing salaries despite a degree, and college debt have also contributed to this trend. There is clearly not a lot of appreciation for higher education at the moment.

It’s No Better for Health Systems

While much of the discontent with higher ed institutions centers around the value of a college degree, the societal unease with the medical system seems to be more around trust.

The good news is that in Gallup’s latest annual poll, “the medical system” came fifth in the percentage of people having “a great deal” or “a lot” of confidence among 17 institutions, trailing only small business, the military, the police—and higher education. The medical system’s 34% approval rating was two points lower than higher ed’s, and reflected a whopping decline from 44% just two years prior. In fact, the medical system had the second-largest drop since 2021, after the presidency. That has to be cause for alarm.

Jarrard’s latest survey has some bad news for leaders of nonprofit health systems, from perhaps their most important constituency. In a survey of physicians, only half of all physicians (employed and independent, for-profit and nonprofit) expressed “a great deal” or “a lot” of trust in their CEO being “honest and transparent”. But among employed physicians at nonprofit health systems, that figure was only 36%. By contrast, 51% of those employed at for-profit systems felt this way.

But wait, there’s more. Only about half of physicians trust that their executives are making good financial, operational or patient-care-related decisions. And on top of that, all of these figures are worse for female physicians.

Finally, the bad press for nonprofit health systems continues in terms of pricing and costs. A number of recent analyses published by JAMA and Kaiser Family Foundation contain examples of nonprofits having higher costs and prices than their for-profit competitors.

Bottom Line

It may be tempting to see the declining faith in nonprofit institutions as just part of the wider societal discord across the country. But it’s particularly important that both nonprofit universities and health systems reverse these trends. These institutions are fundamental to Americans’ quality of life and to the communities where they are located. Particularly with “public trust” entities like universities and hospitals, where the public sees problems, politicians and bureaucrats will not be far behind prepared to “fix” the problem for us.

What should nonprofit leaders do about this? Among other things, we would focus on the following:

• Be better. Rather than (starting with) a PR and advocacy blitz, make sure that the value proposition your organizations provide is a strong one. It is obvious that both higher ed and health care have a “list price” problem, in which people are scared off or hacked off by the headline price and are left feeling either that it’s just too expensive or that others may be getting advantageous pricing at their expense.
• THEN, go on a PR and advocacy blitz, advancing the many benefits provided by your institution and sector.
• Start with your local communities, among those you interact with every day. Show your employees and customers that you care about and value them, and give them real value for their labor or money.