For-Profit and Nonprofit Dynamics and Providers' Failures

Abstract

Despite the assumption that privatization promotes nonprofits' commercialization in the area of human services, it was identified that, under the Long-Term Care Insurance (LTCI) system in Japan, either the difference between for-profit and nonprofit providers remained or for-profit providers behaved like nonprofits. This study followed the LTCI providers for two years and demonstrated that the pre-existing for-profit and nonprofit dynamics do not influence the subsequent providers' failure patterns. It appeared that LTCI's highly regulated environment mitigated selection pressure, and it led to different provider failure patterns from what was predicted based on the ecological evolutionary perspective of organizational theories.

Key words:

• For-profit and nonprofit
• human services
• Japan
• privatization

Acknowledgement

I would like to express my deep appreciation to Professor Osborne who provided me with the opportunity to contribute this article. I thank the anonymous reviewer for thoughtful comments. This project was supported by a Grant-In-Aid for Science Research program provided through the Japan Society for the Promotion of Science (Grant ID: 17330127).

Notes

1 The for-profit providers examined in this study were all established before 2006 when the Law for Limited Corporations was abolished, thus the distinction between for-profit corporations and for-profit limited corporations still exist among them.

2 In a 2006 reform of LTCI, level 1 was broken down to different levels: level1-1 and level1-2.

3 Profit rates are another possible measure of financial competitiveness, however, the calculation of the profit rate differs according to type of ownership. In addition, some providers intentionally keep their profit rates low by investing any surplus in order to save on taxes. The revenue–expenditure balance thus provides the minimum but the most accurate information on the providers' financial competitiveness.

4 The higher the average need level the provider serves, the higher the reimbursement that can be collected. However, clients with serious need levels also require a great deal of care and the turn-over rate is higher. Thus, generally speaking, serving more clients with higher need levels is expected to hurt cost-effectiveness.

5 The special nonprofit organizations did not have the privilege of tax-exemption until 2006 when the related law was revised. The benefit of the revision is still very limited because the conditions to receive tax-exemptions are strictly regulated by government.

6 Osborne (2003) urged specified activity nonprofit corporations to acknowledge the importance of establishing distinctive roles while maintaining collaborative relationships with existing social institutions such as government and the business sector. This study reconfirms the importance of overcoming the challenge, otherwise this newly installed legal system would hardly prevail.