When profit is not the incentive

For many reasons, nonprofit companies have become major players
and employers in the Tar Heel economy.
By Amamda Parry

It’s not yet 3, but the late-December day is fading as men and women climb out of cars onto the sloped concrete of a parking deck near downtown Charlotte. The Presbyterian Hospital lot becomes a sea of jewel-colored scrubs as nurses, doctors, technicians and assistants in rose, teal and navy blue drift toward the walkway that will take them through patient parking to work. Many call out to workers who have just finished a shift, some stopping to chat before they head in opposite directions. A similar ritual is being played out some 80 miles north at Forsyth Medical Center in Winston-Salem. Ditto at hospitals in Salisbury and Thomasville.

Fifteen years ago, the only thing all these people would have had in common would be job titles. These days, they share the same boss. With 22,000 on its payrolls, Novant Health is the state’s fifth-largest private-sector employer and one of its biggest nonprofit companies. More than 237,000 Tar Heels work for a nonprofit — more than do in construction, finance or transportation. Employment figures for the largest rival those of for-profit businesses. Novant has more employees in the state than IBM. Duke University employs more North Carolinians than Bank of America.

This year, Business North Carolina includes nonprofits in its ranking of the state’s largest employers for the first time since 1992. Back then, only six made the cut. This year, 15 were on the list, including Duke University, with 30,550 employees; Wake Forest University Baptist Medical Center, 11,400; and University Health Systems of Eastern Carolina, 8,195. Seven more appear on a list from the Employment Security Commission of companies with 1,000 or more employees.

“We have had this ideology that these are basically volunteer-run agencies helping poor people,” says Lester Salamon, a founding director of the Johns Hopkins Center for Civil Society Studies in Baltimore. “But not all the services they provide are for the poor. What I think is becoming increasingly clear to people is that nonprofits have developed into enormous employers and very complex organizations.”

Straddling the divide between public and private sectors, nonprofits — or not-for-profits, as they sometimes are called, because many run solidly in the black — are strange and resilient beasts. They function in many ways like their for-profit counterparts, charging fees for services and often competing for the same customers. They can make a profit — an operating surplus — but must pour it back into the business. Yet their ties to the public sector are strong: Exempt from federal income taxes, many receive government funding, either through grants or reimbursements. Some, such as nonpublic schools and universities, provide services also offered by government. It’s this duality that makes them so strong. Like weeds, they often can grow under conditions others can’t.

A recently released study found that employment at North Carolina’s nonprofits grew 35% from 1995 to 2003, six times the rate of for-profit businesses. The study, co-authored by Salamon with help from the North Carolina Center for Nonprofits advocacy group, showed growth in nonprofit employment was strong even during the last recession. During 2001-03, when for-profit jobs decreased, nonprofit employment grew an average of 4.4% per year. Because nonprofits tend to be service-oriented, they grow in step with population: The more people, the more services needed — and not just of the assistance variety. Some recreation centers, day-care centers and community theaters fall under the nonprofit umbrella. In the last 27 years, North Carolina’s population has increased by 52%. Its nonprofits have been swelling to meet the demand.

In fast-growing Mecklenburg County, the YMCA of Greater Charlotte has grown at a faster pace than the population. While the number of residents has more than doubled since 1980 to 842,622, Y membership has increased six times, reaching 166,000. The two largest branches in North America are here: the Harris YMCA, with 27,000 members, and the Siskey YMCA, with 26,000. “We’re sought out by a lot of developers and corporate entities to see if we can enhance the quality of life in specific areas or subdivisions,” says Robbie Armstrong, executive vice president and chief operating officer of the YMCA of Greater Charlotte. Its headquarters and 22 branches employ 3,560, making it the state’s 61st-largest private employer.

Though they operate in many ways like for-profit businesses, growth of nonprofits is not always tied to the same economic forces. For example, a downturn can increase demand for social-assistance services, which can create political pressure to increase government funding for the nonprofit groups providing them. At the same time, another major source of revenue — fees for services — remains relatively stable, according to Salamon. “If you’re sick, you go to the doctor. If you have kids and need to work, you use day care.”

However, nonprofits are vulnerable to recession through their third source of funding — donations. “There are decreases in contributions,” says George Bryan, president and CEO of The Children’s Home. “People don’t want to spend money on going to events and galas.” But most nonprofits overcome this loss of individual donations by seeking more government funding or private grants. The Winston-Salem nonprofit, which provides services that include residential care of orphans, foster-care placement, family counseling and mental-health treatment, weathered the last recession by adding programs, which brought in more funding. It now works with autistic children and recently opened a home for teenage mothers. It employs 160, slightly more than it had before the downturn.

Competition also spurs growth. Nonprofit health organizations need to deliver the same services and accommodate the same numbers as the for-profits. A growing and aging population means more people seek health care, and new technology tends to increase the number of workers needed, according to Don Dalton, a spokesman for the North Carolina Hospital Association. “In diagnostic technology, you have additions, not replacements. First, X-rays were state-of-the-art. Then you had the CT scan, but you still had the X-ray. Then you had the MRI, which didn’t replace either the CT scan or the X-ray. It creates these layers of growth.”

Industry trends have changed the way health-care organizations are structured. Of the nonprofits on our list of the largest private-sector employers in North Carolina, nine are or include health systems, an industry term for groupings of hospitals, clinics, doctor offices and nursing homes. Health systems took off in the ’90s when hospitals became concerned over the expansion of managed care. “There were predictions of tremendous cuts in payments, both from HMOs and the government,” says Jim Tobalski, Novant Health’s senior vice president of marketing, communications and government relations. “A lot of organizations thought the best strategy would be to form alliances or to form new organizations.”

(Charlotte-based Carolinas HealthCare System, with 33,000 employees and 22 hospitals in North and South Carolina, is the largest such entity in the two states. But because it is owned by the Charlotte-Mecklenburg Hospital Authority, it is considered a public agency, a designation that keeps it off the Employment Security Commission’s list and ours.)

Novant got its start in July 1997 with the merger of Winston-Salem-based Carolina Medicorp and Charlotte-based Presbyterian Health Services. Thomasville Medical Center merged with it later that year. The system now has nine hospitals, two nursing homes and 137 clinics, outpatient surgery and diagnostic centers. Other hospitals have also found success in joining forces, sometimes motivated by even more basic factors than fears of declining government and insurance reimbursements. Asheville-based Memorial Mission Medical Center and St. Joseph Hospital began a working relationship over linens in 1996. Both wanted to stop using laundry services to save money and decided to pool resources to create their own. The hospitals ended up merging in 1998. Mission Health has since been joined by Spruce Pine Community Hospital in Mitchell County and The McDowell Hospital in Marion.

Consolidation often results in growth. Most health systems want to increase access to care, so they tend not to close the smaller hospitals they acquire and often open treatment centers to meet local demand. Greenville-based University Health Systems of Eastern Carolina and East Carolina University have become partners to build a cardiovascular-care center scheduled to open this year and create 500 jobs. Novant is building two hospitals — in Mint Hill and Kernersville — to meet growing patient demand. Each is expected to employ 300 to 400 people.

Expansion is such a given for health-care organizations that labor shortages are a concern. With the state’s population 65 and older expected to double by 2020, demand for all sorts of positions will increase. Hospitals are already feeling the crunch when it comes to nurses and respiratory, occupational and physical therapists. Schools can’t keep up with demand, though some are trying to expand programs to accommodate extra students. For example, last year, UNC Chapel Hill expanded its nursing program to double the number graduating each year with a bachelor’s of science in nursing to 220.

Even if enough workers can be trained to fill these jobs, there’s no guarantee they’ll want to go the nonprofit route. The traditional assumption has been that nonprofits pay less, Salamon says. That can be misleading, as studies haven’t compared wages by position but as overall industry averages. As such, averages for nonprofits are skewed by the high number of college-educated professionals they employ, as are the for-profit figures by all the highly compensated executives — and what some would call obscenely paid top executives — plus the multitude of low-paid, low-skilled employees on their payrolls. When industry-to-industry wages are compared, nonprofits sometimes come out on top.

Salamon’s study showed that for-profit workers made 4% more than nonprofit employees in North Carolina in 2003. But it found the average wage for hospital workers — everyone from the janitorial staff and orderlies to chief surgeons and top administrators — was $710 a week at nonprofits, compared with $597 at for-profits. At nursing homes, it was $402 to $362. For home health-care workers, $493 to $276. Nonprofits are able to pour more money back into the business, Salamon theorizes, because they don’t pay profits to owners and investors.

Salamon points to his study as an academic awakening. He took his data on North Carolina from quarterly surveys distributed by the state’s Department of Labor to companies employing four or more people. In other words, he relied on information that has been available for 40 years; it just hadn’t been analyzed. “The statistical community conceptualizes the economy as two-sector — market and government,” he says. “But anyone who thinks about it for five minutes, or three minutes, will see there’s really three.”

For a complete look at our Top Private-Sector Employers chart, visit your local bookstore, or purchase a copy online here.