The idea that nonprofit hospitals are somehow morally superior because their profits “stay in the hospital” rather than going to individuals misses the point of how incentives actually work in an economy. First, let’s be clear: nonprofit doesn’t mean non-revenue-maximizing. It just means the excess revenues aren’t distributed to shareholders. But they still seek to maximize revenues, often through the same aggressive billing practices, drug markups, facility fees, and contract manipulation as their for-profit counterparts. That surplus doesn’t disappear. It’s funneled into executive compensation, luxury capital projects, lobbying, and acquiring market share. So instead of enriching shareholders who took financial risk to fund the hospital, we enrich a C-suite who took no such risk, but have learned to extract just as much value from the system. In economic terms: the principal-agent problem is alive and well. The board (principal) of a nonprofit hospital relies on executives (agents) to manage operations. But absent the discipline of shareholders and real price signals, the agents optimize for themselves: higher pay, bigger departments, empire-building. You want a yacht? You don’t need dividends. Just call it a strategic planning retreat in the Caymans. Moreover, the lack of residual claimants in nonprofits leads to inefficiency. In a for-profit firm, residual claimants (shareholders) are incentivized to monitor costs and improve performance. In a nonprofit, no one owns the upside, so waste and bloat persist. Yes, for-profits distribute surplus to investors. But in exchange, they face market discipline. Bad hospitals lose money and close. Nonprofits, especially those with tax exemption, face no such pressure. They just raise prices, cry “community benefit,” and pass the cost to insurers and taxpayers. This is why public choice theory is so relevant here. If we ignore incentives and just assume good intentions because it’s a “nonprofit,” we get the worst of both worlds: market dominance with no accountability. Finally, don’t be fooled by where the money technically lands. Whether it’s in a shareholder’s pocket or the hospital administrator’s six-figure bonus pool, the rent-seeking is real. One of them just has a better PR department. So the question isn’t whether profits go to “people” or “institutions.” Institutions don’t use money. People always get the money. The only question is which people, and under what incentives.