Legal Issues of Firms with Hybrid Organizational Structure in the Healthcare and Insurance Industry

This study presents the complex issues related to hybrid organizational structure, i.e., nonprofit organizations that own for-profit subsidiaries, in the healthcare and insurance industries. The tax code allows chartering of tax-exempt entities if they are organized exclusively for a benevolent purpose with no private individual benefitting from its earnings. These organizations, however, can charter for-profit subsidiaries. This hybrid form has increased in prevalence in the healthcare industry in recent years and raises the question of when an organization no longer warrants nonprofit status. We discuss legal issues related to tax code and competitiveness and illustrate with a case study.