The Bad Business of Planned Parenthood

by Mauricio Roman - November 27, 2009

Reprinted with permission.

Despite profits of $85 million in 2008, Planned Parenthood is facing serious financial difficulties. According to a recent Harvard Business School case study, Planned Parenthood Federation of America (PPFA) is structured as a 501(c)(3) non-profit organization with multiple affiliates, each of which is also a 501(c)(3) non-profit. The national entity lobbies on national policy, sets affiliation standards, and leases its "Planned Parenthood" brand to affiliates, each of which has its own independent board and management structure, and so enjoys independence in its day-to-day operations.

Internally, Planned Parenthood's difficulties stem from the uneven strength of its affiliates, and President Cecile Richards is worried. According to the Harvard case, her organization faces "tough economic times, a hostile political environment, and limited ability to raise philanthropic dollars in a resource constrained area of the country."

What does a "hostile political environment" entail? For one thing, past government funding of crisis pregnancy centers and abstinence-only sex education programs. No industry likes a product that can become a substitute for the one it sells. From this perspective, abstinence is a substitute for contraception, and adoption is a substitute for abortion. Unable to grasp that these are morally superior options to abortion, Planned Parenthood sees them only as threats to their established position. It's not difficult to understand why: Young women seeking contraception account for 60 percent of Planned Parenthood's total clientele, while abortion is provided to 10 percent of its female customers. Even allowing for overlap, that's 60 to 70 percent of Planned Parenthood's customer base.

Happily, in some regions, Planned Parenthood is failing badly at its goal of countering the "hostile political environment." The Florida Association of Planned Parenthood Affiliates (FAPPA) laments that "while we worked hard this session to zero-fund the $2 million appropriation for so-called crisis pregnancy centers in Florida, we were not successful in its defunding."

Difficulties such as these are driving down the number of Planned Parenthood affiliates, from 163 15 years ago to 91 in late 2009. And according to the Harvard case study, this consolidation is expected to continue with several of the remaining affiliates discussing mergers.

Yet Richards hopes to dramatically increase Planned Parenthood's client base. As she told the Harvard researchers, "If we see three million women and there are ten million more that need our services then our question is how do we get to them."

One obstacle to such expansion is the simple fact that most potential clients have low incomes and cannot pay for Planned Parenthood's services. Take, for instance, emergency contraception, a highly profitable new product line. As a national organization, Planned Parenthood can negotiate a low price for such pills – less than $5 – and sell them for $25 on average, according to the American Life League. But even at this price, sales to low-income customers will be limited. In 2003, Planned Parenthood sold 750,000 emergency contraception kits. By 2006, sales had climbed to 1.4 million units. Yet the numbers remained largely unchanged in 2007, indicating that the market was saturated. If the organization wants to break that ceiling by expanding to lower-income women, they'll need government subsidies to do so.

Additionally, despite Planned Parenthood's strength as a drug distributor, the pharmaceutical industry is itself consolidating, which gives the remaining companies more power to set higher prices on new drugs. The Harvard case also reports that the number of generic contraceptives is increasing. As a result, Planned Parenthood faces both more competition and less per-unit profit.

While the Harvard case study does not refer to "abortion" when discussing Planned Parenthood's raison d'etre, its financial report shows this to be a key source of revenues. The organization performed 305,310 abortions in 2007 – at $400 each, that yields $122 million. So even though abortions account for only 3 percent of the services performed by Planned Parenthood, they provide 33 percent of the income from "health center" operations. Sales of emergency contraceptive kits add another $35 million to the top line.

Any business facing tough economic times needs to do three things to survive: retain customers, reduce costs, and increase sales of profitable products. To ensure customer loyalty, Planned Parenthood has worked hard to enhance its brand awareness and confidence from actual customers – most recently through its Web site, which dispenses "sexual advice" to 900,000 monthly visitors. To reduce costs, Planned Parenthood's affiliates have been pooling resources, merging their organizations, and closing less profitable clinics. Additionally, the organization has been aggressively promoting two of its most profitable products: "emergency contraception" and medical abortion (both kill unborn children).

Medical abortions – which involve delivering the dead baby at home – are promoted as cost-effective alternative to surgical abortions, which is especially appealing to financially fragile affiliates. Take, for example, the Springfield, Illinois, location. In 2008, all of Planned Parenthood's affiliates in Illinois consolidated into a single affiliate and pooled their resources. This enabled the Springfield clinic to offer medical abortions – something they were unable to do before, owing to lack of expertise. Steve Trombley, CEO of Chicago Planned Parenthood, stated that the organization "will provide medication abortions in Springfield, rather than surgical abortions, because the medication approach requires less space, expense and other resources" – while still fetching $400 in revenues for each abortion. Such changes are expected to enhance the financial viability of the consolidated affiliate: Planned Parenthood of Illinois posted annual revenues of $24 million and a net loss of $2.5 million in the fiscal year that ended June 30, 2009, Trombley said.

This is all part of a larger trend: According to the American Life League, Planned Parenthood is increasing the number of clinics that perform medical abortions, up from 60 in 2006 to 121 in 2008 (the number of its surgical abortion facilities has remained constant over the past few years, at around 174). Their remaining clinics provide chemical abortion through the sale of emergency contraception kits.

In the meantime, Planned Parenthood's financial difficulties are driving both its affiliate consolidation and its transformation into a tightly integrated chemical- and medical-abortion provider. With the expected financial backing of the U.S. government, they will continue to be a formidable foe to pro-life advocates.