The California Wellness Foundation
Harry Nelson

 

Introduction

In California, conversions of nonprofit hospitals and health plans to for-profit status first began occurring in the 1970s. Similar foundations created in California and elsewhere since then have attracted widespread notice and provided lessons from which other foundations on the verge of creation may benefit. Today, the assets held by California health conversion foundations represent half of the $9 billion controlled nationally by such organizations. Three of these foundations––California HealthCare Foundation and the California Endowment, each created in 1996, and The California Wellness Foundation (TCWF), created in 1992––are among the nation's top ten health conversion foundations in terms of assets.

The TCWF, with assets of $1 billion, is the third-largest health conversion foundation in the country. Founded when Health Net––one of the state's largest health maintenance organizations––became for-profit, TCWF defined as its goal a new vision of health for Californians.

"Health is not an end but what enables us to pursue education, find satisfying employment, enjoy leisure, be physically and mentally active, and develop satisfying interpersonal relationships," the foundation's first annual report declared in 1993. Improvements in the health of the population of California and the population overall, the report continued, "can only be realized by addressing health habits and social and economic factors, such as poverty, lack of job opportunities, poor nutrition, and high rates of school dropouts."

TCWF has its headquarters in Woodland Hills, a suburb of Los Angeles, and has a branch office in San Francisco that was established in 1996. From the beginning, the foundation has pursued paths that have led it into complex and, occasionally, politically sensitive areas where funding by public or private sources has been limited. It has pioneered in the field of violence prevention as a public health priority in California. It was the first health foundation to fund a campaign to educate the public regarding a state ballot initiative that would have affected public health by weakening state tobacco controls. In 1995, when community clinics began receiving less federal funding through state channels, TCWF gave 21 grants totaling $12 million to help communities cope with the dramatic change that had weakened community clinic infrastructure. Through 1997, TCWF has allocated a total of $174.1 million in support of a wide variety of grants that today are concentrated in five priority areas: violence prevention, teenage pregnancy prevention, community health, population health improvement, and work and health.

These efforts have for the most part expanded the traditional concept of health––as viewed through the medical model––as the absence of disease. The foundation has replaced this view with a public health model that recognizes the broad determinants of health, including individual responsibility and broad socioeconomic contributors (see Figure 1). Approximately 70 percent of TCWF funding goes to support the five priority areas, with the remainder going to special projects that address other health-related issues. As explained in greater detail elsewhere in this report, TCWF's broad public health mission originated with the conviction of Health Net's senior management, which strongly favored disease prevention and health promotion. That groundwork was supplemented by succeeding board members who brought with them strong public health as well as business backgrounds. The original board largely determined the spirit and fields of interest for the future. As early as the first year of operation, it had focused on two issues––violence prevention and community health––that were to become grant-making initiatives. Other concerns of the original board, including maternal and child health, adolescent health, and school-linked health programs, anticipated the foundation's current grant-making interests.

According to Gary Yates, TCWF's CEO, the foundation strives to make grants whose health goals can be justified by scientific data based on research, a stance that is crucial if the mission is to include supporting proactive programs that may be controversial. Public criticism of the foundation's grant-making policies has been limited, although some conservative think tanks have labeled the foundation's grantmaking as excessively "big government"-oriented and lacking in focus on biomedical research. Most complaints are from workers in underfunded public agencies and from physicians and organizations. These groups perceive the provision of medical services as the paramount need requiring support from foundations.

A key element of TCWF thinking is that although it can play a role in collaborating on certain issues, it cannot and should not do what government can do––namely fund and provide direct medical services. That task, the directors and staff point out, is far beyond the capabilities of even billion-dollar foundations, which, in a single year, generally fund at a level equal to 5 percent of their total assets. A case in point occurred in the mid-1990s when the Los Angeles County Health Department found its budget short by $600 million. Policymakers and opinion leaders contacted TCWF and other similar foundations, suggesting that they use their assets to bail out the department. Although several foundations including TCWF made strategic grants to help with the crisis, their combined annual grantmaking could not begin to address the $600 million shortfall. Eventually, the federal government provided the funds.

"It was a classic example of people not understanding how these foundations work," Yates says. "They look at our asset base and think that represents what can be spent at one time."

Sections of this report will deal with the details of Health Net's conversion process, ways in which Health Net and the conversion process affected the foundation's mission, and details of TCWF's board and grant-making agenda.

 

Figure 1: A Wellness Primer on Health
  • We assume that no single factor produces good health.

  • We assume that each and every individual has a personal responsibility for his or her health, and that lifestyle choices and behaviors are key to positive health outcomes.

  • Although people can control their own health in significant ways, social factors have powerful influence on people's ability to fully take that control. Extra effort is needed to better enable the most vulnerable groups to take charge of their own health and the health opportunities in their communities.

  • Wellness opportunities should be available and accessible to every citizen rather than seen as a benefit for only those who can afford it.


Figure 2: Grant Activity 1992-1997

Fiscal
Year		 Number
Awarded		 Amount
Awarded		 Net
Assets
1992 8 $269,379 $307,622,902
1993 85 $14,998,220 $473,466,807
1994 141 $35,341,527 $727,347,621
1995 150 $39,487,592 $803,586,001
1996 254 $54,324,549 $817,109,632
1997 283 $29,693,141 $970,737,107
Total 921 $174,114,408  

Note: The dollar amount for "Amount Awarded" is a net number (after reduction for returned grants and the present value discount for future grant commitments). The "Net Assets" amount represents the total assets less the liabilities. The amounts reported are for each of the Foundation's fiscal years ending June 30 and will not correspond to the Foundation's tax returns, which are completed on a calendar-year basis.


Figure 3: Milestones in the Chronology of the Health Net Conversion

Late 1989óDecision to go for-profit
March 1991óConversion proposal submitted to the state. Value: $108 million
March-May 1991óMeetings with state regulators
May 1991óNewspaper article makes details of proposal public
June 1991óQualMed makes bid to acquire Health Net
October 1991óQualMed files suit against Health Net
December 1991óHealth Net files counter suit
January 1992––QualMed amends proposal to acquire Health Net
February 1992óState regulators approve Health Net conversion

 

How Health Net's Conversion Process Determined TCHF's Future

Health Net, the health plan that created TCWF, began as a nonprofit HMO. It was established in 1977 by Blue Cross of Southern California, prior to the latter's merger with Blue Cross of Northern California to form Blue Cross of California. Twelve years later, Health Net's management decided to convert to for-profit status in order to raise capital. According to its records, the HMO was in prime financial condition at that time. Its revenues in 1990 totaled $886 million. It had nearly 4,000 primary care and 13,000 specialist physicians serving its 775,071 members, who had access to nearly half of the state's hospitals. According to its annual report, 1990 was Health Net's best year to date.

The Health Net Conversion

In late 1989, Health Net's board determined that the organization should be converted to a for-profit entity, through the amendment and restatement of its Articles of Incorporation, in order for it to ultimately become a wholly owned subsidiary of a new holding company created for the purpose of acquiring Health Net. The holding company was named HN Management Holding, Inc. (HNMH). To accomplish the purchase, HNMH was incorporated in Delaware and all its initial shares were made available to 33 Health Net directors and executives. In March 1991, the conversion proposal was submitted to the California Department of Corporations (DOC), the agency that regulates HMOs. The proposal called for the founding of a nonprofit public benefit foundation that would be called Health Net Foundation for Wellness Education. As required by DOC, Health Net was evaluated and its value was estimated at $108 million by an investment banker engaged by the DOC.

From March through May, certain members of Health Net management and legal counsel met on various occasions with the DOC, responded to DOC requests for additional information, amended the conversion proposal to update information, and attempted to reach agreement with the DOC with respect to the structure of the conversion and the fair market valuation of Health Net.

After a newspaper article made the conversion proposal public in May 1991, Health Net received a shower of unsolicited proposals to acquire, merge with, or assist it financially. One offer came from QualMed, a Colorado-based HMO that challenged the initial evaluation with an offer to buy it at a significantly higher price. When Health Net's board rejected the proposal, QualMed filed a lawsuit in October charging, in effect, that as the highest bidder, it should be allowed to buy Health Net. Health Net retaliated by filing a cross-complaint claiming that QualMed among other things was trying to acquire Health Net in a process not open to an outside bidder.

The DOC approved the conversion in February 1992. By that time, Health Net's value had been raised to $300 million, partly as a consequence of efforts by Consumers Union and the California Medical Association, which had argued that the HMO had been undervalued at $108 million. However, the 33 top managers and directors had succeeded in purchasing what ultimately amounted to 20 percent of HNMH stock valued at $1.5 million. Four years later, in 1996, the stock was valued at $185 million.

As for the new foundation, the DOC-approved conversion order required that:

The foundation received no funds from any other source. However, the foundation came close to losing a portion of the 7,640,000 shares of HNMH stock, worth about $75 million, which it had received as part of the conversion order. This came about when, the day after the conversion order was approved and pursuant to an employee share incentive program contemplated by the conversion order, HNMH issued the shares principally to the 33 insiders who had been beneficiaries of stock when HNMH was formed. The effect of such a new share issuance reduced the 80 percent shareholding of the foundation to approximately 72 percent. Many months later, upon learning that this had taken place, the DOC ordered HNMH to rescind the shares to the insider group or risk cancellation of the conversion. The DOC position was that it had intended in the conversion order that such employee shares were to be issued only to new employees. HNMH capitulated to the DOC threat and rescinded the share issuance but promptly filed suit against the DOC, claiming that it had acted beyond its jurisdiction. The suit was dismissed on summary judgment, and the Foundation's shareholding equity was unconditionally returned to the original 80 percent level.

The Foundation's ability to become financially capable emerged from circumstances initially set by the conversion process, which gave the Foundation a mixture of equity, cash, and promissory notes rather than cash alone. According to Judith Bell, a Consumers Union representative who worked on the conversion in 1992, that settlement set a precedent that became a watershed for conversion settlements everywhere. It demonstrated a means of maximizing Foundation benefits as the stocks received in the conversion process began to grow in market value.

TCWF profited substantially not only from the HNMH stock received as a result of the conversion but also from subsequent transactions involving Health Net's parent. The litigation between QualMed and Health Net/HNMH continued and expanded after the conversion, involving senior management of Health Net and, in part, TCWF. TCWF's attorney in that litigation, who was the immediate past attorney general of California, was able to persuade the court to remove the Foundation from the litigation, except as an "interested party." However, the litigation between Health Net and QualMed proceeded through 1992 and half of 1993 as senior members of the companies met periodically to explore the possibility of a merger. Finally, a merger occurred in early 1994, the combined company being named Health Systems International Inc. (HSI). As a result of the merger, TCWF held Class B non-voting common stock of HSI, representing approximately 52 percent of the equity of the combined company. A second merger occurred in April 1997, at which time HSI merged with Foundation Health Corporation to create Foundation Health Systems (FHS). It was headed by Malik M. Hasan, who had been board chairman of QualMed at the time that company attempted to buy Health Net in 1991.

Following the merger that resulted in FHS, the Foundation held approximately 25,000,000 shares of FHS stock, representing a majority of the Foundation's assets. Since shortly after the 1992 conversion, the Foundation had been in negotiation with management of HNMH from time to time for the right to commence to reduce its shareholdings in that company, since these represented an inordinately large proportion of the Foundation's asset base. Not surprisingly, the Foundation's board had determined that it was in the best interests of the Foundation to diversify its portfolio as soon as possible. However, one of the 1992 conversion documents imposed serious constraints on any stock sales by the Foundation prior to the end of 1998. The principal constraints prohibited TCWF from selling or transferring any of its FHS shareholdings except to the extent approved in the 1992 agreement, which required that sales or transfers be offered first to FHS. The number of shares the Foundation could offer each year was limited. TCWF could not, without FHS consent, sell any shares to any third party who would hold more than 20 percent of the outstanding voting shares of FHS.

These negotiations eventually resulted in a suit by the Foundation to enforce its stock registration rights in the 1992 agreement. The litigation was settled, and the Foundation received a supplemental Registration Rights Agreement in 1995. This agreement provided the Foundation with the right to require FHS to undertake two public offering registrations. The Foundation sold 6,300,000 shares in a public offering in 1996; 4,550,000 shares back to the company in mid-1997; at approximately the same time, an additional 3,000,000 shares to institutional investors through an investment banker in a private placement. Since then, an additional 6,700,000 shares have been sold through various investment bankers. That leaves the Foundation with approximately 5,047,000 shares of FHS, representing only about 5 percent of the Foundation's asset base as of late 1998. The aggregate of these sales has resulted in proceeds to the foundation of $573,384,086.

TCWF Begins Operations

In May 1991, prior to the conversion order, the name of the proposed foundation had been changed from the Health Net Foundation for Wellness Education to The California Wellness Foundation in order to reflect its lack of connection with Health Net. In due course, it qualified as a conventional private nonprofit 501(c)(3) foundation governed by articles and bylaws. According to Russel Kully, the Foundation attorney, Health Net alone––supervised by Roger Greaves, president, chairman, and CEO of the HMO at that time––structured TCWF using Health Net's own management team and counsel. Yates credits Greaves with the foundation's emphasis on broad health promotion and disease prevention as its reason for being. As head of Health Net, Yates says, Greaves had pursued the same goals for the HMO prior to its conversion from a nonprofit entity. "That is why the foundation has its focus on prevention," Yates says.

Kully says it was "unwise" for Health Net to have used its own management members and counsel to establish and structure the new foundation, because of the possibility of conflict of interest. However, he says, the Foundation has since kept Health Net and its parent company at "arm's length," primarily because it at all times intended to be independent of them, particularly owing to its large holding in the public parent, HNMH.

When TCWF was funded in 1992, its $300 million endowment was the largest in the state to result from a health conversion. "If we were to be created today when our assets are $1 billion," says Yates, who was the second senior officer to be hired, "there would be more discussion about the form and shape of the foundation than there was in 1991 and early 1992."

TCWF's first president and CEO was Howard A. Kahn, who had formerly headed a successful pilot program that involved managed care and Medicaid in San Mateo. After conducting a national search, the board appointed Yates president and CEO in 1995.

Greaves selected the members of the board and was himself on the board the first year. He also played a major role in drafting the mission statement that is in the foundation's charter. By June 1992, the board had determined that its first initiative would be violence prevention. No other initiative was proposed at this time, according to Yates, and Greaves played no role in proposing grant-making areas.

The Mission

The mission of the Foundation is to "improve the health of the people of California primarily through making grants for health promotion, wellness education, and disease prevention programs." The Foundation board has developed four main goals in pursuing its mission:

From its beginnings, the Foundation has recognized the central role of government in the health of Californians. It has considered the public policy focus as an important base for its grantmaking, using it as a guidepost against which to assess potential projects before grants are made in that area. Examples of public policy-oriented projects include a public education grant to provide information about the proliferation of handguns and violence against youth and a grant to educate the public about a ballot issue that would have weakened state tobacco control laws protecting the public's health.

The Foundation Board

The first board of eight directors was selected for terms of up to three years. The directors then in office are empowered to elect their successors. The principal role of the board is to establish the overall goals, directions, and priorities for Foundation programs and to ensure that they are being pursued in the most effective and efficient manner. Board members are required to protect board objectivity and impartiality by maintaining an "arm's length" distance from (1) the design of specific initiatives, the preparation and submission of specific proposals, the review of proposals, and the review and oversight of funded projects; and (2) foundation-related activities of prospective or actual foundation grantees.

Each director may, but is not required to, authorize discretionary grants, within the Foundation's health mission, of up to $100,000 during each fiscal year, without further action by the board unless there is an identified conflict of interest arising from an existing relationship between the designating director and the proposed grantee. In such cases, the grant does come before the board for review, with the director in question excused from the discussion and vote.

In the beginning, TCWF's board of directors was characterized by a high concentration of professionals in public health and health administration in both academia and the business world. The presence of a number of representatives from academia on the original board resulted in an emphasis on the inclusion of academic research in most of its grants. This caused some tension for community-based organizations who were forced to work with academic institutions. Also, no one on the original board had previous experience with philanthropy, and, as a result, a lengthy board development process ensued during which members grappled with deciding appropriate roles for themselves and staff. Of the eight members on the 1993 board, three were professors of public health or medicine at major California universities, one was a former state health official, two had been executive officers of large health plans, one was group insurance manager at a large corporation, and one was a former president of a national health organization. The impact of their philosophies is evident in the broad scope of issues the board chose to emphasize in grantmaking.

The ethnic and cultural diversity of California is reflected in TCWF's current 10-member board of directors, four of whom are female. The present board reflects the same broad academic and business expertise as the first board, although current board members also possess extensive experience in fields such as adolescent health, juvenile justice, community clinics, and philanthropy––areas of expertise that the first board lacked. Other than Greaves, no other Health Net officer has been a Foundation director.

Definitions of Wellness, Health Promotion, and Disease Prevention

The board chose to define wellness as "the state of optimum health and well-being that is achieved through the active pursuit of good health and the removal of barriers, both personal and societal, to healthy living. Wellness is more than the absence of disease; it is the ability of people and communities to reach their best potential in the broadest sense."

The definitions of health promotion and disease prevention were adapted from "Healthy People 2000: National Health Promotion and Disease Prevention," a publication of the U.S. Department of Health and Human Services. Health promotion is defined as "an array of strategies related to individual lifestyle––personal choices made in a social context––that have a powerful influence over one's health prospects. Health promotion is accomplished through educational, workplace, and community-based programs that address lifestyle options in a crosscutting fashion."

Disease prevention generally refers to "care or services provided to prevent illness, such as counseling, screening, immunization, or chemoprophylactic interventions. In the broadest sense, prevention services prevent the premature onset of disease, disability, and mortality. Access to preventive programs through health and human service practitioners and in one's community and workplace is of utmost importance."

Grant-making Priorities

At its first meeting, the board of directors charged the staff with the task of coming up with ideas the board might consider for grantmaking. The methods used were (1) to convene a group composed of scientists, community health leaders, and representatives of the health department, clinics, and hospitals; (2) to review the literature; and (3) to conduct focus groups around the state asking for salient health issues in local communities. Focus groups were held in Sacramento, San Francisco, San Diego, and Los Angeles, and all of them were composed of staff and clients of community-based health providers and clinics. Issues were identified from these conversations, and background papers were prepared by outside consultants and presented to the board.

TCWF generally supports organizations located in California and projects that directly benefit California residents. National organizations providing services or performing work that might affect the health of Californians also are considered. With rare exceptions, TCWF funds nonprofit organizations that are exempt under Section 501(c)(3) and not defined as "private foundations" under Section 509(a). It sometimes funds government agencies. It typically does not make grants for annual fund drives, building campaigns, major equipment, or biomedical research. Activities that exclusively benefit the members of sectarian or religious organizations are not considered.

The conversion order for the Foundation directed that every year, to the extent practical, a minimum of 50 percent of grants go to fund direct service programs, but this figure has been exceeded in some years. For example, in 1996-1997, 70 percent went to such programs. The Foundation defines direct services as the provision of health-related services directly to individuals or groups of individuals for the purpose of health promotion and/or disease prevention. The Foundation solicits grant proposals in each of its priority areas and selects those that best meet the goals and obligations of TCWF. They can include––but are not limited to––prenatal care, immunizations, health screening, contraceptive provision and family planning, outreach, case management, counseling, social work services, mentorships, and health education services. According to Yates, most of the ultimate recipients of the direct services have been either low-income or indigent.

Establishing the Grant-making Priorities

In March 1995, after two years of discussion and experience gained during early grantmaking, the board decided to focus its efforts on five priority areas. Each of these areas would be composed of strategic proactive initiatives and a small general grants fund for responsive grantmaking.

To develop and implement strategic grantmaking initiatives, the Foundation (1) identifies the most significant health challenges facing California and articulates specific goals to be pursued; (2) formulates strategies that, in its view, represent the most effective means of addressing those challenges; (3) actively seeks collaborators with whom to work in implementing those strategies; and (4) manages the initiative in such a way as to facilitate the work of its separate elements and to ensure that they are integrated into a coherent whole.

The board decided which areas would become strategic initiatives by utilizing the list obtained as a result of the community focus group meetings held earlier. The five initiatives bear a strong resemblance to the topics funded during the first several years of operations––maternal and child health, community health, adolescent health, integrating wellness into delivery systems, and work site health promotion. These topics were the seeds from which the five initiatives that are now the Foundation's main focus emerged. Other topics that were considered included health of the elderly, AIDS and HIV, women's health, prenatal care, children's immunization, and tobacco control.

In 1998, the Foundation was concentrating the majority of its grant efforts on the following five initiatives: Children and Youth Community Health, Health Improvement, Violence Prevention, Teenage Pregnancy Prevention, and Work and Health. In each case, the initiative has been designed to focus Foundation resources long enough to achieve a measurable impact. Commitments range from $20 million to $60 million each, over a period of five to 10 years.

To alert the communities, requests for proposals on a competitive basis are sent to organizations around the state for different components of the initiatives. The proposals are reviewed by the staff program officers for each initiative and by external panels that read and score each proposal. A decision is made about how many proposals will receive a site visit, and the program officer determines which proposals will be recommended to the board for funding.

The board decided that initiatives would follow these guidelines:

In addition, to respond to unsolicited proposals from nonprofit organizations that are not part of the initiatives, a general grants program within the five priority areas also is offered.

The Initiatives

Violence Prevention Initiative

Violence in America is a major public health problem. Statistics show that California leads the nation in absolute numbers of homicides and has higher rates than the national average for both homicide and suicide. In the majority of these cases, firearms are the instruments of death, and youth the main victims.

The goal of the Violence Prevention Initiative is to improve the health and wellness of Californians by reducing violence against youth. In accomplishing this goal, the Foundation intends to:

The Foundation and other philanthropies have supported the initiative with $35 million in grants from 1993-1998. The Foundation recently authorized an additional $30 million over the next five years. Two of the original collaborating foundations are continuing their collaboration, and a new co-funder, The California Endowment, has committed $5 million to the effort.

Stanford University's Center for Research in Disease Prevention and RAND have been competitively selected to plan and implement a five-year evaluation of the initiative.

Children and Youth Community Health Initiative

The goal of the Children and Youth Community Health Initiative is to improve the health and wellness of all Californians by actively engaging children and youth in the transformation of their environments. To do so, the Foundation:

Community action grants are the heart of the initiative. Young people will design "wellness villages" in which youths will work with adults to actively improve the health and wellness of their neighborhoods by transforming environments.

TCWF is providing $20 million in long-term grants for the years 1997-2001. Imoyase, a private Los Angeles-based evaluation firm, is conducting a five-year evaluation of the initiative.

Health Improvement Initiative

The Foundation believes that improving the health of Americans involves more than medical care. It is necessary to expand the commitment to other determinants of health such as biology/genetics, the environment (both social and physical), and behavior/lifestyle.

The goal of the Health Improvement Initiative is to enhance population health by:

The Foundation will support the initiative with $20 million in long-term grants over the period 1996-2000. A five-year evaluation of the initiative conducted by the Group Health Cooperative of Puget Sound is currently under way.

Teenage Pregnancy Prevention Initiative

California leads the nation with its teenage pregnancy rate. However, TCWF staff points out that many California teens demonstrate responsible sexual decisions by effectively using contraceptives to prevent thousands of pregnancies.

The mission of the Teenage Pregnancy Prevention Program is to improve the health and wellness of Californians by promoting adolescent sexual health and reducing teen pregnancies. TCWF intends to:

TCWF will support the initiative with $60 million in grants during the period 1995-2005. Philliber and Associates is conducting an evaluation of the entire initiative as well as assessing the effectiveness of the individual components.

Work and Health Initiative

A growing research base indicates that many aspects of work and health are connected. Health status improves with each level of income and with access to health insurance. The unemployed have the poorest health status, and the recently unemployed are much more likely to have poor mental health and substance abuse problems.

The mission of the Work and Health Initiative is to improve the health and wellness of Californians by:

In accomplishing this mission, the Foundation intends to:

The Foundation will support the initiative with $20 million in long-term grants during the period 1995-2000. Evaluation of the initiative will be conducted by Claremont Graduate School.

General Grants

Approximately $5 million of the Foundation's annual grant-making funds are allocated through the General Grants Program to respond to unsolicited projects that fall within the Foundation's funding priorities. This allows the Foundation to be responsive to community service providers who are not funded by one of the initiatives. The purpose of the program is to provide an opportunity for organizations in California to apply for funds to pursue programs in the field of health promotion and disease prevention that improve, expand, or continue existing strategies. Preference is given to proposals that request core operating support for organizations that provide preventive health services to disadvantaged populations.

1997 Grant Example: A $100,000 two-year grant was awarded to the California Adolescent Nutrition and Fitness Program to strengthen its capacity to help community-based youth service organizations involve young people in promoting healthier lifestyles among their peers.

Special Projects Fund

The Foundation sets aside several million dollars annually to exploit, rapidly and flexibly, special situations and challenges that arise involving health promotion and disease prevention issues and to support particularly innovative ideas and projects. Yates considers this fund to be an essential component of TCWF's grant-making program. Rather than being locked into the five priority areas, the Foundation feels it has the flexibility to use approximately $7 million to $9 million annually for emerging issues or new opportunities in health promotion and disease prevention. This flexibility allowed it to respond to federal devolution with a strategic grouping of grants, Yates says.

1996 Grant Example: $8 million was awarded to community clinic consortiums in seven counties to help them adjust to the changing health care environment due to a requirement that Medicaid recipients in 12 counties enroll in managed care plans.

Geographic Focus

On occasion, the Foundation may participate in national projects that represent unusual opportunities to obtain knowledge and data relevant to the health of Californians. Decisions concerning such participation will be based on a set of strict criteria concerning the significance of the work to be done; the likelihood that the information obtained will be relevant to, and benefit, the health of the people of California; and the involvement of other funders.

1997 Grant Example: $100,000 was awarded to the National Academy of Sciences to disseminate information about the health of California's immigrant children and families.

Evaluation

In the beginning, every Foundation grant included some level of evaluation intended to help the grantee and the Foundation learn about what works and what does not. Special care was taken by the staff to ensure that the evaluation component of each grant was appropriate in terms of the size of the grant, the goals of the work being undertaken, what it was that the grantee and the Foundation were trying to learn, previous experience with the intervention being assessed, and the potential for replication. As time has passed, the Foundation has streamlined the evaluation process in some of its grantmaking. For example, TCWF considers it sufficient evaluation to review the reports from the grantees of certain kinds of projects. For family planning or immunization grants, the Foundation already knows the expected effects and therefore needs only to be told how many people were seen how often and what services were delivered.

The five initiatives are each evaluated by an independent evaluator. Regular reports are sent to the Foundation co-funders and grantees so that they may get a sense of what is and is not working and can use that information to strengthen their program. The Foundation also uses the information from these reports to refine its grant-making approaches. For example, an evaluation of the Violence Prevention Initiative performed after its first three years revealed that not enough technical assistance was built into community projects. To correct this, funding for technical assistance was increased fourfold for the second phase of the initiative.

Final evaluation reports for each of the initiatives will assess the impact on the health problems addressed by the grantees. These findings will be disseminated to co-funders, grantees, other foundations, health care providers, policymakers, and opinion leaders. The Foundation not only intends to strengthen its approach and the work of its grantees during the life of each initiative but also to add to the knowledge base in the field.

Although not required, the Foundation publishes an annual report that describes grant-making programs and goes to every member of the state legislature, congressional representatives, top state and county government officials, and 3,000 nonprofit organizations. It also holds public forums and publishes a quarterly newsletter that contains information about the priority areas for grantmaking and human interest stories about individuals engaged in various projects.

Capacity Building

TCWF has concentrated on strengthening the internal capabilities of the nonprofit organization grantees that provide preventive health services. The need to do so became more crucial during the mid-1990s, when federal health funds that had been awarded directly to community agencies were reduced and given to the states for dispersal. This change, Yates says, produced a radical departure from the traditional financing of health care and other human services and resulted in large gaps in services for the poor and disadvantaged. As a consequence, a Foundation report said, the federal government was "no longer . . . assuming the role of discovering problems in our society and providing dollars to address them, a role first taken [by] the New Deal in 1936."

Yates says that in California the funding change has most seriously affected community clinics that now receive fewer government dollars than they did previously. In addition, community clinics were stressed by the advent of managed care and the increased competition from for-profit organizations that resulted when managed care took over Medicaid in California.

Recognizing the impact of this sudden change on large numbers of Californians, the Foundation began to provide grants in 1996––through its Special Projects Fund––directed at promoting careful collaboration between state government and counties, business and workers, nonprofit agencies and for-profit health care providers. That year, it awarded 21 grants statewide, totaling more than $12 million, to help strengthen traditional safety net providers and inform low-income people throughout the state about how to access new health services.

Subsequent evaluation of the grants has shown that they made a dramatic impact, according to the Foundation. Community clinics, which faced unprecedented challenges from for-profit organizations, have successfully used organizational and marketing assistance to gain a share of the managed care market. At the same time, they have used TCWF funds to provide preventive health services to thousands of indigent Californians.

Looking Back

Looking back over TCWF's short history, Yates views one of the Foundation's earliest and most significant challenges as the mandate by regulators that the Foundation make $12 million in grants its first year. The board had not had a chance to determine the Foundation's focus, and staff had not been hired or trained, but $12 million in grants had to be made. A while later, when the QualMed merger took place and Foundation assets suddenly doubled, the challenge was to dramatically increase the grantmaking while at the same time hiring new staff and maintaining quality. Yates said that new foundations would do well to set aside their first year to be spent on board development, strategic planning, and hiring and training the staff (TCWF's employees now number 46) before attempting to carry on with strategic grantmaking.

Because a major tenet of TCWF's effort is to influence public policy in matters that affect the health of Californians, it has twice shown an interest in ballot issues. The first time was when the Foundation provided a grant for a $4 million public education campaign that served to inform the public about a tobacco-sponsored ballot initiative that would have weakened tobacco controls in California. The second time was in 1996, when an initiative proposing to abolish affirmative action appeared on the ballot. In May of that year, an article in the New England Journal of Medicine concluded that the health of minority communities might be negatively impacted if affirmative action was ended. The Foundation conducted background research on the health connection and decided that it was insufficient to allow a grant to be made within its charter.

In the spring of 1998, an article in a publication of the California Medical Association questioned the connection between health and the Foundation's Violence Prevention Initiative and a small number of other TCWF grants. This article, and similar criticisms in the general media directed at several other HMO conversion foundations in California, prompted the attorney general to conduct a review to determine whether their grants were in keeping with their respective charitable responsibilities as defined in the conversion documents and approved by the Department of Corporations. There have been no results of the review as of late 1998, but most observers believe that TCWF's grant-making record is within its mission as stated in its charter.

In September 1998, the board began to take a close look at the Foundation's strategic grant-making plan––which currently divides its grant money into initiatives, general (or responsive) grants, and special projects that are in effect through 2000––in an effort to determine the Foundation's direction after the year 2000.

"Where we will go, we don't yet know," says Yates. "Our priorities and grant-making plan may be just as they are today, or it may be completely different. We won't know for several years."

TCWF Profile

The California Wellness Foundation was founded in 1992 following the conversion to for-profit by Health Net, one of California's largest HMOs. The Foundation's mission mandate was to improve the health of Californians. This mission, as well as the organizational structure of TCWF as a nonprofit public benefit corporation, was the work of Health Net's management staff and counsel. The HMO's chief executive selected the original board of directors and was himself a director during the first year of operation. Despite Health Net's significant early involvement with the Foundation, according to Foundation officers, the original Foundation board, consisting of professionals in public health and business, successfully separated TCWF's interests from those of Health Net and independently determined funding targets and grant-making policies. The board was the sole manager of assets and set the standards of conduct and behavior and conflict-of-interest rules for the board and staff.

Health Net's conversion and the creation of TCWF received state approval following prolonged negotiations with the state regulatory agency and legal battles between Health Net and several for-profit health plans that sought to buy Health Net. Consumers Union took part in public hearings that resulted in Health Net being valued at $300 million instead of the $108 million originally estimated by Health Net. TCWF's start-up assets benefited as a consequence.

TCWF, now valued at $1 billion due in large part to the growth in value of stock it received as a result of the conversion, directs the majority of its funding to support five priority areas dealing with long-term commitments to child and youth health issues, assistance to resolving community health clinic problems, and health and the workplace. Grantees for initiatives in each of these areas are solicited through competitive requests for proposals and receive approximately 70 percent of the annual funding. The remainder of funding goes to unsolicited projects and special situations that arise pertaining to health promotion and disease prevention issues. The five priority grant-making targets have remained virtually the same since the beginning, as have the proactive mission and structure of the Foundation. The Foundation addresses public accountability by means of standard government reports, the publication of annual reports, a Web site, and widely distributed newsletters and publications. Foundation officials advise newly formed foundations to spend their first year developing the board, selecting and training staff, and integrating the work force before attempting to fulfill grant-making obligations.
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