Sierra Health Foundation

In California in 1983, health care delivery was undergoing many changes: health care costs were rising by 25 percent a year, newly authorized preferred provider organizations were popping up everywhere, and, that spring, the first in a series of initial public stock offerings of HMOs had occurred. One of the players in this unsettling environment was Foundation Health Plan (FHP), a Sacramento-based nonprofit HMO founded by physicians in 1978. It became the first independent practice association (IPA)-type HMO to be established in California. (Use of the term FHP in this paper should not confuse the reader with another HMO based in southern California formerly known as Family Health Plan, sometimes also referred to as FHP.)

FHP's management recognized the changes in the health care delivery scene and began to analyze and evaluate its status as a nonprofit organization. Competition and the cost of provider services were increasing, and as a nonprofit, the only vehicle for increasing the capital base would have been to go into debt. In July of 1983, FHP's board of directors elected to convert the HMO to a for-profit status, expand the capital base, and ride the economic wave. One result of the conversion was the creation of Sierra Foundation for Health, as it was called originally, a nonprofit charitable organization dedicated to "fund and support the health and health-related needs and concerns of the public."

Today, the assets of the Sierra Health Foundation, as it is now known, total $153 million. Since 1985, the Foundation has awarded 1,286 cash grants totaling $40.6 million to 549 different organizations. Although it possesses a smaller endowment than California's three giant statewide health foundations created from health plan conversions during the 1990s, Sierra devotes itself to a single region of the state. Its service area comprises 26 counties in northern California. The region consists of vast agricultural, cattle-raising, and forested mountain land containing many of the state's scenic wonders as well as Sacramento, the state capital. Eighty percent of the region's population of 4 million live in the Greater Sacramento area, which receives a major share of Sierra's $6 million annual grant-making budget. Most of the rest of the region's population live in small towns and farming communities. The special health needs of these communities are similar to those that characterize rural areas across the country.

"Our funding is driven by what we see in the field," says Len McCandliss, Sierra's president. "We rely on community input to determine needs and propose solutions." Sierra measures community needs in some instances by market research and in others by staff contacts with nonprofit organizations and health leaders, but the goal is always the same: to learn what the community feels would improve health and then help it to meet those needs.

In the beginning, grantmaking concentrated on grants to charities for capital, land purchase, building construction, equipment, and general operating costs. Since 1995, however, the Foundation has focused on new grant-making methods that concentrate on larger efforts, some in collaboration with other foundations. For example, Sierra's Community Partnerships for Healthy Children is a 10-year initiative that focuses on improving the health of families and their children from birth through eight years; the Conference Program offers the use of the Foundation's new headquarters as a meeting space for outside organizations dealing with health issues; and a Managed Care Program focuses on convening activities among health industry leaders and consumers, promoting dialogue and education about specific issues of concern. Approximately 90 percent of Sacramento's insured population are in some form of HMO or managed care.

Two recent projects funded by the Foundation have attracted national attention. Agencies from some 30 states have asked for information about its ECHO (Extreme Care, Humane Options) project, which is aimed at ensuring that area residents receive humane care at the end of life. The California State Public Employees Retirement System (CalPERS) is recommending that health care groups in the state adopt ECHO guidelines.

The Health Rights Hotline has also received widespread attention. This ombudsman program is the first independent service in the nation to help consumers in four counties work through problems they are experiencing with their health plans and navigate the managed care system. Sierra's funding partners in this effort are The California Wellness Foundation and the Henry J. Kaiser Family Foundation.

Dorothy Meehan, Sierra's vice president, says that the new and growing health philanthropies in California could influence the direction of the Foundation's future grant-making goals. The challenge is to determine what role the Foundation should play in larger statewide or national issues. "Although many of the problems may be regional in nature, solutions may be statewide or national," Meehan says.

Using an analogy from the sport of running, Meehan says that in the past the Foundation was doing a sprint, running alone, and concentrating on single issues. "Now," she says, "it is running in a cross-country marathon that is making a long-term commitment to communities." Coordinating commitments of multiple funding is a challenge, as is monitoring others' activities to minimize duplication of effort.

According to McCandliss, the challenge posed by the abrupt appearance of the three new wealthy health foundations in the region is causing Sierra to look carefully at its grant-making focus. One issue is how Sierra can best employ its assets in a field where the combined assets of the three other foundations total nearly $4 billion. With 12 percent of California's population, Sierra's 26 counties could potentially receive $30 million annually from the big three. "That makes us want to take a second look at the kind of impact we want to make," McCandliss says. "We scope a grant at $40,000; they fund it at $250,000."

One possible approach could be for Sierra to concentrate on a smaller geographic area. Another is to become more focused and do niche funding. The board is scheduled to look at all alternatives.

Policymakers in general see Sierra as a stable, well-managed organization dedicated to its community and cautious about political involvements. The major newspaper has been uncritical of its efforts. While some see Sierra as lacking dynamic spirit, Sierra is recognized as the major power among private funding in the region.

FHP was the first IPA-type HMO in California. Previously, the physicians who created it with a federal grant had been associated with the Medical Care Foundation of Sacramento, which had been founded in 1965 by the Sacramento County Medical Society in response to the arrival in the city of the Kaiser Health Plan.

FHP membership grew until 1982, when a new state law sanctioned the formation of preferred provider organizations (PPOs). The effect on the health care marketplace was electric. George Deubel, FHP's chief executive officer at the time, recalls that when the board decided to convert to for-profit status, he "did not want to give [Governor] Jerry Brown and the state of California the money we had generated or the assets of the corporation. We looked at other alternatives and we decided to form our own foundation, which we wanted to be independent. But at least it would be set up under our own criteria. . . ."

Deubel said that he made most of the decisions about the conversion during the dealings with the Department of Corporations (DOC), the state agency that had been created to regulate HMOs. The department had never done an IPA-HMO conversion before, he said, and instead of decisions being made by the DOC's top-level people, they were made by a lower level of the DOC. "It was more a matter of negotiating than a matter of following state policy," he said.

One month after deciding to convert to for-profit status, FHP's management had ready a summary of its planned conversion. The key points were:

Subsequent negotiations between FHP, the DOC, the Securities Exchange Commission (SEC), the federal Office of Health Maintenance Organizations (OHMO), and the California attorney general resulted in a conversion process similar to that proposed by FHP management, although the agencies made some changes that ultimately benefited Sierra.

The value of the assets in Sierra's possession depended on the value of FHP. To set that value, FHP had submitted its estimate to the DOC in October 1983, based on its June 1983 audited year-end financial statements. Utilizing valuation methods that included the book value, adjusted book value, capitalized earnings value, book-compared-to-market value of public companies, and the goodwill value, FHP determined the fair value to be $10,618,000.

An FHP internal document states that "the DOC did not request a change or revision in management's appraisal of the fair value of [the] Foundation and did not request an independent appraisal of [the] Foundation." FHP nevertheless retained Bank of America to provide an opinion of the fair market value of AmeriCare. The estimate was $19 million. FHP's records state that "this valuation emphasized the growth potential of [the] Foundation and the 'public market' premium for shares of publicly traded similar businesses."

It was planned that Sierra would receive about $6 million from the sale of AmeriCare stock upon completion of the conversion. But upon reading the proposal, the DOC wanted assurance that Sierra would receive cash over a period of time for its charitable operations in case AmeriCare's stock offerings were delayed. FHP agreed to meet the DOC's concern by guaranteeing that Sierra would receive a minimum of $10,618,000 over a period of time. Substantial negotiations then took place between FHP and the DOC over the terms of the guarantee of value agreement. Ultimately, FHP agreed to pay Sierra $1 million in cash at the date of conversion. Sierra also received all the issued and outstanding shares of FHP stock and subsequently exchanged those shares for all the issued and outstanding stock of AmeriCare. Sierra was also guaranteed to receive an additional $9,618,000 in cash, plus the fair value of marketable AmeriCare shares in its possession over a period of 10 years. The value of the shares to be redeemed was to be determined annually by appraisal.

Because FHP was a federally qualified HMO and was a recipient of a direct loan commitment, it was required that the Office of Health Maintenance Organizations be notified. OHMO approved the conversion and the assumption by the for-profit FHP of the nonprofit HMO's loan commitment and required AmeriCare to guarantee that assumption. The federal loan was subsequently paid in full by AmeriCare.

At the time FHP filed its conversion proposal to the DOC in late 1983, the attorney general's approval was exercised concurrently with the DOC's in the case of health plan conversions. However, the DOC did not approve the conversion until January 1, 1984, at which time separate attorney general approval would have been required. No such separate approval was obtained. Internal documents say this was because it was understood that the attorney general's office had already approved the conversion process in concept.

AmeriCare applied to the SEC on March 26, 1984, for approval to register 3 million shares of common stock, 1 million shares to be offered for sale to the physicians who were in the nonprofit HMO, and 2 million shares as bonus shares and incentive stock options to management.

A history of the events as they occurred reveals that the value of AmeriCare stock increased over time, resulting in a significant increase in the assets Sierra eventually received. The final assets were the result of a series of stock transactions that took place following the conversion approval. Pertinent dates in the history of FHP and Sierra as well as a chronology of important dates during which stock transactions took place are recorded in Table 1.

Table 1: A Chronology of Events
5/20/75	FHP is incorporated.
1/13/84	AmeriCare is incorporated.
1/31/84	Sierra Foundation is incorporated.
2/3/84	FHP is converted to for-profit status. FHP transfers $1 million cash and 100 percent of its stock to Sierra. Sierra transfers 100 percent of FHP stock to AmeriCare for 100 percent of AmeriCare stock.
9/4/84	Sierra's board becomes composed entirely of independent directors; Sierra's board approves stock compensation and option plans.
2/85	AmeriCare calls all outstanding, callable options. AmeriCare registers the Restricted Stock Purchase Plan with the SEC. AmeriCare redeems $600,000 worth of stock held by Sierra.
3/14/85	AmeriCare stock splits 2.5 for 1.
3/15/85	Sierra files request for exempt status.
5/85	AmeriCare registers its stock with the SEC and makes initial public offering.

As a consequence of the above stock transactions, Sierra received a total of $77,975,000. The shares are restated here to reflect the stock split of March 14, 1985. The breakdown was as follows:

In December 1985, nearly two years after the conversion, the Consumers Union petitioned the DOC to adopt emergency regulations providing for an immediate moratorium on the conversions of all nonprofit health care service plans in California. It also asked for notice hearings for the adoption of formal regulations governing the conversion and valuation of all nonprofit health plans and a reopening of FHP's conversion. The DOC responded by issuing a statement that "sufficient regulations" already exist.

According to Len McCandliss, who became Sierra's first employee, president, and CEO in 1985, a prime goal of the Foundation at the beginning was to establish its credibility, its independence, and its perception by the community as an independent foundation. The Foundation's Articles of Incorporation stated its purposes simply: "to fund and support the health and health-related needs and concerns of the public." The Foundation is defined as a "nonprofit public benefit corporation whose assets will not inure to the private benefit of any individuals; upon dissolution, its assets are irrevocably dedicated to nonprofit funds, private foundations, or other 501(c)(3) charitable corporations."

George Deubel is credited with defining the Foundation's mission and the structure set by the bylaws. The mission statement required that two guidelines be followed. One was that funding be in the area of health and the other that the distribution of services had to be in northern California.

The original bylaws stipulated that Sierra would have seven directors and that three of the initial directors "shall be appointed to the board by the incorporators and shall be eligible for reelection without limitation on the number of terms they may serve." Deubel and two physicians who had been on the board were the three selected. The other four were to be members of the community who had an interest in health but no financial interest in FHP. Each director could hold office for six years and until a successor director had been elected. Eight community organizations were named to make recommendations for the four community slots. According to an internal Sierra document, the DOC would not allow the conversion to occur until the initial four community members had been selected. No more than three directors were allowed to serve concurrently on either the FHP board and/or the board of AmeriCare, which owned FHP after the conversion. FHP was prohibited from soliciting funds, either directly or indirectly, from Sierra.

To avoid conflict of interest, the three former FHP directors on the Sierra board left the board during the period of the stock sales, but two, including Deubel, returned in 1987 and remain on the current board.

Sierra papers dated November 25, 1983, prior to the conversion approval, indicated the Foundation's interest in topics such as prevention and early detection of disease, health care for the elderly, the study of alternative health care delivery systems, and studies to evaluate the problem of access to health care in rural areas. A section outlining future grant distributions included financial support of health and medical research and development; support and sponsorship of studies, conferences, and public meetings to analyze and lay the groundwork for future action in the health care arena; grants to individuals with specific objective criteria for research; and grants to support allied professional health education.

McCandliss says the board never spent much time studying the early documents and did not feel bound to their specifics because they were so numerous and broad. He further stated that individual grants in nearly all of these subject areas have been made.

By the end of 1986, Sierra was able to become an independent foundation. This was accomplished by adding four memberships to the board––bringing the total to 11––and by beginning the implementation of the Foundation's mission and determining the territory it wished to serve. The incentive to increase the number of board members came about when the three members who had been FHP officers removed themselves temporarily while the stock was up for sale, leaving only four directors, including McCandliss, to conduct business. McCandliss says they talked to a number of community leaders to get names of possible candidates. They used no specific criteria for the selection.

"We weren't looking for health experts but rather for a combination of people who were smart and interested in our work," McCandliss recalls. They ended up selecting a bioethics professor, a physician, a health policy professional, and a law school dean. Originally, Sierra served only the five-county area comprising Greater Sacramento. In 1987, the board expanded the service area to include an additional 21 northern California counties, excluding the San Francisco-Oakland Bay Area and other counties that border the Pacific Ocean. According to McCandliss, the expansion was necessary so that the Foundation could concentrate its resources on the rural inland counties, which had little or no access to outside private help.

In order to focus on the delivery of care in rural areas, the Foundation found it necessary to determine where patients were sent to receive care for specific medical needs––where the providers were located and what the patterns of patient referrals to the towns and to Sacramento were. A key finding was that Interstate 5, which runs north and south through Sierra's entire region including Sacramento, was like a river along which development occurred and traffic flowed. Sacramento was the focal point. This finding determined the decision to exclude the Bay Area and coastal counties, all of which use San Francisco as their major referral center.

Sierra's grant-making program for the first several years was limited because of the time it took for the stock sales to be conducted, completed, and approved. The early funding efforts were directed at AIDS and at improving prenatal care.

Sierra's first health initiative was ahead of its time. Conceived in late 1987, the initiative awarded grants to agencies involved in providing care to AIDS patients. Sierra was among the very first foundations to support AIDS programs. The decision was prompted by the scarcity of available health services for AIDS and HIV patients in the Foundation's service area, especially in Sacramento, where only one physician in town was treating persons with HIV and AIDS. Over the next four years, Sierra spent $3 million, providing case management services to HIV patients and energizing community advocates in small towns throughout the area. Today those same community agencies manage the state and federal funds that are now available. The Sierra case management grants were completed just as the first Ryan White funding arrived in the communities.

During the same period, Sierra issued a number of grants aimed at increasing access to and utilization of prenatal care to improve birth outcomes in communities where, during the 1980s, many physicians had stopped delivering Medicaid babies because of low reimbursement rates. One of the grants resulted in the creation of a birthing program that has been replicated nationally and was instrumental in reducing premature births among African Americans in Sacramento by 27 percent. Another effort was to support the training of nurse practitioners in two counties that lacked obstetricians. In one small county where no babies had been delivered for 10 years, Sierra encouraged two physicians to enter practice there by giving them $25,000 for a down payment on a house. One of the physicians supported by Sierra is still in practice there today.

Both the AIDS and the prenatal care projects were selected as a result of a policy instituted by the new board to assure that all the directors shared interest in whatever grant targets were selected. A facilitator consultant was hired to identify the interests of each board member. After a list of interests was compiled, a voting process ranked the ideas. McCandliss says he was "proud" of the board for choosing AIDS, a topic that was unpopular at that time. The selection of prenatal care as the board's second initiative was, in a sense, a fine counterbalance to the AIDS choice.

Despite some successes with Sierra's early grant-making efforts, within a few years, the board and the staff felt there was an opportunity for greater impact. "We had the sense that we were putting out $3 million a year with lots of little grants all over the place and not all of them satisfying," McCandliss says.

In 1992, as the AIDS and prenatal care initiatives were winding down, it was decided to commission papers on a wide range of subjects to determine the next focused grant-making effort. The subjects considered included geriatrics, drug abuse, the environment, and children's health, among others. The goal was to implement an approach that would better utilize the assets of the Foundation by focusing more on prevention than costly treatment and by leveraging Foundation grant dollars with other resources of communities with which the Foundation worked.

At that time, Sierra also began to broaden its focus to more social issues––other factors besides health care that have a great bearing on the health of individuals and a community, such as employment, education, and family environment. It began to "look upstream" to discover the root causes of poor health.

After studying the suggested funding areas, the board elected to focus on children. Because it wanted community mobilization to be at the heart of this initiative, the board felt that communities would be most willing to mobilize around children and that the issues of children are often issues of other community members as well.

In order to maximize the impact of Foundation dollars, the focus became very young children, zero through eight years of age. "We switched our emphasis from medical science to social science because we came to the conclusion that we had to get upstream if we were to have a positive effect," McCandliss says. "We could build clinics and provide care, but at the end of the day there would be little impact on health outcomes. The best way, we decided, was to energize the communities to focus on children and to integrate families with everything else taking place in their towns so that less medical care would be needed."

The staff was given the task of identifying potential communities to organize on behalf of children.

Sierra was interested in communities with leaders and community members who had "fire in the belly" for improving children's health. Both traditional and nontraditional approaches were used to identify these communities.

To announce the Community Partnerships for Healthy Children (CPHC) program, the Foundation staff invited community leaders from throughout the region to attend an all-day kickoff presentation held in Sacramento in December 1993. Nine hundred persons attended the session, which produced 63 applications for grants, the majority of which were from rural communities. Sierra had determined that it could support programs in 30 communities. Disappointed by the small urban response, Sierra met with urban leaders to generate 12 additional applicants. At present, 26 projects in 20 counties are under way.

Table 2: Sierra Health Foundation Community Partnerships for Healthy Children Grants Awarded 1993-1998
Fiscal Year	No. of Grants	Amount
1993	1	$10,967
1994	30	$928,849
1995	33	$818,715
1996	45	$2,360,834
1997	33	$1,376,847
1998	47	$4,120,527
Total	189	$9,616,739

CPHC has become one of the Foundation's major initiatives. The 10-year program, now in its fifth year, touches more than 75 communities and represents at least a $20 million commitment. The nonprofit community organization grantees are taken through a progressive grant-making process that begins with the assessment of assets and needs and the building of collaborations. Next, they move into strategic planning; the Foundation then supports the implementation of selected strategies. It is expected that the commitment to each community will be at least six years. SRI International has been commissioned to evaluate the initiative. The California Wellness Foundation funds a portion of the evaluation.

The CPHC Initiative received 56 percent of the $4,310,770 in cash grants awarded in fiscal year 1998.

The Sierra board felt that because of its origins as a health plan, it was time for the Foundation to become involved in managed care activities. In 1995, the Foundation held meetings with insurers, providers, representatives of the uninsured population, and other health leaders to decide how it might direct its efforts. One response was to commission studies to look at the economy, particularly in the Sacramento area, since its health plans had been pioneers in managed care and its insured population was 90 percent covered by managed care plans. Also, the city was small enough to be a manageable laboratory for testing ideas.

In 1997, Sierra commissioned the University of California at San Francisco's Institute for Health Policy Studies to research and publish Health System Change in the Greater Sacramento Area, a report that describes and analyzes the area's health system changes since 1992. Having its headquarters in the state's capital gave Sierra the opportunity to convene legislative staff and regulators as well as hospital and health plan officials centered in Sacramento. Sierra saw its role as bringing the involved organizations together for discussions.

The Foundation also funded and released a book that chronicled how traditional medical care had been supplanted by managed care in the region. A third effort by three collaborating foundations––Sierra, the Henry J. Kaiser Family Foundation, and The California Wellness Foundation––resulted in the creation of an ombudsman project that is the first independent service in the nation to help all consumers navigate the often confusing managed care system. Called the Health Rights Hotline, it has received high praise across the country.

The Managed Care Program received 2 percent of the $4,310,770 in cash grants awarded in fiscal year 1997.

Another current program of the Foundation is the Conference Program, which promotes and supports discussion and education concerning health care issues of importance to many health-related organizations in the region. Although the support for the Conference Program is not a cash grant, the Foundation sees it as a valuable resource to the community. It was made possible by the construction in 1989 of a new $10.4 million headquarters building and an adjacent rental building costing $8.4 million. Revenues from the rental currently provide the Foundation with an annual income of $714,951. The purpose of owning its own headquarters was to signify the Foundation's permanence and add structure to it, according to McCandliss, and at the same time provide a resource for the Sacramento community in the form of a meeting place. In 1998, more than 11,000 persons attended meetings there.

"As a philanthropic organization located in the capital city of the largest state in the country, we have a unique opportunity to bring policymakers and those who influence policy to the Foundation," says Meehan. "The program is our most active area and one of the most powerful things we do." The headquarters is situated in a prime business location on the banks of the Sacramento River a few miles from Sutter's Fort––the spot where gold was first discovered in 1849, giving California its first taste of national fame.

General health grants are awarded through the Foundation's Health Grants Program. Staff reviews unsolicited requests for more than $10,000 three times a year and requests for $10,000 or less on a monthly basis. To date, 57 percent of all funds awarded have been through the Health Grants Program, and the remaining 43 percent have been initiative-based.

In 1994, the Foundation decided to encourage the submission of grant requests for less than $10,000, targeting organizations that were less well established than those previously chosen for grants. The Mini Grants Program was established to seek projects that could be funded easily and quickly and give the Foundation an immediate broader reach. The uncomplicated two-page application form provides all the information that is needed for Sierra to make a fast-track decision. McCandliss says a recent survey of grantees found that they like the form, and the Foundation believes it achieves the desired results.

From 1985 to the end of 1998, Sierra has awarded 1,286 cash grants totaling $40.6 million to 549 different organizations. (See Tables 3 and 4.)

Applicants for grants in excess of $10,000 are required to prepare and submit a formal written proposal. The staff reviews these proposals and makes funding recommendations to the Foundation's board at three of its quarterly meetings. Applicants are notified of the board's funding decisions within three to four months after the application deadline.

The Foundation does not encourage applications for recreational programs; ongoing general operating support, debt retirement, or operational deficits; clinical research; or external conferences and symposia. It generally does not fund requests to support individuals; general fund drives, annual appeals, or endowments; or activities that exclusively benefit the members of sectarian or religious organizations.

Table 3: Sierra Health Foundation Health Grants Awarded Fiscal Years 1985-1998
Program Area	Amount
Dental health	$348,973
Health education / wellness promotion	$1,058,086
Public health	$905,986
Violence / abuse / neglect	$2,307,782
Physical health / diseases / disabilities	$2,104,375
Mental health / crisis intervention	$2,314,249
Human services	$6,349,707
Health care service delivery	$7,856,649

Table 4: Sierra Health Foundation
Fiscal Year 1998 Funding by Grant-Making Program

107 Grants; $4,310,770

Percent of total

Community Partnerships for Healthy Children 56

Health Grants 38

Mini Grants 4

Managed Care Program 2

Today's board has 11 members, including McCandliss and two former FHP officers. The other members are a former hospital administrator; a professor of ethics in medicine; a Catholic priest who was formerly chaplain of the state Senate; a certified public accountant; a Sacramento physician; the secretary of the California Health and Welfare Agency; the president of the California State University, Chico; and a health policy analyst.

All founding directors may remain on the board until 75 years of age. According to one board member, there have been prolonged board vacancies on occasion because of a lack of agreement about who should be selected. Some board members expect a substantial turnover within the next few years. Although grantmaking has been gradually shifting away from direct medical services, some board members still favor that approach. The board has engaged in long, intense discussions to arrive at a definition of health, but the Foundation still uses a broad one because it feels a more specific definition would constrain the board too much. Wariness to fund programs that are seen as being more socially than medically oriented also has resulted in avoidance of the use of the term public health by some members of the board.

Since its inception, the board has had a strong conflict-of-interest policy. The policy outlines the Foundation's goals and general guidelines as well as specific guidelines concerning relationships between officers and employees and outside organizations. The policy states that "no director, officer, or employee shall take part in any foundation decision, except for providing information relevant to that decision, which benefits him or her or his or her immediate family materially, or that directly benefits any organization with which he or she has any relationship." It further states, "Any exception [to] this overriding general guideline shall only be permitted in a special situation, and shall require full disclosure in writing to the President with a statement of the reasons why the exception should be permitted."

Sierra's staff considers it important to develop close relationships with the new California health foundations; it sees them as allies and future funding partners. Other foundations have contributed to all of Sierra's initiatives.

In 1995, Sierra applied to the Robert Wood Johnson Foundation (RWJ) for a grant that would allow it to become a collaborator in RWJ's national children's initiative. Sierra was selected to be the fiscal agent for funding in Sacramento, and it received a $400,000 grant in return for providing space and office equipment that were used to administer the outside foundation's grants to a local collaborative effort. Sierra was selected because of its detailed knowledge of child health needs in northern California communities, which was gained as a result of its CPHC experience.

In addition to foundation collaborations supporting the Managed Care Program and CPHC, the 1990s brought California health foundations into close contact with another cataclysmic event––the winter floods of 1996-1997 and 1997-1998. The areas affected most harshly were within Sierra's funding region. Although the Sierra board felt that disaster funding runs contrary to how foundations generally do business, it recruited The California Endowment and the California HealthCare Foundation to collectively distribute $1.2 million in aid to programs in eight counties facing financial hardship as a result of the floods. Grants were awarded primarily to cover rebuilding costs and to provide direct human services.

Flood relief received 12 percent of the Sierra Health Foundation's cash grants awarded in fiscal year 1997.

Despite acclaim received as a result of the new grant-making approaches, Sierra's executives say the presence of the new foundations could cause the Foundation to refine its vision as an organization. The staff, the board, and the communities involved in the CPHC project agree that the way to make lasting change in the community is through major investments at the grassroots level. But maintaining the rhythm of this program and pacing themselves to continue on when results are a long way off has proved to be difficult and very labor-intensive. Nevertheless, the officers say there is strong agreement and commitment to this approach by all involved. McCandliss considers the board's commitment to support and sustain CPHC, despite the project's emphasis on social considerations rather than direct medical care, a major decision for the Foundation.

The Foundation sees its role in convening meetings as important and coordinates this effort through the Managed Care and Conference programs. However, Foundation officers say that defining these programs was not easy. With the Conference Program, Sierra initially found it difficult to define the parameters for the use of the headquarters building as a meeting place to discuss health issues and to agree on internal and community priorities. For example, Foundation officers say that while the community needs to have a place to convene meetings, not all of the topics the community wishes to have discussed concern health care and, therefore, may conflict with Sierra's charter. Also, the Foundation's position regarding managed care is not always consistent with that of the community. Sierra sees itself as taking a neutral stand on managed care issues such as maternity hospital stays or choice of physician, whereas the community sometimes wants it to take a stand for or against. Coming to an agreement about how philanthropy can best impact managed care has been difficult. It also has been difficult to recruit high––level officers from all of the various team members––HMOs, health plans, providers, government representatives, and some new foundations––necessary to create a well-rounded picture.

Other aspects of grantmaking also have presented problems. In light of the new foundations in the state, there have been periods when the staff reported disappointment with the quality of grant requests and feared that the Foundation would not receive enough qualified grant requests to spend the annual grants budget. Sierra has approached this problem in a positive way by seeing it as an obligation to train grantees while giving them grants. Dorothy Meehan says Sierra wants to establish long-term relationships with its grantees and at the same time train them to become eligible for grants from others.

McCandliss is wary about doing long-range studies, except when they apply directly to Foundation programs, although he might favor them more if Sierra were as wealthy as the larger foundations. The decision to work with other large foundations, according to McCandliss, has brought mixed results. He says that while it is possible to assemble more foundations for a project, the management of that project can become difficult. Additionally, foundations have their own programs, and finding areas of common commitment is not always easy. The results of the Community Partnerships for Healthy Children project will help the board and staff determine how much commitment to give long-term projects.

McCandliss says he would like to become more involved in issues that attract wide public attention, such as the ECHO and ombudsman programs. He would have liked the Foundation to join The California Wellness Foundation (TCWF) in collaborative-funding a program TCWF conducted in 1996 to educate the public about a ballot proposition that would have loosened state controls on tobacco. The Sierra board refused to approve this funding. However, Sierra had earlier accomplished a similar goal by giving the California Lung Association a $25,000 grant, hoping it would be spent to maintain existing stricter tobacco controls. The problem with public issues, McCandliss says, is that it is much harder for a board to approve them if the foundation has no history with that issue. Consequently, he believes, Sierra will have no problem dealing forcefully with health issues involving children because it has experience in that area.

Sierra––like TCWF, the California Endowment, and the California Healthcare Foundation––is being audited currently by the state attorney general to determine whether its grantmaking is in compliance with its nonprofit status. Although he is convinced that Sierra's charter is flexible enough, McCandliss believes such investigations will change the grant-making behavior of foundations in the future by making them more conscious of political implications.

Because California is the location of several of the nation's largest foundations produced by conversion of health plans, interest has been building in some quarters of the state capital in finding ways to improve the coordination of foundation efforts. One revolutionary idea that is circulating quietly through public and private offices around Sacramento is to combine the assets of all California health conversion foundations into a single fund to be administered by a board appointed by the legislature. Some who see foundation assets as "public" money would like to see the idea considered. They believe that greater efficiency and lower administrative costs might result. Such a plan, they believe, would make it possible to concentrate grants on priority areas that meet public policy needs. No one expects the idea to be implemented soon, if ever. To date, there are no bills before the legislature that suggest such a course of action.

Sierra's officers offer the following advice learned during 14 years of experience.

The Sierra Health Foundation was founded in 1984 when Foundation Health Plan, a Sacramento-based IPA-type HMO, converted from nonprofit to for-profit status. The Foundation's mission was to "fund and support the health and health-related needs of the public." Sierra's original Articles of Incorporation establishing it as a nonprofit 501(c)(3) private charitable corporation and its mission were authored by FHP's former CEO, who selected the original seven-member board of directors. The board included himself and two other former FHP officers. Early in its history, the number of board members was increased to 11, and the board initiated its own operations and grant-making agendas. The former CEO and one other official remain on Sierra's board; the Foundation is considered to be independent of FHP's influence. Although Sierra's service area consisted originally of five counties centered around Sacramento, the board enlarged the territory early on to include an additional 21 counties, nearly all of them rural.

FHP's conversion process received minimal public attention during the negotiations with the DOC, the state agency that regulates HMOs. Two years later, however, Consumers Union tried and failed to convince the DOC that it should issue a moratorium on all nonprofit health plan conversions in the state. It also asked for a reopening of the FHP conversion.

The conversion agreement called for Sierra to receive $1 million in cash plus 6.3 million shares of FHP stock valued at about $3.00 per share. After redemption and sale of all stock, Sierra netted nearly $78 million. The market value of Sierra today is about $153 million. The increase in Sierra assets occurred largely as a result of the increased value of its investments over time.

After emphasizing AIDS treatment programs and prenatal care early in its history, Sierra in 1993 refocused its grant-making policy toward child health issues that concern individual communities in its region and toward programs that explore the intricacies of managed care. In addition, the Foundation considers the use of its headquarters building to convene meetings by other organizations on health matters to be an important part of its obligations to the community. As part of its grantmaking, Sierra also has launched a successful Mini Grants Program that encourages less well-established organizations to apply for sums of less than $10,000.