Table Of Contents Foreword Acknowledgments Sierra Health Foundation Harry Nelson The Colorado Trust Alan L. Otten Jewish Healthcare Foundation Alan L. Otten The California Wellness Foundation Harry Nelson Health Foundation of South Florida Coimbra Sirica The Venice Foundation Coimbra Sirica

Foreword

This report describes how six foundations that were created as a result of the sale, conversion, or merger of nonprofit hospitals and health plans are carrying out their missions. The trustees and staff of each foundation made many difficult choices. The stories that comprise this report describe the creation of these foundations as well as the distinctive social, economic, and political characteristics of the six communities. The stories are arrayed in chronological order of the creation of the foundations.

The purpose of the report is to inform. People hold competing views about how foundations that result from the reorganization or sale of health care institutions ought to use their money and how they should be governed and held accountable.

Changes in the use of charitable assets as a result of the sale or reorganization of nonprofit hospitals, health plans, and insurers have occurred in small numbers relative to the total number of health care institutions. These changes raise important concerns, however. The first pertains to the future of the public benefits that these organizations had provided for their communities or states. Another concern is the possibility that individuals or organizations involved in these transactions will profit inappropriately from assets that were created through charitable donations and tax exemptions. The economic stakes involved are often quite considerable, ranging from the tens of millions of dollars into the billions.

More than 125 foundations have been created in the past two decades from the sale or reorganization of nonprofit hospitals, health plans, or insurance companies. They are often referred to as "conversion foundations," even though some have been created in the sale of one nonprofit organization to another nonprofit organization. Considerable statutory and case law guides the process by which the assets of nonprofit organizations can be sold or reorganized. This body of law assures that the assets (or the value of the assets) will remain in the nonprofit sector under the control either of an existing nonprofit organization or of a new one––typically a foundation––created for this purpose. However, the methods by which the assets of an operating nonprofit health care organization are turned into a grant-making institution have received little attention.

The initial use of this report was as background for two meetings on this topic that involved foundation executives, scholars, regulators, and decision makers in New York State. The first of these meetings was held at the New York Academy of Medicine in September 1998 and the second, in Albany in April 1999.

Most of the leaders in the public, private, and nonprofit sectors who read and commented on drafts of these stories agreed that there is a unique public interest in the charitable assets that result from the restructuring of health care institutions. They also agreed that the organizations responsible for these assets should be private, nonprofit organizations.

Many leaders, however, are willing to explore new measures to assure the accountability of foundations created as a result of such restructuring. Existing law may not be sufficient in all instances. Some states have enacted legislation that creates public processes for examining the appropriateness of each proposal to restructure and redirect charitable assets. Whether or not required by law, many conversion foundations view as important the search to find ways to involve their communities in setting grant-making priorities.

The initial purpose of the stories was to inform colleagues in the public and private sectors in New York State about how persons in other states are managing charitable funds created by the restructuring of health care organizations. Three foundations based in New York City––the Nathan Cummings and Surdna Foundations and the Milbank Memorial Fund––collaborated with the New York Academy of Medicine to organize and finance this effort, which was planned by two work groups.

One group invited several of these foundations to cooperate in writing their stories and instructed the journalists commissioned to write them. The members of this group included the presidents of two foundations established as a result of sales or conversions: Karen Wolk Feinstein of the Jewish Healthcare Foundation and Gary Yates of The California Wellness Foundation. This group helped to identify foundations whose leaders agreed to have their stories written, to make documents available, and to encourage community leaders and members of their boards to talk with the writers. The foundations' presidents were invited to review initial and final drafts of the stories, and the authors were obligated to take account of their comments. However, final editorial control remained with the authors and the publisher, the Milbank Memorial Fund.

Two of the authors are staff writers for the Milbank Memorial Fund: Harry Nelson, formerly a medical writer for the Los Angeles Times, and Alan L. Otten, who was a reporter and bureau chief for The Wall Street Journal. The third author, Coimbra Sirica, writes frequently for newspapers and magazines. Linda Weiss of the New York Academy of Medicine helped to coordinate both the writing of the stories and the meetings.

A second group planned the two meetings of leaders in government and health care in New York State, for which the stories would be background. The purpose of these meetings was to discuss policy issues in the use of charitable assets in cash created by conversions, sales, and mergers. Members of this group included Pete Grannis and Richard Gottfried, chairs of, respectively, the Insurance and Health Committees of the New York State Assembly; Kemp Hannon, chair of the Health Committee of the New York State Senate; Jane Preston of the Senate Health Committee staff; Daniel Sisto, president of the Healthcare Association of New York State; and Paul Rulison, executive director, Healthcare Trustees of New York State.

A separate page of acknowledgments lists the persons whom the authors wish to thank for assistance, including persons who attended the meeting in September 1998 and read the stories in draft. We are especially grateful to the foundation executives and board members who agreed to cooperate in the preparation of this report.

Daniel M. Fox, President,
Milbank Memorial Fund

Bradford Gray, Director,
Division of Health and Science Policy
New York Academy of Medicine

Charles R. Halpern, President,
The Nathan Cummings Foundation

Edward Skloot, Executive Director,
Surdna Foundation

 

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Acknowledgments

The following persons reviewed this report in draft and discussed its implications at a meeting in September 1998. They are listed in the positions they held at the time of their participation.

Richard Allen, Assistant Attorney General, Division of Charities, Public Charities Division, State of Massachusetts; Deborah Brody, Director, Support Center for New Health Foundations, Grantmakers in Health; Harvey Dale, Director, National Center on Philanthropy and the Law, New York University School of Law; Michael DeLucia, Director of Charitable Trusts, New Hampshire Office of the Attorney General; Karen Wolk Feinstein, President, Jewish Healthcare Foundation; Marion R. Fremont-Smith, Choate, Hall & Stuart; Richard N. Gottfried, Chair, Health Committee, New York State Assembly; Pete Grannis, Chair, Insurance Committee, New York State Assembly; Bradford H. Gray, Director, Division of Health and Science Policy, New York Academy of Medicine; Harry Greenberg, General Counsel, Division of Legal Affairs, New York State Department of Health; Elizabeth Guggenheimer, Deputy Bureau Chief, Charities Bureau, Office of the State Attorney General, State of New York; Charles R. Halpern, President, The Nathan Cummings Foundation; Catherine Livingston, Attorney Advisor, U.S. Department of Treasury; Len McCandliss, President, Sierra Health Foundation; Betsey Miller, Chief of Staff, Empire Review Panel, Albany, N.Y.; John Moran, Jr., President, The Colorado Trust; John H. O'Neil, Chairman and Chief Executive Officer, Health Foundation of South Florida; Robert Piggott, Assistant Attorney General, Charities Bureau, Office of the State Attorney General, State of New York; Jon Preiksat, Chief Executive Officer, The Venice Foundation; Jane Preston, Executive Director, Health Care Committee, Office of New York State Senator Kemp Hannon; Paul Rulison, Executive Director, Healthcare Trustees of New York State; Mark Scherzer, Legislative Counsel, New Yorkers for Accessible Health Coverage; James Schwartz, Deputy Attorney General, California Office of the Attorney General; John G. Simon, Professor, Yale Law School; Edward Skloot, Executive Director, Surdna Foundation; Harry Snyder, Senior Advocate, Consumers Union; T.J. Sullivan, Gardner, Carton & Douglas; Susan Waltman, Vice President, Legal Affairs, Greater New York Hospital Association; Linda Weiss, Senior Program Officer, Division of Health and Science Policy, New York Academy of Medicine; Gary Yates, President and Chief Executive Officer, The California Wellness Foundation.

The authors wish to acknowledge the following persons, who are listed in the positions they held at the time of their interviews:

Jo Anne Chester Bander, Executive Director, The Donors Forum, Miami, Fla.; Sally Beatty, Program Officer, The Colorado Trust; Judith Bell, Co-Director, West Coast Office, Consumers Union; Jill Duerr Berrick, University of California, Berkeley; Diana Bonta, Director, Long Beach (Cal.) Health Department; Carol Breslau, Program Officer, The Colorado Trust; Molly Joel Coye, Director, West Coast Office, The Lewin Group; Thomas Culbreth, Member, Board of Directors, Health Foundation of South Florida; George Deubel, Member, Board of Directors, Sierra Health Foundation; Emery Dowell, Member, California Managed Risk Insurance Board; Susan Downs-Karkos, Program Officer, The Colorado Trust; Doug Easterling, Director for Research and Evaluation, The Colorado Trust; Gregory Favre, Corporate Vice President of News, Sacramento Bee; Robert J. Feidner, Financial and Administrative Officer, Jewish Healthcare Foundation; Philip Grossman, Member, Board of Directors, Health Foundation of South Florida; Kathryn Hall, Executive Director, The Center for Community Health and Well-Being, Sacramento, Cal.; Susan Hill, Director, Community Action for Health Promotion Initiative, The Colorado Trust; Philip Isenberg, Attorney, Hyde, Miller, Owen & Trost, Sacramento, Cal.; Albert R. Jonsen, Member, Board of Directors, Sierra Health Foundation; Russel Kully, Counsel, Arnold and Porter; Michele M. Lightfoot, Executive Assistant, The Colorado Trust; Len McCandliss, President, Sierra Health Foundation; Jean D. Merrick, Vice President for Programs and Public Information, The Colorado Trust; Robert Miles, Former Member, Board of Directors, Gulf Area Medical Programs, Inc.; John Moran, Jr., President, The Colorado Trust; Douglas Murphy, a founder of The Venice Hospital; John H. O'Neil, Jr., Chairman and Chief Executive Officer, Health Foundation of South Florida; John Preiksat, Chief Executive Officer, The Venice Foundation; Linda Quick, President, South Florida Hospital and Healthcare Association; Stephen Reed, Journalist, Sarasota Herald Tribune,; A. Gordon Rippey, Member, Board of Trustees, The Colorado Trust; Denise Roberts, Managing Director of Programs, and her colleagues at The Venice Foundation; Ruth Roemer, Professor Emerita, Health Services, University of California Los Angeles School of Public Health; James Schwartz, Deputy Attorney General, State of California; Kenneth T. Segel, Senior Program Officer, Jewish Healthcare Foundation; Michael Shapiro, Office of California Assemblyman Harold Rosenthal; Thomas Slattery and his colleagues on the Board of Directors, The Venice Foundation; Harry Snyder, Senior Advocate, Consumers Union; Susan Stack, Office Manager, Jewish Healthcare Foundation; Walter Stanton, Member, Board of Directors, Health Foundation of South Florida; Steven Thompson, Vice President, Government Relations, California Medical Association; Cheryl Wade, Executive Vice President, Health Foundation of South Florida, Miami, Fla.; Judy Wilcox, Former Member, Board of Directors, Gulf Area Medical Programs, Inc.; Nancy D. Zionts, Senior Program Officer, Jewish Healthcare Foundation.

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