Insuring a Healthy Future?

Medical charities merge affiliates to cut costs, but some chapters rebel

Mississippi is the nation’s poorest state and one full of people in desperate need of medical care, a predicament that binds charity executives Teresa Humphrey and Mary D. Fortune in a common cause.

Ms. Humphrey is executive director of the Mississippi affiliate of the American Heart Association, a job that puts her on the front lines of fighting the highest statewide rate of death from cardiovascular disease in the nation. Ms. Fortune is a veteran in the fight against diabetes, which is more prevalent in Mississippi than in any other state.

But while both women shoulder the challenge of raising money and mustering volunteers for their causes, they are sharply divided about a trend that is shaking up some of the nation’s oldest and largest health charities. Searching for a way to operate more efficiently, many health charities are consolidating affiliates or considering other ways to restructure their management.

Ms. Humphrey says she is “200 per cent” behind the changes at the American Heart Association. Ms. Fortune is dead set against the changes that the American Diabetes Association has made.

Like companies in the for-profit world, health charities are reorganizing at a vigorous pace. They are merging affiliates into cross-state groupings, putting new power into the hands of regional boards of directors, and otherwise looking for ways to create savings that can be plowed back into health-care programs and advocacy efforts.

Among the recent changes:

* The American Cancer Society is consolidating what used to be 57 separate state and local divisions into approximately 17 units, most of them multiple-state groupings governed by regional boards of directors. The move comes on the heels of a reorganization of the charity’s national office, including a reduction in size of its volunteer board from 130 members to 43.

* The American Heart Association is merging its 52 state and metropolitan affiliates into 15 regional units and putting their budgets and governance in the hands of regional boards. In addition, the association is placing legal ownership of the regional units’ assets — buildings, equipment, and fund balances — under a single national corporation, although the management of those assets has been delegated to the regional units.

* The American Diabetes Association has combined what used to be 53 state and local affiliates into 12 regional groupings that are now part of a single, national corporation.

Many other health charities are just now beginning to investigate reorganization. The National Kidney Foundation, Alzheimer’s Association, and National Down Syndrome Society, for example, all are evaluating their organizational structures.

Some charities have adopted variations on the restructuring theme. This year, for example, the Leukemia Society of America set up a network of five regional managers to oversee its 58 chapters instead of having all units report directly to national headquarters. And the Epilepsy Foundation, after a detailed examination of the relationship between the charity’s national office and its affiliates, unified the way the charity’s name and logo are used by its 64 independently incorporated affiliates and made other changes.

Paulette Maehara, the Epilepsy Foundation’s chief executive, says she would have preferred to go further by putting much more power into the hands of the national organization and making other structural changes.

But, says Ms. Maehara, who last month was named head of the National Society of Fund Raising Executives, “this is a highly charged issue for affiliate staff and volunteers and national volunteers. It was obvious to me this was the direction we should head, but it was not obvious to everybody else.”

Medical charities have especially compelling reasons to reshape themselves. Managed care and other policy issues present daunting challenges to health-charity lobbyists and administrators. Competition for biomedical-research and program money puts charities’ fund-raising prowess and financial efficiency to the test.

What’s more, experts say that many health-care issues can best be dealt with at the local level, not nationally. As a result, charities have been trying to figure out ways to make sure local officials can focus on providing programs, not on dealing with administrative burdens.

But health organizations have been deeply divided about how best to accomplish those goals.

When the American Diabetes Association voted last year to reorganize, the Mississippi unit — as well as the Rhode Island one — voted to break off ties to the national group. Both are now embroiled in court battles with the national association.

Proponents of reorganization say that one of their chief aims is to increase the amount of time, effort, and money for local health needs while also keeping their organizations’ governance from bogging down in turf battles and layers of staff bureaucracy.

John H. Graham IV, chief executive of the American Diabetes Association, says the association expects to save $1.5-million the first year in auditing, insurance, and other administrative expenses by reconfiguring its affiliate network and national office. It will take less than two years to recover the estimated $3-million cost of restructuring, the association projects.

Mr. Graham says the charity will measure the success of its reorganization strategy by how closely it comes to meeting a pair of five-year goals: doubling annual income to $240-million and raising the number of localities where the American Diabetes Association has a presence from 800 to 2,000.

“Communities are where people live, work, volunteer, and donate,” Mr. Graham says. “If we are going to reach people, raise money, and engage people, we need to be at the community level.”

Critics question how merging affiliates and putting financial decisions into the hands of regional boards will help focus attention on the local level. Indeed, they say, such plans may chip away at donor loyalty and volunteer morale.

Ms. Fortune, who used to head the American Diabetes Association’s Mississippi affiliate before her organization decided to break off ties, says merging would have alienated volunteers and donors in Mississippi and forced her affiliate to bail out others that are less successful at fund raising.

“We feel we can serve the people of Mississippi better with a grassroots organization,” she declares.

David S. Goldstein, a Washington lawyer and incoming volunteer chairman of a newly formed affiliate of the American Heart Association encompassing the District of Columbia, Virginia, Maryland, the Carolinas, and parts of Tennessee and West Virginia, strongly disagrees with the view that a system of stand-alone affiliates is best. He says that by consolidating affiliates, the heart association will increase the power and consistency of its public pronouncements on heart disease and become more effective in raising money.

While the heart charity has traditionally run strong local programs, says Mr. Goldstein, some heart-association affiliates have been more advanced than others in how they handled staffing issues, communication, accounting, and other administrative matters. With fewer and larger affiliate units, he says, it will be easier to communicate with them and help them adopt uniform management practices.

“One of the things the heart association struggles with is maintaining a high profile,” he says.

Reorganization also will aid advocacy work, from lobbying government officials to communicating with the news media and producing videos, Mr. Goldstein says.

“Each of the state organizations that are disappearing did lobbying, public relations, and local-media-market things,” he says. “They weren’t always in step” with each other. “Having a more uniform story to tell helps raise the public consciousness all around,” he adds.

Marilyn Hunn, chairwoman of the American Heart Association’s volunteer national board and a health-care consultant in California, says the association used to reach people mainly by disseminating information through state affiliates. But the advent of the Internet created new avenues to reach consumers in an immediate and wide-ranging way. That, in turn, was one of the forces that spurred the heart association to look at new ways to streamline its operations, Ms. Hunn says.

“It became apparent that we didn’t need a hierarchical gate-keeper approach anymore,” she explains.

Despite the perceived benefits of reorganization, some critics worry that the trend could weaken local programs and volunteer efforts.

“Whatever policies the health charities, and particularly the cancer society, adopt, the sole focus should be on what is good for our volunteers, and I do not think this reorganization is in the spirit of that,” says James T. Bennett, an economics professor at George Mason University and a vocal critic of the American Cancer Society.

“The jury is still out in terms of both the financial and programmatic results,” cautions Eric Hargis, executive vice-president of the Arthritis Foundation.

Adds Edward Truschke, chief executive of the Alzheimer’s Association, “One has to be careful.”

Some charity leaders, however, say they already see positive results.

In Mississippi, Ms. Humphrey of the heart association acknowledges that initially she was “extremely skeptical” of her charity’s plan. “I thought we would lose our autonomy and identity,” she says.

With the new setup, however, Ms. Humphrey now believes that Mississippi will have ample representation on a regional board that also will include heart-association members from Georgia, Alabama, Tennessee, and Louisiana. By cutting redundancies and shifting accounting and administrative duties to Atlanta — everything from stuffing envelopes to packing materials for the school-based “Jumprope for Heart” program — there will be more dollars to spend on hiring staff members, running programs, and raising money in her state, she says.

Before the merger, Ms. Humphrey says, “the administrative burden was horrendous.” But already, because of the unfolding merger plan, the Mississippi branch has been able to add two staff members and open an office in Meridian. It also has been improving programs and helping to put fund raising on its best course in several years, Ms. Humphrey says.

Ms. Fortune, on the other hand, says some donors to the American Diabetes Association would have stopped giving if they knew their gifts would be divvied up by an out-of-state board.

“We just felt the donors we have want to see their dollars working for Mississippi and Mississippians who have diabetes,” she says.

The Mississippi diabetes organization was already 14 years old when it joined the American Diabetes Association in 1979. Now the charity has gone back to its original independent status and is embroiled in a fight in federal court here over whether it can retain ownership of the Mississippi affiliate’s approximately $1-million fund balance and other assets.

However the case turns out, the American Diabetes Association isn’t pulling out of Mississippi. It plans to open new offices there and in Rhode Island by the end of June.

“We just want peace,” Ms. Fortune says.

But peace may be elusive.

“If they choose to stay separate,” Mr. Graham, the American Diabetes Association chief executive, says of the breakaway Mississippi charity, “then I think at some point we are competing.”