With $13-Billion in Assets, ‘Conversion’ Health Foundations Gain Influence

More than 100 foundations, with assets totaling about $13-billion, have been created by the shifting ownership

ALSO SEE:

Growth of Health Foundations

of hospitals, health-care systems, and health-insurance plans, a new report says.

The new foundations, which overwhelmingly focus their grant making on health projects, have the potential to disburse more than $700-million each year — about a third of the estimated $2-billion that foundations give to health-related causes annually, said the report issued by Grantmakers In Health, a Washington group that represents foundations.

Grantmakers In Health, which in late 1998 mailed surveys to 119 such foundations, based the report on the 97 that responded.

The majority of the philanthropies have been created in the last 15 years, and many within the last five years, as the number of non-profit hospitals and health-maintenance organizations converting to for-profit status through sales and joint ventures has risen.

Under tax laws in many states, hospitals and other non-profit organizations that convert to for-profit status must find a way to make sure their assets continue to be used for charitable purposes — typically through the creation of a foundation. Most laws also require that the mission of a foundation created from a conversion bear some resemblance to the original charity’s mission, or that the funds be used for health-related causes.

The money represents one of the largest infusions ever received by American foundations.

“It’s money that was tied up in hospitals or health plans,” said Deborah A. Brody, a co-author of the report. “It may have been going to non-profit causes, but not to grant making. It’s redeployed money.”

But, she adds, that does not mean that any charity can avail itself of the funds.

Indeed, nearly all of the foundations limit their grant making to a defined geographic area — usually in the same region as the headquarters of the non-profit organization that turned into a foundation. Eighty-seven per cent of the foundations said they have geographic grant restrictions; only one foundation surveyed, the Grotta Foundation, in New Jersey, awards grants nationally.

“A lot of charities think that they can tap into this money, but it’s very, very local money,” said Ms. Brody, who is also director of the Support Center for New Health Foundations at Grantmakers In Health.

In many cases, the geographic focus makes the funds the largest local source of non-governmental health support.

That many of the foundations were created at a time when the federal government has shifted resources and decision-making power to the states further enhances the funds’ potential to become regional leaders in helping to shape health-care policy, said Marni Vliet, president of the Kansas Health Foundation, a conversion fund in Wichita, and president of Grantmakers In Health.

Yet because many of the new health funds emerged from controversial business deals that met with public opposition, a cloud of controversy continues to hang over them.

Although hospital conversions are overseen by state attorneys general, and health-maintenance conversions are monitored by state departments that oversee insurance plans, citizens’ organizations have repeatedly raised concerns about the transactions, from the value placed on the assets set aside for a new foundation to the makeup of a new entity’s boards of directors.

Citizens’ groups have also complained that some of the foundations award grants in areas outside health or health care, such as the arts or athletics.

Because the conversion foundations are relatively new, little had been done to study them previously. The new report provided fresh details about their size, structure, and operations. Among the key findings:

* The assets of the foundations range from $885,000 (the Grotta Foundation, in South Orange, N.J.) to $2-billion (the California HealthCare Foundation, in Oakland), but most are moderate in size. The average size of a foundation created through a hospital conversion is $76-million, while the average asset size of a health-system conversion foundation is $126-million.

* Nearly all — 96.8 per cent — of the foundations award all or some grant money to health or health-related causes, and more than 65 per cent give at least half their grant monies to health-related programs. A few foundations have programs that exclusively support direct medical services or insure that indigent patients receive access to health care, while the majority have chosen to interpret health more broadly, including programs to deter violence, promote literacy, or to stop teen-age pregnancy, for example.

* Conversion foundations operate in 32 states, but more than half can be found in eight states: California, Florida, Illinois, Missouri, Ohio, South Carolina, Texas, and Virginia. California and Ohio have the most, with 13 each. But more than a third of all of the foundations’ combined assets of $5-billion are concentrated in funds in California. And nearly all of that $5-billion is split among just three funds — the California HealthCare Foundation, with $2-billion, The California Endowment, with $1.8-billion, and the California Wellness Foundation, with $1.1-billion.

* None of the foundations said that they had reserved board seats for members of the purchasing for-profit company’s board. However, 30 per cent did report reserving board seats for physicians, and 18 per cent said that they reserved seats for community representatives.

* Nearly half of the foundations reported that people in the region they serve — academics, public-health officials, or other members of the public — were involved in helping to develop the fund’s mission.

* In determining grant-making priorities, most foundations looked to experts, primarily academics and public-health officials. Forty per cent reported conducting a study of health-care needs in the area to help determine their priorities.

Copies of the report, Coming of Age, can be obtained by contacting Grantmakers In Health, 1100 Connecticut Avenue, N.W., Suite 1200, Washington 20036; (202) 452-8331. Copies are also available through the group’s Web site (http://www.gih.org). Members may receive up to 15 free copies and additional copies for $5 apiece. Others may receive up to five free copies and additional copies for $10 apiece.