Ground-breaking manual shows how to protect public’s investment when nonprofits become for-profit


July 24, 2000

GROUND-BREAKING MANUAL SHOWS HOW TO PROTECT PUBLIC’S INVESTMENT WHEN NONPROFITS BECOME FOR-PROFIT COMPANIES
Manual Offers Tools For Ensuring That New Conversion Foundations Respond to Community Needs

Across America, healthcare organizations are being transformed. Hospitals, HMOs and insurance companies which have operated for years as non-profits are selling out to privately held, for-profit health care companies. At stake are millions of dollars in charitable assets that belong to the public that could be lost as a result of the transaction.
With knowledgeable community input, these assets and the original public benefit of the converting organizations can be preserved to help serve unmet health care needs. But without such input, the public will lose the investment it made in the former nonprofit through years of tax breaks and other special treatment.
That’s why Consumers Union, the nation’s leading consumer advocacy organization, and Community Catalyst, a national health advocacy organization, have produced Building Strong Foundations, a 34-page handbook that offers a blueprint for holding conversion foundations accountable. It explains how communities can make sure that a nonprofit’s charitable assets will continue to serve the public long after the conversion has taken place. The handbook is available at no cost to community groups, regulators, media, courts, and others interested in responsible philanthropy.
When a non-profit health care organization becomes a for-profit company, its assets must continue to be used to fulfill its original purpose. In most cases, this is achieved by creating a new foundation dedicated to the health purposes of the former non-profit.
Such foundations are known as “conversion foundations,” and the sums of money involved are enormous. By December 1999, more than 122 new health foundations with total assets exceeding $15 billion had been created. Today, those figures are significantly higher.
Building Strong Foundations shows how a conversion foundation’s mission, governance and structure can be shaped to meet community health needs and to assure that the public, rather than particular individuals and businesses, benefit from the conversion.
“Charitable assets belong to the public,” said Harry Snyder, Community Health Assets Project Director at Consumers Union. “When a hospital or insurer abandons its nonprofit mission, local officials have an obligation to create a conversion foundation that can be held accountable for meeting community needs.”
“The public has an important role to play in holding conversion foundations accountable for meeting community health needs,” said Kate Villers, President of Community Catalyst. “We hope this handbook will provide local activists with the tools they need to get answers, get involved, and get results.”
The handbook identifies the primary components of good foundation practice, including:

  • a planning process that involves the perspective and expertise of consumers and health care advocates;
  • a mission statement that effectively dedicates the foundation’s assets to the purposes of the former non-profit;
  • a selection process that assures the foundation’s governing board will be separate from the former non-profit as well as the purchaser, reflects community diversity and has the appropriate expertise and experience;
  • an organizational structure that is transparent and publicly accountable;
  • strict limits on terms of service and strong conflict of interest policies for board members and other advisors;
  • a commitment to emphasizing the achievement of health improvement goals over maximizing the value of the foundation’s endowment.”
  • Consumers Union and Community Catalyst believe this handbook can assure publicly accountable philanthropy for conversion foundations and that its recommendations can improve the responsiveness of any charitable foundation that has become removed from the people it was set up to serve. Foundations which adopt all or most of the handbook’s recommendations could help lead the way for a new wave of responsible philanthropy in the 21st century.
    “This is a clear, comprehensive, and relevant guide for all stakeholders interested in nonprofit conversions,” said Sally Peabody, Executive Director of Associated Grantmakers of Massachusetts.
    “Nonprofit conversions are changing the face of philanthropy,” said Thomas C. Layton, President of the Wallace Alexander Gerbode Foundation in San Francisco. “Building Strong Foundations is an indispensable publication for anyone interested in making sure that foundations are responsive to the communities they are established to serve.”
    The Community Health Assets Project, a partnership between Consumers Union and Community Catalyst, works to help community groups, state regulators, the media, and the public understand how to protect these essential health resources. The Project provides technical assistance, strategic consultation, legal and policy analyses, public education and training to organizations and individuals working to protect local health care assets.

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    Contact:
    Consumers Union, 415-431-6747
    West Coast Office