Reprinted with permission from the June 2016 issue of Trustee magazine, vol. 69, no. 6. © Copyright 2016 by Health Forum Inc. Permission granted for digital use only.
By Betsy Chapin Taylor
In today’s environment of change and transformation, some nonprofit hospitals and health systems are considering the possibility of selling to for-profit providers. A central concern for boards engaged in strategic deliberations about a potential sale is preserving the charitable mission, values and legacy of their nonprofit health care organization.
Nonprofit hospitals and health systems almost always have significant assets resulting from tax exemptions and other benefits of nonprofit status or because of voluntary giving. When an organization converts from nonprofit to for-profit status, its charitable assets can’t be assumed by the forprofit entity.
Most states’ laws require the full value of a nonprofit health care organization be directed toward charitable purposes. Therefore, many nonprofits preserve their mission by directing charitable assets after a sale into a “conversion” or “legacy” foundation to provide public benefit within the geographic footprint of the original health care provider.
Legacy foundations generally make grants rather than operate their own programs, and they generally do not seek additional charitable contributions from the community. According to the Washington, D.C.-based nonprofit group Grantmakers in Health, more than 300 of these foundations existed as of October 2014, and they pack a powerful punch with grants of more than $1 billion annually.