A consumer activist group is attempting to keep at center stage a debate over how charitable funds are used in nonprofit-to-for-profit conversions. Its latest study slams five hospitals in Texas.
The report, "Preserving the Charitable Trust," by the Southwest regional office of Consumers Union, based in Austin, Tex., calls into question the charitable donations made by the area's nonprofits during conversion transactions, which are valued at $444 million.
According to CU, nonprofit conversions have been occuring at a rapid rate since 1980, primarily in Texas, California and Florida. Since 1993, more than 170 transactions between nonprofit and for-profit organizations have taken place.
Two of the Texas hospitals say the report is riddled with inaccuracies and "over-heated rhetoric."
The report does exploit the emotionally charged issue of the use of charitable proceeds in non-profit-to-for-profit transactions, claiming the transactions usually are conducted in a cloak of "secrecy" without community access.
But it also offers valid recommendations for ensuring appropriate use of charitable assets, ranging from keeping the community in the loop throughout the process to requiring the state's Attorney General to approve the deals.
"The public doesn't see themselves as shareholders in these deals," says Lisa McGiffert, a CU policy analyst. "The community's awareness of the laws that should govern these transactions is very low. Nonprofit hospitals are seen as private entities owned by board members."
The hospitals cited in the report include Angelo Community Hospital in San Angelo; Baylor Medical Center in Gilmore, which was shut down by Columbia/HCA in 1995; Northwest Texas Hospital in Amarillo; St. David's Healthcare System in Austin; and Providence Memorial Hospital in El Paso.
Who Controls Charitable Giving?
When Tenet bought Providence Memorial Hospital in 1995, the national for-profit chain had no control over how the foundation used its charitable funding, says Lance Ignon, Tenet's director of media relations. "It is completely improper for a for-profit to decide how a [non-profit] foundation spends its charitable assets. These transactions would be a lot more difficult to complete if things were as bad as critics charge."
And Neal Kocurek, CEO of St. David's Healthcare System, says that its 1996 joint venture agreement with Columbia/HCA, was negotiated with community input from the outset and that the Texas Attorney General found that the organization retained "full value" of its charitable assets. Additionally, St. David's controls half of the board's votes.
The bigger PR issue is clarifying these complicated hospital conversions to the communities they serve. "Nonprofits are seen as having a higher moral responsibility to their communities; we've got to do a better job of communicating what the for-profits' role really is in these deals," says Ignon.
Study Gets Limited Media Play
So far, the report has generated local media coverage from city newspapers in the five markets where the hospitals are located. The biggest news splash was made in the regional Texas issue of The Wall Street Journal, earlier this month. The story focused on San Angelo-based Angelo Community Hospital's $4 million charitable giving after being purchased by Columbia/HCA in 1995. The article highlights the kinds of "non-health-related" donations CU criticizes in its report. For instance, Angelo donated $200,000 to the Humane Society for equipment and furniture at a new animal shelter, $300,000 to help build a new art museum and nearly $20,000 for the Girl Scouts.
CU claims that $2.3 million of the foundation's $4 million charitable budget last year went to programs that were not used for healthcare-related services.
But the hospital counters that the donations go to good community causes and that the foundation had given to non-healthcare-related charities prior to being purchased. After it was sold, the foundation broadened the hospital's charitable mission to include a "wide range of cultural, educational, healthcare, transportation, housing and public services."
(CU, Lisa McGiffert, 512/477-4431; Tenet, 805/563-6975; St. David's, Neal Kocurek, 512/397-4264)
Recommendations for Retaining Charitable Donations
- Parties in nonprofit conversions should be required to notify the state Attorney General prior closing the deal for approval of all transactions involving a material amount of assets.
- Public notices and hearings should be components of the proposed transaction.
- An independent expert should determine the fair market value of the charitable assets involved in the transaction.
- The fair market value of nonprofit assets should be preserved for continued charitable use in the community and the new mission for these charitable dollars open to a public forum.
- An independent board should ensure the oversight of charitable assets.
Source: Consumers Union