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5 imperatives to consider when starting a health conversion foundation

First formed in the 1980s, health conversion foundations are proliferating as a result of increasing consolidation in healthcare.

These foundations typically form when a nonprofit hospital, health system or health plan is acquired by a for-profit firm or converted to for-profit status. The proceeds from these transactions are required by federal law to go toward a charitable entity; they are commonly rolled into the endowment of a foundation for the purposes of continuing to provide health-related services to the local community.

This influx of money can present challenges. "The hospital gets bought, the foundation gets formed, and from the first day there's a tremendous amount of pressure from the community to begin funding initiatives," says Wayne Luke, managing partner of the nonprofit practice at executive search firm Witt/Kieffer. "There's a lot of press around the fact a foundation has been created, and people want a piece of that pie."

Hundreds of foundations have come into existence over the past five to 10 years, Stakeholder Health estimated. In the 2010 census, the article noted, 306 conversion foundations submitted their annual Form 990 to the IRS. Together they held a total of $26.2 billion in assets. At least another 100 have been established since 2010, according to the report.

Here, Mr. Luke identifies the five most important things founders and new leaders of health conversion foundations need to consider as they get started.

1. Hold your ground. Don't make a lot of commitments early until there is a solid plan and solid strategy about how the foundation will attempt to strategically affect health outcomes in the community. "If you start making a lot of checkbook philanthropy grants, before you know it your grant budget has been significantly impaired vis-à-visthe things you want to do. So have a plan first," Mr. Luke says.

2. Broaden your definition of "health". In addition to healthcare, these foundations need to address what are commonly referred to as social determinants of health, such as education, economic opportunity, housing and access to healthy food. All of those factors affect health outcomes. Therefore, healthcare should be part of a foundation's strategic portfolio, but not the entire portfolio. In other words, healthcare is a necessary but not sufficient set of initiatives for one of these foundations to take on. Health conversion foundation leaders need to think in terms of a broader perspective of health and health outcomes in the community, according to Mr. Luke.

3. Think broadly about board membership. Boards of health conversion foundations tend to be legacy board members from the hospital or health system that was acquired, and perhaps some hospital administrators. However, once the foundation's mission expands beyond traditional healthcare initiatives, it's important to have broader representation — from the business or political community, for example, says Mr. Luke. That way these foundations can address the previously mentioned social determinants of health.

4. Develop strong partnerships in the community — and early. Given their annual grant budgets, health conversion foundations don't have the funds and resources to affect sweeping health reform in their communities by themselves, according to Mr. Luke. These foundations are usually in communities with significant populations, so foundation leaders need to work alongside other organizations with the same goals and objectives as the foundation. "So the ability to partner and team up is an extraordinarily important skill for foundations to pick up," Mr. Luke says.

5. Ensure that leadership evolves with the mission. The first CEO who is put in charge of the newly created health conversion foundation is often a hospital administrator or physician. However, Mr. Luke says the CEO and leadership team need to evolve with the foundation. "As the definition of the mission changes and becomes broader, that also has implications for the leadership that is put in place," Mr. Luke says.


More articles on healthcare transactions and partnerships:

Advanced Dermatology and Cosmetic Surgery acquires Virginia dermatology clinic
Clarendon Health System, McLeod Health move toward affiliation
Dartmouth-Hitchcock eyes affiliation deal with Elliot Health System

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