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A new generation of health foundations

Today there are more than 300 health conversion foundations, which make more than $1 billion annually in grants

Beginning in the 1970s and picking up speed in the late 1980s, the conversion of nonprofit healthcare organizations to for-profit status created many new foundations. Federal law required that proceeds from these sales be used for charitable purposes. Dubbed, because of their origin, “conversion”—or, especially in the South, “legacy”—foundations, by 2000 these new funders had essentially doubled the dollars available for health-related grant making.

Today there are more than 300 health conversion foundations. They hold more than $26 billion in assets and make more than $1 billion annually in grants. A few, such as the California Endowment, the California Wellness Foundation, and the Colorado Health Foundation, are among the country’s largest health donors.

Soon, in the wake of the Patient Protection and Affordable Care Act (ACA), even more conversion foundations will be created, resulting from what some have termed a “merger frenzy.” At Grantmakers In Health (GIH), we are already seeing signs of this and steadily being asked to advise new conversion boards and CEOs. In light of this emerging trend, it is a fitting moment to review how conversion foundations have shaped health philanthropy and the factors that contribute to this.

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Are conversion foundations different?

Are conversion foundations different from other kinds of foundations—a broad group that includes community foundations, family foundations, corporate funders, and others? Some dwell on the “origin story” of conversion foundations as though they were a distinct category of foundations. Tom David and Gary Yates, then at the California Wellness Foundation, wrote a seminal essay on this, in which they strongly disagreed.

At GIH, where conversion foundations comprise nearly half the membership, we use “conversion” as a handy term of reference; but in practice, like David and Yates, we make no distinctions. In our experience, there is no significant difference between conversion foundations and other funders as foundations. There are, in fact, as many differences among nonconversion funders as there are between those organizations and conversion foundations.

[See also: Fundraising up at medical colleges.]

That said, there are circumstances when it is useful to talk about conversion foundations as a group. Their special relationship to local communities is one example. This relationship is driven by the legislative requirement that conversions fund within the geographic footprint of the original healthcare provider. Community foundations are also place based, as are some corporate and family foundations, but the strong focus on health and healthcare distinguishes conversion foundations from these others.

The geography of the communities served by conversion foundations ranges widely. It can be a city or two (e.g., Brandywine Health Foundation), a county or counties (e.g., Health Foundation of Western and Central New York), an entire state (e.g., Colorado Health Foundation, The California Endowment), or a multistate area (e.g., REACH Healthcare Foundation).

Corresponding to the place-based focus, conversion foundations’ boards draw from the communities that they serve. The processes for identifying conversion board members are often specified as terms of the original sale. For example, in the case of the recently created Michigan Health Endowment Fund, board members are recommended by the state senate and house majority and minority leaders, in addition to being chosen to represent the interests of minor children, older adults, the business community, and the general public.

In other cases, the board of the original hospital or healthcare provider becomes the founding board of the foundation. Some conversion foundations are required to have community advisory committees in addition to their formal boards; this is generally intended to institutionalize community engagement and add a level of accountability to the foundation’s work.

The impact of place-based funding

Conversion foundations have brought new money to low-income communities. In the process, they have helped develop the nonprofit infrastructure and have stimulated the development of local leadership.

  • Through the conversion process, areas that lack local private or corporate wealth, such as low-income urban and rural communities, have benefited from significant levels of charitable investments. For example, the Danville Regional Foundation committed $45 million in 5 years to its rural service area on the Virginia-North Carolina border.
  • Because of their community orientation and ties, conversion foundations have worked in innovative ways with sectors like education and employment in order to advance health goals. Many conversions, like the Rapides Foundation in central Louisiana and the Northwest Health Foundation in Oregon, have played a leading role in grantmaking to address the social determinants of health and health equity.
  • Through their processes of board selection, conversion foundations have helped cultivate local leadership and engaged people who might not otherwise be involved in philanthropy.
  • Through their board members, community advisory committees, and grantees, conversion foundations have developed ties to people, organizations, and issues that help ground the work of the foundation in community-defined priorities.

The breadth of conversions’ grant making is considerable. Many focus their grant making exclusively on health and healthcare. Commonly funded areas include health promotion and disease prevention, access to care, behavioral health, public health, and building the capacity of nonprofit organizations. Some conversions focus on specific populations (e.g., children, the elderly, communities of color, immigrants); others concentrate on broader health issues. A small number spend most of their grant dollars in health but also fund in areas such as human services, education, and community and economic development.

With regard to the ACA, conversions’ work is especially noteworthy. They have been vitally important supporters of both state and local implementation through such activities as public education campaigns, strengthening the healthcare safety net, supporting delivery system innovations, increasing capacity for advocacy efforts, and strengthening the outreach and enrollment process.

As the next wave of conversions takes shape, it is anticipated that transactions involving smaller and standalone nonprofit hospitals will infuse even more communities with large-scale philanthropic wealth. The availability of these dollars is a positive sign at a time when the demand for both primary and preventive care services is escalating and when vulnerable communities face mounting challenges to maintaining good health.

Republished with permission of the Altarum Institute.