Mergers/Systemization

Accordant Philanthropy has had the privilege to work with significant healthcare organizations and systems to address issues and opportunities for healthcare philanthropy stemming from mergers and systemization.

Mergers and acquisitions have become a regular feature on the landscape of healthcare.  While the path to partnership varies greatly based upon whether the collaboration is with another nonprofit healthcare organization or with a for-profit provider, both journeys must be navigated with a range of special considerations in mind.

Culture, change management, integration and communications issues must be deftly addressed; however, nonprofit mergers can also present ripe opportunities for leveraging resources, knowledge, standardization and processes. 

In either a nonprofit or for-profit partnership, healthcare leaders and board members must recognize on-going ownership and engagement of locally-based-and-loyal community partners can be a sensitive issue to address that is not always part of the overall healthcare organization merger planning process.

It helps to proactively address opportunities and challenges unique to the charitable endeavors of the system to protect the organization from unintended consequences. A diligent approach ensures questions relating to maintaining healthy community and donor connections are considered and opportunities to leverage new-found strengths are captured.

Systemization of fund development can take a variety of forms or structures but provides an opportunity to utilize the depth and breadth of the system to leverage limited or specialized resources, share knowledge, hardwire best practices and capture other opportunities that stem from systematic collaboration.

Healthcare systems have achieved significant financial benefit by linking and supporting locally-based fund development efforts through a system initiative.

To ask in a nonprofit merger or acquisition:

  • What is the status of philanthropy programs across the organizations?
  • What opportunities exist to leverage “system-ness” through shared resources, knowledge, systems, infrastructure and capabilities?
  • How does coming together as a system impact the case for support?
  • Will the new organization hold the same values and beliefs?
  • What systems and processes are in place now across the two systems?
  • What cultural and change management issues are now in play?
  • What implications will this have for existing staff and future recruitment needs?

To ask in a for-profit acquisition:

  • Will the acquired nonprofit organization create a “legacy” (also known as “conversion”) foundation with its charitable assets? What would the purpose be? Who will lead it?
  • What will happen to current donor contracts, expectancies and endowments?
  • Will donor recognition and plaques stay intact, come down, move or change?
  • How will current campaigns be handled? Will any gifts be returned? Will pledges be collected?
  • How can Marketing/PR/foundation align their messaging to preclude conflicts?
  • How can the existing team – board, staff, volunteers – be transitioned well?

Preserving Your Nonprofit Legacy When Being Acquired by a For-Profit Organization

When a nonprofit healthcare organization is acquired by a for-profit provider, most state laws require the full value of the nonprofit healthcare organization to be directed toward charitable purposes that provide public benefit.  Therefore, many organizations create a “conversion” or “legacy” foundation to benefit those within the geographic footprint of the original healthcare provider.

Many legacy foundations continue the hospital’s core purpose by focusing on health and wellness issues. This choice is consistent with the common law doctrine of cy pres, which says the assets of a charity should be used for a purpose “as near as possible” to the original intent when it is no longer practical or possible for the original charity to continue its work.  

However, other organizations broaden the mission to address a range of issues consistent with the history, beliefs and philosophical commitments of the original nonprofit healthcare organization.  Ultimately, each state’s Attorney General generally interprets the “appropriate” use of proceeds from the transaction.

In addition to making decisions about the disposition of assets from the sale of the healthcare organization, many organizations must also consider charitable assets held by an affiliated healthcare foundation that was specifically incorporated to raise money for the healthcare organization.

Too often, donor stakeholders are forgotten in the midst of the legal and logistical complexities of a sale with unfortunate, unintended consequences ranging from bad publicity to requests for the return of contributions to advocating against the sale.The sale of nonprofit, mission-driven healthcare organizations to for-profit healthcare providers is increasingly a reality.

However, while legacy foundations are bound by a variety of legal regulations and oversight and must carefully balance the politics, practicalities and legalities of their relationship with the purchasing for-profit corporation; the creation of a legacy foundation can extend the rich traditions and values of the original nonprofit mission and continue the commitment to serve, strengthen and sustain their communities.