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Banking on Donations

February 25, 2008
by Richard Rogoski
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With revenues and profits ever shrinking, philanthropy can go a long way to bolstering hospitals’ bottom lines

Catherine Jacobson

Catherine Jacobson

Catherine Jacobson knows that if a hospital is going to serve the needs of the community, it also needs to grow philanthropic roots within that community.

As senior vice president of strategic planning and finance at Rush University Medical Center in Chicago, Jacobson says her institution is in the midst of a drive to raise $300 million over a seven-year period.

To date, over $220 million has been donated. About $180 million of the total collected will go toward the construction of a new hospital to replace the outdated 680-bed facility on the main campus. “We have some buildings dating back to the 1880s,” Jacobson notes.

But while the entire $300 million has been figured into the medical center's long-term financial plan, she says, “Very little will go into our operating budget.”

Bill McGinly

Bill McGinly

That seems to be true for many large healthcare organizations that have active philanthropic campaigns, says Nick Hilger, a former hospital CEO who is now senior vice president of business development at Eden Prairie, Minn.-based Ingenix. “For private academic centers and faith-based systems, most donations are going to program development or research. Almost none is going to supplement operating costs.”

John Sandstrom, senior vice president and general manager of the Healthcare Finance Unit of Siemens Financial Services Inc. in Iselin, N.J., says hospitals can strengthen their bottom lines through receiving larger and more frequent gifts. “Those with brand names and large, well-established foundations get more donations,” he explains.

Bill McGinly, president and CEO of the Association for Healthcare Philanthropy (AHP) in Falls Church, Va., says that while the recipients may have big names, those making the donations are usually not well-known organizations. “Foundations and corporations are not big givers to hospitals. Eighty percent of gifts in 2006 came from individuals.”

So how can organizations get people, especially those being served by smaller hospitals, to give? “There needs to be a ‘cause celeb,’” Sandstrom says. “New construction is always a good thing to build your philanthropic strategy around.”

Brian Keely, president and CEO of Coral Gables, Fla.-based Baptist Health System of South Florida, says the effects of philanthropy can be dramatic. “It allows us to transition from a good health system to an excellent health system.” A case in point, Keely says, is the $120 million emergency center designed to treat over 100,000 patients a year.

“We got a $10 million gift from one person in the community, and in return, we've decided to name it after him.” Plus, Keely says, “One of our board members gave half a million for a new free children's clinic in South Miami.”

With six hospitals stretching from Miami to the Florida Keys, and numerous clinics, Baptist Health is the largest nonprofit health system in South Florida with annual revenues of over $1.7 billion. Yet Keely stresses that being a faith-based nonprofit changes the financial landscape. “We don't exist to make money,” he says. “When we do well, we have an obligation to give more back to the community.”

The tax-exempt debate

In state legislatures and the halls of Congress, a debate is raging over a requirement that could jeopardize the tax-exempt status of many hospitals. And should a hospital lose its tax-exempt status, its philanthropic gifts could be drastically reduced.
Brian Keely, president and CEO of Coral Gables, Fla.-based Baptist Health System of South Florida

Brian Keely, president and CEO of Coral Gables, Fla.-based Baptist Health System of South Florida

Francine Machisko

Francine Machisko

“People don't decide to give because of a tax break, but they'll give more because of a tax-break,” says McGinly.

What is being proposed would require nonprofit hospitals to provide “an appropriate” level of charity care or community benefit, with a designated percentage of the hospital's total revenue or expenses being allocated for that care.

What is of greater concern, though, is a report issued in 2006 by the Minority Staff of the Senate Finance Committee. One recommendation in this report that is being considered by Congress would put hospitals that do not provide minimum charity care levels into a special category that would preclude them from issuing tax-exempt bonds or from receiving donations that qualify as charitable deductions, says Atlanta, Ga.-based Francine Machisko, a senior principal with the Noblis Center for Health Innovation in Falls Church, Va. In addition, the IRS recently revised Form 990 which now requires hospitals to include information about charitable care and executive compensation, she says.

Given that this is an election year, Machisko doubts that any federal legislation will be proposed, but she says changes by the IRS will require hospital CEOs and CFOs to look closer at their bottom lines. “What they should be doing is putting systems in place to capture data as to what charity care they provide,” she says.