Northwest Indiana not-for-profit hospitals are changing their approach to fundraising, forming philanthropic foundations to focus their charitable giving efforts.
The move to forming foundations that support hospital missions marks a shift from the traditional way hospitals raised money to build new wings or launch new services. Those efforts traditionally were conducted within the hospitals themselves through development offices. But recently two large systems, including the five-hospital Franciscan Alliance and two-hospital Methodist Hospitals, have formed philanthropic foundations.
Bill McGinley, president and chief executive officer of the Association for Healthcare Philanthropy — a Falls Church, Va.-based organization primarily comprised of hospital fundraising professionals — said three-quarters of his organization’s members have switched to the foundation model to organize fundraising and philanthropic efforts.
“Hospitals that established supporting foundations found additional benefits and added assurances to their donors and the general public,” McGinley said.
He said the shrinking reimbursements from state, federal and private health plans have intensified the move to forming hospital foundations.
“More than one-third of U.S. hospitals are operating in the red and another third are barely breaking even,” he said. “Those that are turning a profit are running 2 percent to 3 percent profit margins. Those added economic pressures have made hospitals more reliant on philanthropy. And that’s spurred interest in how hospitals can do this (fundraising) better. Philanthropy can’t carry the day, but it can make a critical difference in meeting the health care needs of a community.”
The association reported that U.S. hospitals and health systems raised more than $8.3 billion in fiscal 2010, primarily through donations from individuals, corporations and foundations.
He said in the past decade numerous hospitals and health systems have merged, both nationally and locally.
In Northwest Indiana, Community Hospital of Munster acquired St. Catherine Hospital in East Chicago and St. Mary Medical Center in Hobart from Ancilla. A few years earlier the religious orders that operated St. Anthony Medical Center in Crown Point and the St. Margaret Mercy hospitals in Hammond and Dyer merged the hospitals and later purchased Heartland Hospital in Munster. They now comprise the northern region of the Franciscan Alliance.
McGinley said having foundations overseeing donations during those periods of transition and uncertainty inspire confidence in donors and protect their donations.
McGinley pointed out that under IRS rules, for-profit hospitals — such as Pinnacle Hospital in Merrillville, Hind Hospital in Hobart and Porter Health in Valparaiso — can’t offer tax exemptions for donations and are unable to form tax-exempt foundations to support hospital capital campaigns.
Legal, tax issues
Robert Hanrahan III, executive director of the Methodist Hospitals Foundation, said foundations separate the operational side of the hospital from the philanthropic dollars.
“People feel more comfortable with philanthropic foundation giving than with giving to the actual hospital organization. They want to know that their money is making a difference in people’s lives in a community,” Hanrahan said.
Gene Diamond, chief executive officer for the Franciscan Alliance’s northern region, said the alliance has developed a single foundation with four divisions, one for each geographic region. Diamond said the local Franciscan division foundation is appointing members and regional development directors to lead fundraising efforts.
Diamond said the Franciscan Alliance decided it needed a foundation to solicit major gifts and donations from certain organizations that either prefer or are required to give donations through foundations.
He said for decades the local Franciscan hospitals solicited donations, grants and bequests through their development officers, who also led corporate campaigns.
“We’ve done that without impediment,” he said. “But recently when we’ve gone to larger corporations, we’ve found that they are limited and often cannot donate unless it’s through a foundation. We’ve missed some opportunities.”
For example, he said a gift from a hospital vendor company that seeks to support a hospital project might see that charitable gift interpreted by federal authorities as a potential conflict of interest and cause both the vendor and the hospital legal and compliance consequences.
“So to avoid any appearance of impropriety, we’ve moved to a foundation model,” said Diamond.
Community Hospital spokeswoman Mylinda Cane said the three-hospital system conducts its fundraising efforts within each hospital and funds expensive capital projects through revenues from operations and borrowing. Cane said each hospital has auxiliaries that raise money for projects and an endowment where donors can give to support the charitable mission.
The three Community hospitals are owned by the Community Foundation, which does support other area not-for-profits like the Theatre at the Center and the Community Cancer Research Foundation.