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Healthcare Business News

Feel-good medicine

California foundation targets dollars to help the underserved

By Other News Source
Posted: June 1, 1998 - 12:01 am ET

Mark Smith, M.D., president and CEO of the huge new California HealthCare Foundation, is attempting to stake out some new territory in the Golden State. And it just may be possible, as he certainly has the gold.

The Oakland, Calif.-based foundation is one of two philanthropies created as a result of the conversion of Blue Cross of California to for-profit status. Under California law, Blue Cross' for-profit parent, WellPoint Health Networks of Woodland Hills, Calif., was required to provide funds for a private foundation to compensate the public for Blue Cross' many years of tax-free status.

To secure "substantial tax advantages," Smith says, WellPoint established two philanthropies: CHCF and the California Endowment. As one of two entities, CHCF was able to attain 501c(4) tax status, which allows it significant tax savings.

To qualify for 501(4) status, the foundation must transfer the majority of the WellPoint funds -- about 80% -- to the endowment. It can use the remaining 20% -- about $700 million -- for its own grant-making efforts.

Though critics have expressed fear that the two philanthropies may be tempted to fund projects based on WellPoint's best interests, Smith and his counterpart at the endowment insist their bylaws strictly prohibit any attempts to lobby or "self-deal." Half of the foundation's board members were inherited from the Blue Cross board, but that percentage is expected to drop over time.

The mission of the foundation, Smith says, is to expand affordable, quality healthcare to underserved communities and individuals in California and to promote fundamental improvements in the health status of the state's residents.

"What we're doing here is really kind of a great experiment to see if assets from one of these healthcare conversions can be put to wise use," says Smith. "Physicians and physician organizations ought to be following this process and asking how these assets can be put to the best use."

Because most, if not all, of the Blue Cross and Blue Shield plans nationally will be under intense pressure in coming years to consider changing their ownership structures, the California HealthCare Foundation model bears watching.

The foundation's first grants, totalling $35 million, were announced in late March. They included:
  • A $15 million program to support new and improved models of care for the 1.5 million elderly Californians enrolled in Medicare managed-care plans;

  • $5 million to help the California Department of Health Services evaluate managed-care models for children with special healthcare needs who have Medi-Cal coverage;

  • The establishment of a policy institute to provide information and analysis on Medi-Cal issues for legislators, the media and the general public, along with partial funding of the California Managed Health Care Improvement Task Force (see related story, page 44);

  • Several programs aimed at expanding coverage of uninsured Californians, including $1.5 million to help fund the "First Things First" initiative, which is attempting to launch local efforts to enroll eligible children in Medi-Cal ;

  • A $1.2 million award to help broker an industrywide agreement on standards for the electronic transfer of healthcare information among doctors, health plans, purchasers and others; grantees are the Pacific Business Group on Health, which represents many of the West Coast's largest employers, and the National IPA Coalition.
The foundation's mission of providing more healthcare for underserved communities is similar to that of its companion foundation and a number of other foundations set up as a result of for-profit conversions. But with long-term financial resources significantly smaller than those of the California Endowment, Smith stresses the foundation needs to target its support more carefully.

The endowment, in contrast, is emphasizing broader, community-based programs and has divided California into 11 regions that will be targeted according to specific health-care needs, according to its president and CEO, Steven Uranga McKane, D.D.S.

"We're putting emphasis on different priorities," says Uranga McKane, noting that Smith's work will probably be of greater interest to the physician community.

After reviewing the priorities of other major California-focused healthcare foundations, including the endowment and the separate California Wellness Foundation, created by Health Net's 1992 conversion, Smith and his colleagues have isolated five areas they feel need additional attention.

Targets include: managed care's impact on special populations, such as the elderly, children, HIV and AIDS patients, and the disabled; the uninsured; quality-of-care issues, especially the need to provide objective data on quality to consumers; selected public health issues, such as an initial $1.5 million crash campaign to come up with a vaccine against Valley Fever, a fungal disease afflicting residents of California's sprawling San Joaquin Valley; and the state's public health policy.

Its initial targets "are semi-arbitrary," Smith says, "but at some point you make the best determination you can."

Smith, a leading African-American healthcare executive, is a clinical professor of medicine at the University of California at San Francisco. He earned his medical degree at the University of North Carolina School of Medicine, a master's in business at the University of Pennsylvania's Wharton School and a bachelor's degree in Afro-American studies at Harvard.

However, Smith's path to the top hasn't always been as smooth as that summary may suggest. He dropped out of Harvard in the late 1960s and spent seven years away from school -- tutoring black children in Jackson, Miss., working in a textile mill and participating in the campaign to end Portuguese colonialism in the African nations of Mozambique and Angola.

But once he re-entered the academic world, he rapidly made his mark. He became a noted expert in the intricacies of dealing with the AIDS epidemic, special adviser on AIDS to the governor of Pennsylvania and associate director of the outpatient AIDS program at the Johns Hopkins University School of Medicine.

Many believe that Smith is ideally suited to the job of finding innovative ways to fund worthy healthcare projects in California.

David Lawrence, CEO of Oakland-based Kaiser Permanente, says Smith has a "very strong commitment to the social purpose of healthcare . . . he's outstanding -- both a very, very bright and capable scientist and a very impressive human being."

Lawrence has known Smith for almost nine years and describes him as marked by "a burning intensity."

For example, in terms of dealing with the massive problem of uninsured workers and their families in California -- a group that totals more than 6 million -- Smith is looking for specific data on how people make decisions about buying insurance and ways the foundation can work with private companies and the state-run Health Insurance Plan of California to make health coverage more affordable.

"A magic wand is unlikely in the foreseeable future," he says, acknowledging that his foundation is taking a pragmatic, incremental approach that necessarily involves "a less sexy, less global kind of solution."

But Smith's boosters say his pragmatism shouldn't be mistaken for timidity.

"He doesn't accept anybody's conventional wisdom," says Drew Altman, president and CEO of the Henry J. Kaiser Family Foundation in Menlo Park, Calif., where Smith served for five years in senior positions.

"His agenda is to push this chaotic marketplace to work for people," Altman says. "And no one else is really doing that as a thrust. It is a distinctive mission."

One sign of the foundation's distinctive approach is its location in a recently rejuvenated commercial enclave in downtown Oakland. The city, located across the San Francisco Bay from San Francisco, is home to major corporations such as Kaiser Permanente and Clorox Co. but has long been seen as an economically disadvantaged and crime-ridden counterpoint to its world-renowned neighbor.

Smith says Oakland was selected as a logical base of operations for a foundation that wants to transform downtrodden and traditionally neglected communities.

It's housed in The Henry House, formerly a historic hotel that at one point was the home of the legendary pioneer of modern dance, Isadora Duncan.

The brick structure stood empty for nearly four decades until it was refurbished a few years ago as part of the transformation of a run-down central Oakland neighborhood, now known as Old Oakland.

The foundation's newly renovated offices -- featuring a sunlit atrium, modern art on the walls and shiny balustrades -- serve as a visual metaphor for its policy objectives. The enterprise has provided about 35 well-paid jobs and a shot at making an even bigger difference down the road.

"There aren't many foundations in the East Bay," Smith says. "It's a good place for us. We can do some good just by being here."

Chris Rauber is a former reporter for the San Francisco Business Times who recently joined Modern Healthcare's San Francisco bureau.

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