State officials are saying "enough" to those who want to turn not-for-profit assets over to for-profit companies without providing adequate return to the community.
California Attorney General Dan Lungren halted Sharp HealthCare's plan to sell controlling interest in its not-for-profit hospitals to Columbia/HCA Healthcare Corp. by threatening to sue. Lungren contends the San Diego Sharp facilities were significantly undervalued by a board that violated its responsibility to the community.
Lungren joins attorneys general in at least three other states challenging moves by for-profit companies to acquire assets of a not-for-profit entity.
Meanwhile, state legislators are moving to establish oversight of not-for-profit hospital and HMO conversions. California is one of 10 states that already has passed legislation, but Lungren acted because the law doesn't go into effect until January.
Not-for-profits may have legitimate reasons to sell to for-profits, and the foundations they establish have the potential to do great good by funneling millions to community programs. But such deals must be able to face strict public scrutiny by establishing safeguards such as:
Notifying the public at least 60 days before a sale or conversion and holding public hearings.
Making public documents establishing sale price, value of assets, amount going to charity, payment to officers and other details.
Hiring outside experts to establish an independent valuation of the charitable asset.
Establishing an independent board for the newly created foundation that reflects the community and is sensitive to conflict-of-interest and accountability issues.
Voluntarily taking such actions will prepare institutions for coming legislation and help deter efforts to hold board members personally liable for any undervaluation of assets. Furthermore, they'll help community-based organizations maintain public goodwill in an arena that promises to grow increasingly controversial.