Hospital M&A complicates fundraising

The modest seven-person development and marketing team at Burke Rehabilitation Hospital has been feverishly raising money for a new facility dedicated to supporting the friends and family members of patients recuperating from major events like severe strokes or spinal cord injuries.

"We're trying to provide the tools a family needs to be able to navigate this process and to help them move on to the next level of rehabilitation, and hopefully the highest level of independence," Burke spokesman Richard Sgaglio said.

So far, they've raised about 10% toward the project's roughly $1 million price tag, a relatively modest goal for the 150-bed rehabilitation hospital in White Plains, N.Y.

But even though Burke was absorbed into New York-based Montefiore Health System in 2016, an integrated four-hospital system with revenue of more than $5 billion, Burke executives have chosen to keep its fundraising in-house.

In doing so, Burke will harness its 102-year-old reputation among long-standing donors, many of whom are former patients and their family members, rather than dissolve its identity into the larger system. "If you have this wonderful thing, you don't want to quash it, you want to make it something that continues to be valuable," Sgaglio said. After the acquisition, Sgaglio's team reached out to donors to assure them their money would stay with Burke, which also runs seven outpatient facilities.

In an industry experiencing an accelerated pace of mergers and acquisitions, health systems must grapple with how to structure their fundraising operations, especially as they absorb not-for-profit hospitals and systems with existing foundations. During acquisitions, leaders try to cut redundant work to make the deal worthwhile, but centralizing fundraising often comes with regulatory barriers and hospital-level pushback.

It's an important consideration because while fundraising produces only about 3% of health systems' revenue, that's close to the size of many health system operating margins in recent years.

And the total amount that healthcare organizations are raising is going up: from about $8 billion in 2006 to more than $10 billion in 2016, an increase of about 25%, according to the Association for Healthcare Philanthropy.

Yet, philanthropy—like politics—is still very much local. Case in point: Hackensack (N.J.) University Medical Center. The hospital's pediatric cancer campaign relies on New York Giants quarterback Eli Manning to try to win the hearts of fans in northern New Jersey. Despite its merger with Northern and central New Jersey-focused Meridian Health two years ago, Hackensack's foundation is still separate, but there are talks of uniting them, said Robert Wahlers, vice president of development for the Meridian Health Foundation.

Doing so would require carefully tailored local outreach, with Hackensack's historical presence in Philadelphia Eagles country. "Especially on the heels of them winning the Super Bowl, if we're going to put something out with Eli Manning to the folks in the southern part of the state, they might not be as excited to come out and support Tackle Kids Cancer, because they're going to want to see their quarterback," Wahlers said.

More generally, relations can get tense when an acquiring system also tries to absorb the hospital's foundation, pulling away what could feel like its last semblance of control.

"The hospital that's being subsumed into a larger system has an interest in maintaining whatever level of control that it can now that it's giving up the keys to the larger system," said Jack Gleason, an attorney specializing in healthcare with the New York law firm Epstein Becker & Green. "That's just a natural gravitational pull."

There's no one-size-fits-all solution, and often the model that works best depends on a system's unique circumstances. Some industry experts praised a hybrid model in which acquired hospitals maintain their own fundraising operations that are then supplemented by their parent organizations, which provide specialty expertise, standardization and some of the back-end work that donors don't see.

"You still have at every single one of their foundations front-line people who are on the ground working with donors, doing all the work to find out what a donor's intent was, cultivating and nurturing those relationships, thanking people," said Betsy Chapin Taylor, president of consulting firm Accordant Philanthropy. "All the boots-on-the-ground work is still done at the local level, but they're just being resourced and enabled at the system level."

That's the general setup at San Francisco-based Dignity Health, whose 31 separate foundations across the West are supported by a systemwide foundation that provides budget guidance and recruitment help. While the system benefits from having hospital-level groups, Fred Najjar, Dignity's senior vice president of philanthropy, spoke longingly of the efficiencies the system would gain if its foundations were rolled into one: a unified reporting structure with one annual Internal Revenue Service tax filing of Form 990.

Dignity is in the process of merging with Englewood, Colo.-based Catholic Health Initiatives, which would create the nation's largest not-for-profit hospital system by revenue. CHI operates its foundations similarly to Dignity. The system had 39 foundations as of June 2016, some of which represent several of CHI's 101 hospitals, spokesman Michael Romano said. The systems have not determined how they would structure their fundraising, but Najjar said he thinks they should consider uniting them.

"To make it one single foundation across 20-some states could be a challenge," Najjar said, "but I think we should explore it."

Salt Lake City-based Intermountain Healthcare is a fervent advocate for the parent foundation model, which the system adopted in 2012 when it brought together 16 separate foundations. The resulting Intermountain Foundation now has close to $300 million in total assets.

But it was an emotional undertaking for the system; many people were afraid the change would strip away local identities, said David Flood, the foundation's president and Intermountain's chief development officer. To prevent that, Intermountain has stationed members of its fundraising staff at some of its hospitals, and it operates volunteer community-development boards for each hospital.

"Local identity is important," Flood said. "We just want to provide as a system a strong backdrop that people were afraid to bring forward, but they're realizing our donors are impressed with that."

Northwell Health Foundation has historically operated under more of a parent structure, with a single foundation overseeing 19 hospitals. But four of its most recent acquisitions— Northern Westchester Hospital, Phelps Memorial Hospital, Peconic Bay Medical Center and Mather Hospital—have retained their existing foundations, said Brian Lally, the foundation's senior vice president and chief development officer. He said there are no plans to change that.

The New Hyde Park, N.Y.-based foundation, which had $260 million in total assets in 2016, still supports the hospital-level foundations through branding expertise and other resources—things a six-person development staff could not afford on its own, Lally said.

"One of the strongest aspects of Northwell as an organization is we're very much about the community," he said. "There's not this sort of top-down, 'This is what you have to do.'"