Benjamin Franklin—inventor, philosopher, ambassador—was also an innovative philanthropist, raising money to help found the first hospital in America in 1751. Its mission? To care for the “sick-poor and insane who wander the streets of Philadelphia.”
Two and a half centuries later, Pennsylvania Hospital is—like many hospitals across the country—fighting for market share in a region with too many empty beds. In 1997, the hospital stunned its supporters by merging with the University of Pennsylvania Health System to create a billion-dollar-a-year regional network that includes several hospitals and private practices. To assure its loyal supporters that the hospital was not being swallowed up and losing all independence, Pennsylvania Hospital trustees set up an operating foundation to continue fund raising and to manage their endowments independently of Penn.
Pennsylvania Hospital’s experience is far from unique, but it may be instructive. Watching hospitals struggle with multi-million dollar deficits, listening to the president and Congress duke it out over a patients’ bill of rights, donors may be getting confused or totally put off. Do hospitals really depend on annual campaigns that collect a few hundred thousand dollars a year from loyal donors? In a multi-billion dollar operation, is a $1 million grant enough to make much of a difference? Is health care for the poor really at stake?
Will Work For Chicken
To answer that question, it’s worth taking a look at the history of medical philanthropy, a phenomenon that dates back at least to the time of the Good Samaritan. Doctors and nurses have always donated their time to heal the sick. Tales of the country doctor making a house call on a poor farmer who paid for his services with a couple of live chickens are more than just stories.
One of the most famous efforts to address the health of the poor in a systematic manner originated in New York City in the late 19th century, when philanthropist and social activist Lillian Wald founded the Visiting Nurse Society. Wald and her fellow nurses began going door to door in the slums of the Lower East Side, treating tuberculosis and other diseases, and stimulating awareness of public health issues.
The government was not yet involved in health care by the turn of the century, and modern medicine was still in its infancy. Only a few decades ago, private hospitals routinely turned away the poor, and racial and ethnic minorities. (HMOs, the current whipping boys for critics of the health care system, were actually set up in California in the 1930s to provide services for the families of migrant workers.)
With the advent of Medicare and Medicaid in the 1960s, along with laws requiring hospitals to treat anyone in an emergency, taking care of the “sick-poor” unexpectedly turned into a lucrative franchise for hospitals and physicians alike. In 1975, an amendment to the Hill-Burton Act provided federal funding for hospital expansion in exchange for guarantees to provide minimum levels of charity care.
As Medicaid, Medicare, and the expansion of private insurance infused money into the health care industry, hospitals and doctors began providing charity care through “cost shifting.” Simply put, private or public insurance would pay enough for Mrs. Smith’s medical care to cover the cost of caring for Mrs. Jones, who had no insurance.
Cost shifting indirectly helped fund new facilities and technologies, and subsidized the teaching of medical students and residents. While hospitals have always benefited from gifts, in the cost shifting universe, the real philanthropists were employers who paid inflated insurance premiums and taxpayers who funded government medical programs.
Under the old system, certain hospitals benefited from one additional piece of largesse: teaching hospitals, typically in urban areas, received higher Medicare reimbursement rates to compensate for the cost of training residents. In 1997, Congress passed the Balanced Budget Act, with the goal of reducing the length of hospital stays and limiting subsidies that had been earmarked for higher-cost teaching hospitals. It was a good move for the federal budget and the national economy, but it was bitter medicine for hospitals.
Even after some funds were restored in 1999, the law cut Medicare payments by an estimated $119 billion, or 10.9 percent, between 1998 and 2002. Cost shifting was no longer practical, but hospitals couldn’t just stop serving the poor and uninsured. Now, according to the American Hospital Association, one-third of all hospitals are in the red.
“The Balanced Budget Act is the worst thing that ever happened to hospitals,” says Larry Tanner, CEO of New Britain General Hospital, a 360-bed community teaching hospital in Connecticut. Until recently, private foundation grants were the margin of excellence for a hospital like New Britain. Fund raising was directed toward improved facilities, new technologies, advanced research, and innovative clinical programs. Tanner describes as “scary” the notion of relying on private support to offset operating costs.
As well he might. New Britain receives only 72 cents on the dollar when reimbursed by Medicaid, and the number of Medicaid patients at the hospital has doubled over the last seven years. When you’re losing money on every patient, notes the former CEO of an academic health center, don’t try to make it up on volume.
And as perplexed trustees and donors note that hospitals lose money when the beds are full and when the beds are empty, their enthusiasm for medical philanthropy wanes. After all, who wants to see their gift swallowed up by a financial crisis?
The Balanced Budget Act is affecting other health care providers as well. The Hartford Visiting Nurse Association recently announced that it will no longer accept new Medicaid patients, a development that probably has Lillian Wald spinning in her grave.
More significant for philanthropy, all of this is having an impact on charity care, according to some analysts. A 1999 study by the Robert Wood Johnson Foundation found that downward pressure on payments to hospitals and physicians, primarily from managed care companies, was steadily reducing the amount of charity care provided to the estimated 43 million uninsured and underinsured.
Not everyone agrees. Brad Herring, who studies uncompensated care as a fellow at Yale’s Institute for Social Policy, says hospitals have managed to maintain levels of free care service over the last decade that are consistent, if inadequate. “[It’s] noble, if you consider all the decreases in reimbursement rates,” says Herring.
Whether or not charity care is suffering, the more pertinent question for donors may well be whether hospital philanthropy has been marginalized altogether. With hospital trustees and administrators properly more concerned with “takeovers, mergers, real estate acquisitions, [and] for-profit business opportunities,” as fund raising consultant Henry Goldstein put it in a recent article, and with contributions accounting for only 1 to 3 percent of revenues, the typical hospital manager is more likely to be negotiating the next HMO contract and planning another round of layoffs than thinking about how to phrase the next annual appeal letter.
Nevertheless, private philanthropy is proving its mettle in some areas, and this may actually be a bad time for hospitals to take donors for granted.
Two years ago, Beth Israel Medical Center in New York City, suffering from multi-million-dollar operating losses and greatly reduced bond status, found itself in crisis. The hospital’s trustees might have sold out to a for-profit hospital company or even closed down.
Instead, the hospital dug itself out with an ambitious capital campaign. In addition to overseeing major budget cuts, the trustees went out and raised $26 million from private sources.
“The trustees stand behind this hospital in good times and bad,” says Stephanie Steele, Beth Israel’s vice president of development. The campaign sent a message to employees and financial markets alike. Analysts would later cite this fund raising effort—along with significant budget cutting—as an important factor in their recent willingness to upgrade the hospital’s bond rating.
There is still a lot of big-time hospital philanthropy, for the simple reason that the wealthy get sick, too, and many of them are grateful enough for the lifesaving care they receive to turn around and write a check.
When U.S. Healthcare founder Leonard Abramson and his wife Madlyn pledged $100 million to create the Abramson Cancer Research Institute at the University of Pennsylvania Cancer Center, they also created an independent charitable trust to control the gift. Madlyn Abramson is a cancer survivor and a trustee at Penn.
Robert Feldman, associate vice chancellor for development at Vanderbilt Medical Center, knows that many donors give without even being aware of the medical center’s fiscal situation. “They focus on their own very personal health situation and the debt they owe to the doctor who took care of them. The CEO is not providing their health care.”
When Feldman discusses a big gift for the children’s hospital campaign with a prospective contributor, the conversation revolves around “what matters to the donor—curing cancer. I don’t talk about how well run Vanderbilt Medical Center is, I talk about healing sick children.” A 1998 gift of $340 million from the family of E. Bronson Ingram to Vanderbilt included major support for their cancer center. Ingram, who died of cancer, was a former trustee at Vanderbilt.
All the Way Private
On a much smaller scale, there’s still plenty of old-fashioned charity care to be found. For example, many medical school students and faculty provide free services to the homeless. They raise a few dollars for supplies, borrow space and equipment, and connect with local churches or social service agencies to reach the most needy.
At the San Francisco Free Clinic, the uninsured working poor get medical care for whatever they can afford to pay, while those eligible for Medicaid are referred to nearby community health centers. Husband and wife physicians Richard and Patricia Gibbs, who founded and direct the clinic, depend on private donations.
Patricia’s parents are prominent philanthropists in the Bay Area, and they work hard to raise funds for the clinic. Patricia and Richard love practicing medicine where they can also enjoy the freedom of not having to fill out government insurance forms and not having to wrangle with an HMO for permission to order tests or prescribe a drug.
Their Free Clinic is not an easily replicable solution to the country’s myriad health care problems, but it is a marvel. The couple keep a cardboard box in the waiting room for patients who can afford to contribute a little toward the care they receive. Perhaps someday a grateful patient will bring in a couple of live chickens.
David Davison is president and chief operating officer of American Savings Foundation, a New Britain, Connecticut-based foundation founded by American Savings Bank.