The negotiation of a hospital partnership is complex, and during discussions it is often a challenge to identify all of its potential ramifications. Unintended consequences are almost inevitable, but by studying the experiences of others it may be possible to mitigate unplanned outcomes.
In 2013, Sierra Vista Regional Health Center in Arizona leased its operations to RegionalCare Hospital Partners, based in Brentwood, Tenn. As part of the process, the Legacy Foundation of Southeast Arizona (a health conversion foundation) was created to manage the remaining assets of SVRHC.
The leadership believed we had addressed all of the critical issues and had created a mutually beneficial agreement. And, for the most part, we had. Nevertheless, after the ink was dry and we moved forward with our partnership, we identified several areas that, in a redo, we might handle differently.
Here they are — from the CEO and board chair perspectives.
A CEO perspective
Carefully select the businesses you will retain. When negotiating your partnership, carefully consider the business interests that will be retained by your new foundation. We had several residual businesses that were not adopted by our partner and required management by the new foundation. The wind-down and liquidation of these businesses was extremely time-consuming and resource-intensive for our initial two-person foundation staff. You should also consider the costs, particularly the legal ones, associated with residual businesses.
Be patient. Several board members and staff may have made the transition from the hospital to the foundation and may need time to adjust. It’s necessary to take plenty of time for education, putting in place an organizational base and developing the new foundation culture.
Hire the appropriate staff. The CEO and administrative assistant managed our operations for the first year. We engaged financial consultants on a part-time, temporary basis, and after 18 months, once we had our mission, goals and vision in place, we hired a full-time chief financial officer and grants manager.
Assess your service area through philanthropic eyes. We engaged a consultant to assist us in identifying how we might advance our mission. We conducted a community scan, held community focus groups and fostered input from residents throughout our service area. From this data we identified priorities for our first grants. Keep in mind that, although staff and board members may know their community's hospital needs well, more is required to understand their community's philanthropic needs.
Avoid duplication and build capacity. During our community assessment we identified significant duplication of services and a great need for capacity building in numerous nonprofit organizations. Rather than automatically providing funds to requesting organizations, you should take time to identify their real needs. Perhaps assistance with building internal capacity, and collaboration with like organizations to produce synergies and reduce duplication is the appropriate way forward.
Enjoy the process. Transitioning from a hospital operation to a foundation is a process with many ups and downs and a lot of hard work. Enjoy the process — there is light at the end of the tunnel, and it’s not a train. The rewards of a fully functioning foundation are second to none.
A board chair perspective
Don’t be in a hurry to disseminate grant funds. You’ll find that once the amount of the foundation’s assets is disclosed, you’ll have a lot of new “friends.” It’s essential that you get your infrastructure established before you enter the grant-giving environment.
Be prepared for a change in board culture. A hospital board is far different from a foundation board. It’s important to realize that personalities will come into play when it's a question of serving on the new hospital board or the new foundation board, regardless of the transaction’s configuration. The emergence of these personalities could have a negative effect on what had been a positive spirit of camaraderie. As you bring new people on to the foundation board, your culture will eventually change.
Address conflicts of interest. You have to address the issue of conflict of interest up front if you have individuals serving on both boards. Getting an opinion from your attorney will help you greatly.
Establish necessary committees. You should review your old board committees to see if any fit with your new foundation; don’t hesitate, however, to sunset some and create others. We found that four committees were sufficient: finance and investment, governance, philanthropy, and oversight/outreach.
Develop talking points. Members of your community, in all probability, will not understand the new configuration, so it’s important to develop board member talking points for use in community conversations.
Look beyond grants. You should look beyond being an ATM for various causes and organizations. Are there health care issues you could champion that give substance to your foundation? That’s a great topic for discussion.
Develop your corporate structure from an Internal Revenue Service perspective. As you’re creating your new corporation, give consideration to the type of tax-exempt organization you want to become — a 501(c)(3), with either public charity or private foundation status, or a 501(c)(4), a social welfare organization.
Select a competent CEO. Hiring the hospital CEO as the foundation CEO has advantages, including familiarity with the community and board members, thorough knowledge of any residual business, and already-formed relationships with key leaders in your service area.
Setting a foundation
The leadership of the Legacy Foundation of Southeast Arizona executed a well-negotiated and thoughtful agreement with our partner. Ours was a friendly negotiation, and each partner was flexible and agreeable.
Now, three years later, the conversion foundation is in full operation, and we have learned some important lessons from this segment of the journey. While all partnerships are unique, we hope our insights will help you to avoid surprises and negotiate the best deal possible.
Authors’ note: An article outlining some lessons learned from the early part of our journey was published in the October 2013 issue of Trustee.
Margaret Hepburn (firstname.lastname@example.org) was the CEO of Sierra Vista Regional Health Care and now is CEO of the Legacy Foundation of Southeast Arizona. Lanny Kope (email@example.com) was the board chair of Sierra Vista Regional Health Center and now is the vice chair of the Legacy Foundation of Southeast Arizona.