Healthcare Endowment Management: 3 Questions to Consider

January 10, 2017  | by Bill Jarvis

Governance and Policy | Industry Knowledge | Investment Strategy

Mounting cost pressures are forcing small and mid-sized nonprofit healthcare organizations to consider adopting endowment management practices similar to those used elsewhere in the nonprofit sector.

The healthcare business model is changing. In the face of declining reimbursement from insurance companies and governmental payers, nonprofit healthcare organizations are confronted with an unprecedented series of challenges, all while striving to maintain positive operating margins.

Having played a major role in their communities for decades, medical practice models are also being challenged. As a result, many doctors have closed their independent practices to become hospital employees. And in hospitals and clinics, the old-style model of brick and-mortar buildings located in major urban centers is being challenged by new delivery systems such as suburban mall-style “big box” shell structures with flexible wards that can easily be changed in response to the advent of new equipment and practices, free from the strictures of plaster walls and concrete slabs.

Although these challenges are being accelerated and intensified by the regulatory and payment changes mandated by the Patient Protection and Affordable Care Act (ACA), they are not new and, we believe, will continue despite any repeal or replacement of the ACA.

Healthcare organizations have worked for years to cut costs and maximize operating efficiencies. Larger organizations and networks, with substantial endowments to support their operations, have been better prepared financially to adapt to the more stringent demands of the coming environment and have been more successful in reducing costs and tightening their organizational structure.  Small and mid-sized healthcare providers, however, lack the economies of scale necessary to achieve meaningful cost reduction.

For these, the way forward increasingly includes merging or affiliating with other organizations to form more competitive networks. With or without these operational steps, it will be essential that small and mid-sized healthcare organizations strengthen their resource base by improving their endowment management skills and strengthening their ability to attract gifts and donations.

Should healthcare organizations consider adopting the endowment management model that has been developed over the last three decades by educational institutions and increasingly adopted by other types of nonprofits? 

If your organization is contemplating this change in direction, you should consider the fact that it may take several years for your organization to implement these changes and begin to see the benefits  – a fact which makes this task all the more urgent.

Leaders of healthcare organizations will need to consider the following questions:

  • What is the role of the endowment in our healthcare organization?

  • How do actual and potential donors evaluate our skill in managing our present endowment?

  • How can we make the case for larger endowments – and contributions – at a time of fiscal uncertainty?

In this changing landscape, it will be essential that small and mid-sized healthcare organizations strengthen their resource base by improving their endowment management skills and strengthening their ability to attract gifts and donations.

To learn more about the state of healthcare and how your healthcare organization is affected, download the complete whitepaper Assessing the State of Healthcare, by filling in your details below.

Authors

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William F. Jarvis, Executive Director, Commonfund Institute, leads Commonfund’s educational, research and professional development activities. Bill is the managing editor of Commonfund Institute’s series of proprietary studies of nonprofit investment and governance practices and the author or co-author of numerous white papers and articles. He speaks at Commonfund’s annual Endowment Institute and Commonfund Forum as well as at other nonprofit and industry conferences. A financial services executive and attorney, Bill served as Commonfund Institute′s Head of Research from 2006-15. His career prior to joining Commonfund included working with J.P. Morgan, where he spent 13 years as an investment banker in New York and Tokyo; Greenwich Associates, where he advised leading investment management firms and led the fielding of the first Commonfund Benchmarks Study; and Davis Polk & Wardwell, where he provided legal advice to global banks and securities firms. He also served as Chief Operating Officer of a privately-held hedge fund manager based in New York City. Bill holds a B.A. in English Literature from Yale University, a J.D. from the Northwestern University School of Law, and an M.B.A. from the J.L. Kellogg Graduate School of Management.
William F. Jarvis
Executive Director, Commonfund Institute

Assessing the State of Healthcare

Nonprofit healthcare organizations are confronting an unprecedented series of challenges as they strive to maintain positive operating margins in the face of declining reimbursement from insurance companies and governmental payers.

In order to operate in this environment, healthcare organizations will need to consider the following:

  • What is the role of the endowment in our healthcare organization?

  • How do actual and potential donors evaluate our skill in managing our present endowment?

  • How can we make the case for larger endowments – and contributions – at a time of fiscal uncertainty?

Download this paper to learn more about operating your nonprofit healthcare organizations in a challenging environment.

Fill in your details below







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Disclaimer

Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund managers. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund Group’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund Group fund. Such statements are also not intended as recommendations by any Commonfund Group entity or employee to the recipient of the presentation. It is Commonfund Group’s policy that investment recommendations to investors must be based on the investment objectives and risk tolerances of each individual investor. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund Group. Commonfund Group disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.