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.