In the evolving terrain of American healthcare, health conversion foundations, also known as health legacy foundations, have emerged as powerful stewards of community well-being. These philanthropic entities can be born from the sale or merger of nonprofit hospitals, health systems, or the conversion of health plans to for-profit corporations. Their mission is typically to ensure that the charitable assets of the original nonprofit continue to serve the public good, often through targeted investments in health equity, access to care, and the social determinants of health.
The rise of health conversion foundations is closely tied to the consolidation of the healthcare sector. As nonprofit institutions are absorbed by for-profit entities, communities risk losing vital services and local accountability. To counterbalance this shift, more than 300 health conversion foundations have been established across the United States, collectively holding over $40 billion in assets and distributing more than $1 billion annually in grants. These foundations have become some of the most influential non-governmental funders of health initiatives in their regions, often stepping into roles once filled by public institutions.
The formation of health conversion foundations, for a majority of them, is governed by a rigorous process. After the monetization of nonprofit assets, transactions typically undergo legal and regulatory review, often involving state attorneys general, to ensure that the public interest is protected. Once approved, an independent foundation is created, ideally with a community advisory panel to guide its early direction and build trust. Governance is a cornerstone of their legitimacy: boards are expected to be independent from the acquiring for-profit entity, practice prudent organizational and investment stewardship, and include diverse voices from the community, including public health experts, nonprofit leaders, and residents of the service area.
Formation Pathways of Health Conversion Foundations
Health conversion foundations are typically created to preserve the charitable mission of nonprofit healthcare entities that undergo structural change, usually through sale, merger, or conversion. While the end goal is consistent, ensuring that community health assets remain in service of the public good, the pathways to formation can vary widely depending on the nature of the transaction and state-level oversight. Below are the most common pathways to formation, recognizing that there may be other ways in which these foundations are formed.
1. Sale of a Nonprofit Hospital to a For-Profit EntityOne of the most common pathways occurs when a nonprofit hospital or health system is sold to a for-profit corporation. In these cases, the proceeds from the sale are used to establish a foundation that continues the nonprofit’s original mission. State attorneys general often oversee these transactions to ensure that the charitable assets are not lost and that the new foundation is independent, transparent, and community-focused; Portneuf Health Trust, in Idaho, serves as an example.
2. Conversion of Nonprofit Health PlansHealth conversion foundations can also emerge from the transformation of nonprofit health plans into for-profit insurers. A notable example is the creation of the California Endowment and California Health Care Foundation, which resulted from the conversion of Blue Cross of California. In such cases, the proceeds may be split between multiple foundations, each with distinct governance structures and strategic priorities.
3. Merger of Nonprofit EntitiesIn some instances, two nonprofit healthcare organizations merge, and the resulting consolidation leads to the divestment of certain assets. These assets may be redirected into a newly formed foundation that serves the broader community. This pathway often involves complex negotiations and requires clear documentation to ensure that the foundation remains mission-aligned and independent.
4. Voluntary Dissolution and Asset Transfer
Less commonly, a nonprofit may choose to dissolve voluntarily and transfer its remaining assets to a newly created foundation. This pathway is typically pursued when the organization determines that its mission can be better served through grantmaking or community investment rather than direct service delivery.
5. Regulatory or Legal MandateIn some cases, the formation of a health conversion foundation is mandated by regulatory bodies or legal settlements. These mandates may arise from antitrust concerns, community advocacy, or litigation related to the transaction. Foundations formed through this route often have strict oversight requirements and must demonstrate ongoing public benefit.
The importance of strong governance cannot be overstated. Foundations must regularly report on their grants and impact, enforce conflict-of-interest policies, implement best practices in investment stewardship, and align their strategic plans with community health needs. Failure to comply with these standards has, in some recent cases, prompted states to strengthen oversight and hold public hearings.
Health Conversion Foundation Endowments
Recent trends show a shift in strategy among these foundations. Many are moving beyond traditional grantmaking to embrace systems change, policy advocacy, and mission-aligned investing. This includes impact investments in affordable housing, behavioral health, and local economic development, areas that directly influence health outcomes but often fall outside the scope of clinical care. According to a recent Candid report on foundation giving trends, more than a third of foundations, including health conversion foundations, expect to increase their grantmaking in 2025, driven by rising asset values and growing community needs. According to our recently released Council on Foundations-Commonfund Study of Investment of Endowments for Private and Community Foundations (CCSF), 10-year net annualized returns were 7.2 percent, on average, for the 23 health conversion foundation participants. Ongoing investment stewardship will be key to enabling these entities to support their missions over time.
Some health conversions operate solely as grantmakers, while others run their own programs or engage in fundraising to grow their endowments. Regardless of their model, they are typically required to spend at least 5% of their assets annually on charitable purposes as per the IRS minimum payout requirement for foundations. According to CCSF data, health conversion foundations have a stated policy spend rate just above the IRS minimum – 5.1 percent on average, similar to the 5.2 percent reported by total private foundations in the Study.
As the healthcare landscape continues to shift, health conversion foundations offer a vital counterbalance, preserving community voice, investing in long-term health equity, and serving as neutral conveners across sectors. Their success depends not only on financial and investment stewardship but on their ability to remain rooted in the communities they were created to serve. With thoughtful governance and bold vision, these foundations can transform the legacy of nonprofit healthcare into a lasting force for public good.
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