Structuring Health Insurance Markets

Monitoring Conversions

Of Non-Profit Health Plans and Hospitals to For-Profit Status

Mr. Isenberg reported on the wave of conversions in recent years to for-profit status by Blue Cross Blue Shield plans, and other nonprofit insurers, and by non-profit hospitals. He highlighted the following statistics:

• In early 1996, for-profit health plans represented 72.8 percent of all health maintenance organizations (HMOs) in America which was a 15-fold increase in market value and membership since 1990.
• Between 1980 and 1993 about 21.2 percent of all hospitals changed ownership. Out of these 174 (63 percent) were nonprofit hospitals converting to for-profit.

With these conversions came a new world of conversion foundations, prompted in part by States seeking to mitigate the loss of community benefits by requiring the creation of nonprofit foundations to continue health-related charitable activities formerly carried out by non-profit health plans and hospitals. As of December 1996, there were 81 conversion foundations endowed with $9.3 billion.

Mr. Isenberg examined hospital conversion legislation and cited the findings of a 1998 report by the Volunteer Trustees Foundation for Research and Education on a State by State analysis of conversion legislation across 14 States. He reported that all 14 States had provisions that the State must be notified, 12 of 14 required a public hearing, 11 of 14 have community assessment/access to care provisions, and 10 of 14 require State agency and/or Attorney-General approval.

Mr. Isenberg ventured some guesses on future State strategies for overseeing/monitoring conversions including:

• Expand regulators authority over foundations.
• Virtually prohibit certain kinds of joint ventures (per recent Internal Revenue Service [IRS] regulations).
• Develop a central registry of all major plan/hospital transactions.
• Increase efforts to define charity care.
• Strengthen conflict of interest laws.

References

Isenberg PL, Battson RJ. Sales and Other Transfers of Nonprofit Health Facilities: Assembly Bill 3101—The Economics, Politics, and Social Values that Shaped the Legislation. California Health Law News 17(1):4-13.

Fox DM, Isenberg PL. Anticipating the Magic Moment: The Public Interest in Health Plan Conversions in California. Health Affairs 15(1):202-23.

Butler PA. State Policy Issues in Nonprofit Conversions. Health Affairs 16(2):69-84.

Issaacs SL, Beatrice DF, Carr W. Essay: Health Care Conversion Foundations: A Status Report. Health Affairs 16(6):228-36.

Bell JE, Snyder HM, Tien CC. The Public Interest in Conversions of Nonprofit Health Charities. New York: Milbank Memorial Fund.

Rothhouse M. Change in Nonprofit Entities. Health Policy Tracking Service Issue Brief, April 23, 1998.

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