Consumers Union Nonprofit Conversions
Corporate Structures Nonprofit Health Inc. Conversions 101
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Regulators Play a Critical Role

Regulators with power to reject or require changes in a nonprofit health organization’s proposed transaction should follow standardized procedures and rigorously review all proposed transactions.

When reviewing conversions, regulators should do at least the following:
  • Provide public notice of all proposed transactions and broadly disseminate such notice;
  • Make all documents related to the proposed transaction available for public review;
  • Determine whether the proposed transaction is in the public interest by a thorough analysis of the entire transaction;
  • Require that the converting entity show that the purpose for which the nonprofit was created has become impossible, impracticable, or is frustrated, thus necessitating a conversion;
  • Require that the converting entity submit a plan for the proper use of charitable assets similar to the purposes of the converting nonprofit;
  • Scrutinize the impact the proposed transaction will have on the local health care system and determine whether important, but possibly unprofitable health services, will remain available after the nonprofit organization becomes a profit-making business;
  • Hold at least one public hearing, timed to ensure that public input will be meaningful to the decision-making process;
  • Require that the full fair market value of the converting entity is preserved for charitable purposes;
  • Ensure that the board and executives of the nonprofit receiving the charitable assets are independent of the old nonprofit and without any ties to the new for-profit corporation;
  • Analyze the planned compensation for the new board of directors to ensure it does not exceed that received by board members at similar institutions;
  • Prohibit any economic benefits to staff or directors of the nonprofit as a result of the proposed transaction; and
  • Engage independent experts to aid in review of the proposed transaction, especially to provide an independent financial analysis of the transaction (including independent valuation) and to conduct a health impact assessment.

This list is largely taken from: Daniel M. Fox and Phillip Isenberg, “Anticipating the Magic Moment: The Public Interest in Health Plan Conversion in California,” Grant Watch Essay; Health Affairs, Vol. 15, No. 1, pp. 202-209.