July, 1998
This article was written by the Consumers Union Southwest Regional Office.
On March 15, 1995, Columbia/HCA Healthcare Corporation purchased Angelo Community Hospital, a 165-bed nonprofit acute-care hospital serving San Angelo. Although the sale proceeds were used to establish the San Angelo Health Foundation, the Foundation now grants money to a broad range of charitable projects, in apparent violation of the common law cy pres doctrine.
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Since the foundation's new purpose will include health, but not be limited to it, the board essentially decided it would give money for any kind of worthy community project. The foundation actively opposed legislation in 1997 that would have specifically prohibited using dedicated charitable health funds for such broad gift programs. |
Founded as a clinic by three physicians in 1929, Angelo Community Hospital became a nonprofit facility in 1969. 1 As a nonprofit, tax-exempt facility, Angelo Community Hospital fulfilled its charitable mission by providing medical services without regard to an individual's ability to pay.2
In 1994 the Angelo Community Hospital Board of Trustees decided that the facility needed to affiliate with a larger system in order to survive in the health care marketplace.3 The hospital board initially spoke with the for-profit Quorum Health Group out of Nashville, which already owned one hospital in San Angelo, about setting up a Health Maintenance Organization (HMO). However, Quorum preferred to directly purchase the hospital.4 The board approved a motion to sell the hospital and initiated negotiations with Quorum and two other for-profit hospital corporations, American Medical International of Dallas and Columbia/HCA.5
The Angelo Community Hospital Board provided the bidders with detailed financial information about the hospital, but no independent audit was conducted to determine the value of the hospital's assets.6 On March 15, 1995, Angelo Community Hospital sold all of its general acute care assets to Columbia/HCA for approximately $75 million. Specifically, proceeds from the sale repaid approximately $25 million for the hospital's bond debt, while roughly $50 million was allocated to the nonprofit foundation.7 The hospital currently operates as Columbia Medical Center of San Angelo.
The nonprofit Angelo Community Hospital changed its name to the Angelo Community Health Foundation, under the direction of the same board, and amended its bylaws to reflect its new mission as a grant giving foundation.8 The proceeds from the sale were transferred to the new foundation, which reported net assets of $47,170,242 at the end of 1995. 9 The foundation committed to giving $4,024,953 million in 1997, its first year awarding grants.10
In an interesting twist to this story, Columbia/HCA announced in November 1997 that it intended to sell 22 of its Texas facilities, including the Columbia Medical Center of San Angelo.11 This may give the public another opportunity to weigh-in about the future ownership of a major health care provider in the community. If the hospital sells for substantially more than Columbia paid for it, the spinoff might also indicate problems in the original valuation of the charitable assets.
Like most other hospital transactions examined by CUSWRO, the parties involved in the sale of San Angelo Community Hospital completed the sale without notifying the Texas Attorney General, and limited public access to sale information and the negotiation process. This transaction is particularly troubling, however, because the Foundation, directed by the former hospital board, no longer adheres to the nonprofit hospital's original health care mission, but grants money to a broad range of charitable projects.
A former Angelo Community Hospital board member confirmed that hospital officials did not send any official notification of the sale to the Texas Attorney General's office prior to finalizing the agreement with Columbia.12 The Attorney General's office did not discover the conversion until well after the two parties signed the deal, and did not act to protect the public's interest in the sale before it was consummated.
The board member also confirmed that Angelo Community Hospital officials completed the hospital's conversion to for-profit ownership without public involvement. Hospital officials did not hold hearings to allow the public to voice its opinions about the proposed sale to for-profit corporation or the fate of the charitable assets.13 Further, hospital officials did not provide the public access to information about the sale. Hospital and foundation officials claim that the actual transaction documents, including the valuation estimate and sales agreement, are proprietary and would not release them for this report.14
The foundation is now using the charitable assets from the hospital's sale to Columbia to support non-health related programs, including the Girl Scouts, the Boys and Girls Club, a university lectureship in the Humanities, and the restoration of historical landmarks. According to the Texas Attorney General, the common law cy pres doctrine requires health foundations that are created as a result of nonprofit to for-profit hospital conversions to fund health related programs and activities.15 (see also main text)
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Non-Health Related Committments 1997 |
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Angelo State University |
$21,754 |
Ralph Chase Lectureship in the humanities |
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Boys and Girls Club |
$3,000 |
Seasonal assistance |
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Christians in Action |
$111,000 |
Seasonal assistance and purchase of facility to serve indigent population |
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El Camino Girl Scout Council |
$18,963 |
Heating and cooling for girl scount headquarters |
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Fort Concho National Historical Landmark |
$80,000 |
Stables Acquisition Project for landmark restoration |
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Habitat for Humanity |
$105,000 |
Home ownership program for low income families |
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House of Faith |
$12,900 |
Ministry for young people and Summer Sports Camp |
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Humane Society of Tom Green County |
$200,000 |
Equipment and furnishings for a new animal shelter |
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Institute of Cognitive Development |
$46,360 |
Furnishing for transitional housing for victims of domestic violence |
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Rio Concho Retirement Community |
$1,000,000 |
Funding for subsidized units of an assisted living facility. |
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Salvation Army |
$4,000 |
Seasonal assistance |
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San Angelo Friends of the Environment |
$11,980 |
Building for environmental education and recycling |
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San Angelo Museum of Fine Arts |
$300,000 |
New museum construction |
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Sterling County Senior Citizens Center |
$28,000 |
Matching funds for Texas Historical Commission grant for restoration of a historic building for use as a Senior Citizen Center |
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Tom Green County Attorney |
$15,784 |
Domestic Violence Prosecution Unit |
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Tom Green Sheriff's Office |
$6,540 |
DARE program and GREAT program |
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Unidad Park Committee |
$300,000 |
To build a park for physically challenged children and others in the San Angelo area |
Despite cy pres, the foundation board engaged in a lengthy debate in 1995 over its mission and grant allocation strategy; some directors argued for a strict 'health care only' mission and others for the removal of the word 'health' altogether.16
Eventually, the board settled on a broad mission: "San Angelo Health Foundation is organized and operated exclusively for charitable, educational and scientific purposes. Activities will include, but not be limited to, the operation of programs to provide charitable assistance, training and educational support the promotion of the general physical and mental health, principally for the benefit of those in need and the general population of San Angelo area. "17 Since the foundation's new purpose will include health, but not be limited to it, the board essentially decided it would give money for any kind of project.
The foundation actively opposed legislation in 1997 that would have specifically prohibited using dedicated charitable health care funds such broad gift programs. According to its letter to Representative Glen Maxey: "The Mission of the San Angelo Health Foundation "is to improve the health of the Greater San Angelo community through funding a wide range of community projects."18
More than half of the grant committments for 1997 ($2.3 million of $4 million) were not health related.
Specifically, the foundation awarded the San Angelo Museum of Fine Arts $300,000 for a new art museum and the Humane Society of $200,000 for an animal shelter. It gave substantial support for subsidized housing programs, including Habitat for Humanity. Christians in Action received $111,000 for seasonal assistance and to purchase a facility. Fort Concho Historic Landmark received $80,000 for its Stables Acquisition Project and the Foundation also provided matching funds for a Texas Historical Commission grant to repair the roof on another historical building. 19 While these are all laudable causes, the grants do not further a mission substantially similar to (cy pres) the one for which the non-profit hospital was originally created and funded.
