Creating a foundation can make a big difference in the quality of healthcare that hospitals can provide. With healthcare costs increasing and reimbursements declining, establishing a foundation to collect money from donors, supplement capital-expenditures, and fund special projects can take a load off the shoulders of struggling hospitals.

This document will discuss the benefits of having a private foundation for your hospital and the best practices for creating and maintaining them.

Benefits of Having a Foundation

  • Foundations supply a new avenue of money-flow for hospitals and allow them to have a more focused marketing and branding strategy. Some of these foundations even have separate websites to function as a hub for upcoming special events and to communicate about different ways to give.
  • Foundations work to increase trustee opportunities. The funds that are held in a separate foundation may be protected from any hospital-related litigation, as they can protect their assets from hospital judgements and creditors.
  • Foundations can keep operations and administration in a separate area away from the core operations of the hospital. This allows for the trustees to be focused on fundraising rather than the operations of the healthcare organization and for the hospital administration to focus on running the hospital. Some hospitals utilize foundations to manage their funds separately, as a long-term endowment, versus commingling all hospital assets.
  • Foundations can also serve to keep hospital finances separate from fundraising efforts and provide another separate pool of funds which can be used as collateral for loans. Separate 501(c)(3) organizations are often set up since donors prefer to give to a foundation versus an organization that is controlled by a local government entity.

Creating a Foundation

Stage 1- Preformation Planning

  • Name your foundation: You can name your private foundation after your hospital (recommended), or, if you are considering making several smaller foundations for particular fundraising causes, you can name them after their charitable purposes.
  • Question the mission: Ask the board why you are forming the health foundation, who will do the work, who will donate the foundation start-up capital, how the foundation will sustain itself, who will serve as board members and officers, how much administration/management will be taken on per board member and officer, what degree of control the foundation has over the funds, and what the tax consequences are.
  • Broaden your definition of “health”: In addition to healthcare, your foundations need to address what are commonly referred to as social determinants of health, such as education, economic opportunity, housing, and access to healthy food. All these factors affect health outcomes.

Stage 2- Formation

  • It is essential that the donor and donor’s advisor(s) understand the basic legal rules that govern the formation and regulate the activities of foundations. This is done under state law, and the requirements vary from state to state.
  • You must first choose which legal form your foundation will take. This page for this link will guide you through the process of deciding which type of foundation is best fit for your hospital. Whatever form is chosen will be regulated specifically by state law, not federal. Each state has its own set of statutes that set out the rules for forming and running both a trust and a not-for-profit corporation. You and your advisors should also research other local filing requirements, such as charitable solicitation, local business registration, sales tax exemption, and state income tax exemption.
  • To learn more about various filing requirements for private foundations, click here.

Stage 3- IRS Recognition

  • Once the organization is established under state law, the next step is generally for the foundation’s leaders to seek recognition from the IRS as a tax-exempt charity. This recognition means that the organization will not need to pay federal tax on its income and that the foundation will be eligible to receive tax-deductible contributions. This process typically involves submitting IRS form 1023, “Application of Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.” This form can be found here. Once this form is received by the IRS, the IRS will determine whether your organization should be a Section 501(c)(3) organization, whether it considers the organization to be a private foundation or public charity, and if it qualifies as a public charity, what legal form of public charity the foundation will be.

Maintaining a Foundation

Found below are 5 Principles To Keep In Mind When Running a Hospital Foundation that should be kept at the forefront of any foundation’s strategic day-to-day operations:

  • The foundation exists to support the hospital– The foundation for the hospital should not overshadow the hospital it was created to support. When this happens, funds can be raised that are not important to the community or hospital. Projects not completely aligned with the hospital’s priorities can cost unbudgeted and unnecessary dollars. Additionally, if the hospital foundation were to make a grant to another nonprofit, it could create confusion within the community about the actual financial needs of the hospital. Do not make a lot of commitments early until there is a solid plan and solid strategy about how the foundation will attempt to strategically affect the health outcomes in the community.  
  • The Organizations should have mutually complimentary and coordinate boards– An overlap of a few of the hospital board members and foundation board members can produce improved communications and a better understanding of the missions they serve. Sometimes, an overlap can be laid out in the bylaws/articles of incorporation or they can be voluntary. For best practice, the boards should meet jointly once a year and attempt to share social activities. The hospital’s reputation can grow when led by a strong foundation leadership, as the foundation board can increase the reach of the governing board and offer additional leadership roles for their members. The first CEO who is put in charge of the new foundation is usually a hospital administrator or physician. However, as the mission of the foundation changes, the CEO and leadership team need to evolve with the foundation.
  • The hospital CEO can be the greatest fundraising asset– A hospital’s CEO is the key player for establishing the importance of their culture of philanthropy. Unfortunately, due to a lack of time or understanding of the philanthropic objective, some CEOs will decrease their involvement with the foundation by delegating their responsibilities. When prospective donors are looking at who to donate to, it can make an essential difference if the CEO is willing to lead discussions involving financial commitments to the hospital. CEOs carry the most weight of the organization when talking about the needs of the hospital. When CEOs are committed to the process of the foundation, it conveys confidence and trust in their hospitals. It is the job of the foundation chief executive and foundation board chair to educate the hospital CEO on the philanthropic process.
  • The foundation connects the hospital to the community– All walks of life are able to “serve” in the hospital foundation by participating in fundraising activities, such as auctions, galas, golf tournaments, walks/runs, and larger community-based events. When the community comes together to support the hospital, the hospital is being identified as a charity in need of their help. This is a great opportunity for grateful patients and families to express their gratitude tangibly through giving back to the hospital.  Given their annual grant budgets, health foundations do not have funds and resources to affect sweeping health reform in their communities by themselves. The ability to partner with local political and business community is paramount to gaining access to some of the highest-giving donors.
  • Multiple channeled giving is the hallmark of a successful foundation– To reach the largest donor pool, fundraising efforts should be diversified. A robust foundation factors in personal solicitation, direct mail/email, and events to meet its annual goals. Annual gifts, estate gifts, planned giving, and major multi-year commitments are the assurance of a well-run foundation. The ultimate goal is to create a strong partnership based upon trust and shared missions.