Wither the Assets after this Nonprofit Hospital is Sold?

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March 26, 2015; Kansas City Star

St. Joseph and St. Mary’s Medical Centers, a nonprofit organization in Kansas City, Missouri, was recently sold to a for-profit corporation. The seller, Ascension Health, kept the assets in the related St. Joseph Medical Center Foundation. However, in a move that is currently being contested, the board directors of the foundation have been removed, leaving them without any control of how the assets will be used in future.

The St. Joseph Foundation is operating as a 501(c)(3) organization that files a regular IRS form 990 every year (not a 990-PF, which would mean it is a private foundation). Its mission, as described in the tax return, is that it raises funds and makes grants to support the work of St. Joseph Medical Center and individuals who are not able to pay for healthcare.

Accordingly, now that the hospital has been sold to a for-profit entity, there is some question how the foundation’s funds would be used. Charles Jensen, a lawyer who had served as the foundation’s president, said he was afraid that the funds “may be diverted to reduce operating or capital costs at the three long-term care centers Ascension still has in the Kansas City area or for other operations of Ascension Health. That’s not in keeping with the purposes for which the funds were donated.” A spokesperson for Ascension is quoted as saying that the company still operates facilities demonstrating its continued commitment to provide care to the poor and vulnerable in the Kansas City area.

The former board directors have asked the Missouri attorney general’s office to look the actions being taken. Apparently discussions are underway, but there has been no determination and the attorney general’s office is making no comments for fear of potential litigation.

Not to be a stickler for details, but the Missouri state statutes (SS 355.321) require a nonprofit organization to have at least three board directors. So, if the whole board has been fired, are they in compliance with the law? Another question is if the foundation is an independent, operating 501(c)(3) organization, how can the board be fired? According to the most recent IRS Form 990 available on GuideStar, the foundation does have members or stockholders (Part VI line 7a). In addition, stockholders, members, or some other persons have the right to elect board directors and are empowered to make some governance level decisions.

Interestingly, however, the foundation is not described in the form as a “controlled” organization, but as a “supporting” organization, and that other entity being supported is “functionally integrated.” So, according to the IRS definitions of these terms, no organization has more than 50 percent control of the foundation, but the organization the foundation supports is very closely related.

Without a chance to review the foundation’s bylaws, any answers to questions about how the board could be “removed” and which organizations are involved are pure speculation. However, it does seem reasonable to be afraid that the foundation’s assets are going to be used for a purpose the former directors would not have supported. If so, there are some significant issues about appropriate use of donated funds and respecting the donors’ intent. There has been no word yet when the attorney general’s office may issue a statement or ruling.—Rob Meiksins

 

  • Arthur Drache

    Whither…or wither?