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Structuring Health Insurance Markets
Of Non-Profit Health Plans and Hospitals to For-Profit Status
Phillip Isenberg, Attorney At Law, Hyde, Miller, Owen & Trost, Sacramento,
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
- 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
- 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.
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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