Nonprofit hospitals turning to donors as recession looms

The Presbyterian Healthcare Foundation plans to double its annual fundraising target from $8 million to $16 million in the next five years.

Gift officers at the foundation, which is part of the nine-hospital integrated system based in Albuquerque, New Mexico, will look to large donors to help boost the organization’s staffing pipeline, said Rick Scott, president of the foundation. Expanding Presbyterian’s recruitment and retention efforts is critically important given recent staffing upheaval, he said.

Philanthropy helped fund equipment upgrades, key service lines and positions as well as nursing and staff education this year as Presbyterian’s capital budget has been strained, Scott added.

“Philanthropy has never been more important to healthcare. There is no question it will play a bigger role,” he said. “Historically in our world, philanthropy has been viewed as nice to have. We are pivoting to reinforce it as a must-have.”

A greater reliance on donors nationwide is expected as hospitals’ revenue sources dwindle.

Finances have been pinched by higher staffing and supply costs, rising interest rates that have increased borrowing costs, waning COVID-19 relief funding and investment income lossesthe S&P 500 is down about 20% this year.

Hospitals’ median days cash on hand has dropped 18% from June 2021 to this July, according to an analysis of 700 nonprofit hospitals from consulting firm Kaufman Hall.

No meaningful change in nonprofit hospital donations has occurred, and donors may be choosing to delay their gifts as the stock market declines and dilutes their potential write-offs, said Paul Keckley, industry consultant.

“Not-for-profit hospitals are not reporting that there is an uptick in philanthropy,” he said. “I am sure that is partially due to the downturn in the stock market. Planned giving was flush in 2020. With the market down, everybody is holding their breath.”

At Presbyterian, it has taken longer for philanthropists to confirm large gifts, Scott said. That is why it is important to check in with top donors, he said.

“We sometimes make the mistake of not communicating enough,” Scott said. “Early on in the pandemic, I called many donors just to see how they were doing, not to ask for a gift, but just to have real authentic conversations.”

While economic downturns may slow the process in healthcare-related giving, it has not limited overall philanthropy, said Kevin Holloran, senior director of Fitch Ratings. “I would expect that the same would hold true this go-around as well,” he said.

Big donations to high-profile systems are still coming in as planned. Rochester, Minnesota.-based Mayo Clinic received a $100 million gift this month from the Fred C. and Katherine B. Andersen Foundation to expand the health system’s proton therapy business. New England Patriots owner Robert Kraft and his foundation donated $50 million to grow Boston-based Massachusetts General Hospital’s blood donation facility.

Foundations are also trying to raise money for behavioral healthcare and environmental sustainability initiatives.

The Northern Colorado Foundation of UCHealth, a 12-hospital not-for-profit system based in Aurora, Colorado, recently launched a $12 million capital campaign to renovate Poudre Valley Hospital. UCHealth is trying to accommodate the state’s rapidly growing population through fundraising campaigns designed to boost inpatient and behavioral health capacity, a UCHealth spokesperson said.

Boston Medical Center, a 514-bed safety-net hospital, opened an inpatient psychiatric care and substance-use treatment center this month in Brockton, Massachusetts. An anonymous donor contributed $6 million to the $41 million project to install solar and geothermal energy systems.

Those kind of fundraising campaigns will likely play a bigger role as borrowing via the bond market becomes more expensive, said Jeff Goldsmith, president of Health Futures, a consultancy. Through next year, not-for-profit cash flows are expected to weaken enough to threaten bond borrowing agreements, according to ratings agencies.

“The bond market is getting clobbered,” Goldsmith said. “It would make a lot of sense if hospitals went back to donors.”

Healthcare companies are more likely to default over the next year than any other industry, according to the ratings agency S&P.

Providers are also bracing for bad debt increases as millions of Medicaid beneficiaries are expected to lose Medicaid coverage when the public health emergency ends. As many as 15 million people will be dropped from the program, the Department of Health and Human Services estimates. Without Medicaid coverage, fewer people will be able to pay for care.

Some hospitals will weather the financial headwinds better than others. Nonprofit children’s hospitals, for instance, are insulated by academic affiliations with medical schools and stronger-than-average philanthropic giving, Fitch analysts said in an October report. Children’s hospitals’ median days cash on hand in 2021 was 1.6-times higher than the median days cash on hand for typical hospitals, Fitch data shows.

But many nonprofit hospitals that rely on investment income more than philanthropic income now will have to seek partners, solicit donors or cut costs, Keckley said.

“If non-operating income is hurting and capitalizing healthcare is going to cost more with interest rates going up, you either have to do some joint ventures with private-equity firms and other stakeholders, fundraise or substantially cut capital spending in non-core businesses to stay afloat,” he said.

The business case for philanthropy is clear, Presbyterian’s Scott said. For every dollar invested in fundraising, foundations get an average return of about $4, he said, citing data from the Association for Healthcare Philanthropy. By comparison, a surgical unit generates less than $2 for every dollar invested, he said.

“Given the financial challenges that healthcare organizations are under, we need to invest more in philanthropy rather than pull back,” Scott said.

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