Evaluating the sale of a nonprofit health system to a for-profit hospital management company: the Legacy Experience.

OBJECTIVE

To introduce and develop a decision model that can be used by the leadership of nonprofit healthcare organizations to assist them in evaluating whether selling to a for-profit organization is in their community's best interest.

STUDY SETTING/DATA SOURCES: A case study of the planning process and decision model that Legacy Health System used to evaluate whether to sell to a for-profit hospital management company and use the proceeds of the sale to establish a community health foundation. Data sources included financial statements of benchmark organizations, internal company records, and numerous existing studies.

STUDY DESIGN

The development of the multivariate model was based on insight gathered through a review of the current literature regarding the conversion of nonprofit healthcare organizations.

DATA COLLECTION/EXTRACTION METHODS: The effect that conversion from nonprofit to for-profit status would have on each variable was estimated based on assumptions drawn from the current literature and on an analysis of Legacy and for-profit hospital company data.

PRINCIPAL FINDINGS

The results of the decision model calculations indicate that the sale of Legacy to a for-profit firm and the subsequent creation of a community foundation would have a negative effect on the local community.

CONCLUSIONS

The use of the decision model enabled senior management and trustees to systematically address the conversion question and to conclude that continuing to operate as a nonprofit organization would provide the most benefit to the local community. The model will prove useful to organizations that decide to sell to a for-profit organization as well as those that choose to continue nonprofit operations. For those that decide to sell, the model will assist in minimizing any potential negative effect that conversion may have on the community. The model will help those who choose not to sell to develop a better understanding of the organization's value to the community.