Like many organizations these last several years, the philanthropic Rhode Island Foundation has done well with its investments, hitting a return average of 19 percent over the last five years. Match that stock market success with some creative thinking and lots of good will – and what you’ve got is their recent announcement to purchase $2 million in stock in Neighborhood Health Plan of Rhode Island.
Pending approval by Attorney General Sheldon Whitehouse and the Department of Business Regulation, the Rhode Island Foundation plans to acquire the preferred stocks of Neighborhood Health from Health Action Forum of Greater Boston.
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The for-profit Neighborhood Health will then immediately convert to a non-profit corporation controlled by the community health centers of Rhode Island. At the same time the foundation’s stock in the HMO will immediately convert into a membership interest and its equity interest will be converted into debt that Neighborhood Health will pay back over 20 years, with 5.75 percent interest and four principal payments of $500,000 each.
Those involved say the idea could set a trend for community foundations across the country – and Dorothy Ridings, president of the Council on Foundations, a nonprofit membership association of more than 1,500 grant-making foundations and corporations, vehemently agrees.
“It is highly unusual and extremely creative,” Ridings said last week, noting that the Rhode Island Foundation, one of the 25 largest community foundations in the United States, has long been known for its ingenuity.
Still, “this has to take the prize as far as I am concerned,” Ridings said. “It’s really an extraordinary story.”
Not only does the deal mark the first “Program Related Investment” from the Providence Foundation but by helping to create a non-profit HMO they are bucking the current health care trend of merger mania and acquisition fever, said Rick Schwartz, director of communications for the Rhode Island Foundation.
The plan also marks the Rhode Island Foundation’s move into bigger charitable leagues, since PRIs are usually undertaken by foundations with larger assets.
But now, with the foundation’s endowment at $400 million – its assets increased by $90 million last year alone – it’s become even more “important for us to increase our investments in the community of Rhode Island,” said Rhode Island Foundation President Ronald V. Gallo. “There’s a moral imperative when you have this kind of wealth.”
Unlike grants, PRIs are investments made by foundations for charitable purposes. Still a relatively new phenomenon of foundations, the primary motivations for the investment must be charitable; generating income should not be a significant motive for the investment, and the investment must not be made with the intent to influence legislation or for political reasons.
PRIs, which are undertaken with the ability to use principle for the investment, can be in the form of loans, equity investments, guarantees and recoverable loans. The Rhode Island Foundation also recently agreed to guarantee a bank loan to Trinity Repertory Co. for a new facility and is also contemplating other PRIs, Schwartz said, including a $10 million investment in the Providence area that will be announced in the next couple of months.
Delving into PRIs is all part of the foundation’s plan to be more creative and strategic with their endowment rather than just giving grants, Gallo said. Traditionally the foundation gives away 4.7 percent of its endowments each year in grants, a figure that this year totals about $16 million. Besides its successful stock portfolio, every year the foundation receives about $10 million in new endowments and gifts, Schwartz said.
Daniel Borochoff, president of the American Institute of Philanthropy, a charity watchdog organization based in Bethesda, Md., was surprised and curious last week when he heard about the Rhode Island Foundation’s plan to purchase the neighborhood HMO.
Although the idea of providing low-interest loans to improve low-income housing has been going on for a while, the realm of charitable foundations helping HMOs turn from for-profit to non-profit is definitely new. “Usually it’s the other way around,” Borochoff said. “This seems to be an arrangement that would be in the interests of the community.”
Ani Hurwitz, senior consultant for the New York Community Trust, said that although their group has done PRIs in the past, none has been “quite as creative as this one.”
”It’s a win-win situation for everyone,” said Christopher F. Koller, CEO of Neighborhood Health, which is the only HMO in Rhode Island that operated in the black over the last three years.
Koller approach-ed the Rhode Island Foundation about a year ago with the idea of helping the community-based HMO ensure that it remains locally controlled.
Created just six years ago to enable the state’s 14 community health centers join the then-new Rite Care program, the state’s health insurance program for low- to moderate-income residents, Neighborhood Health nearly doubled in size last year to reach its current statewide membership of 57,000.
As the state’s third largest insurer, Neighborhood Health is currently the only insurer in Rhode Island that accepts new Rite Care enrollees. More than 99 percent of its enrollees come through Rite Care
Gallo said that when Neighborhood Health incorporates as a non-profit it will have a mission codified within its formation to ensure it continues to meet the “concerns and health care of hard-working” Rhode Islanders. “It’s the only HMO dedicated to the working poor.”
