Struggling Hospital Depletes $135M Endowment

, July 29, 2013

Violating a sacred code of philanthropy, a failing hospital received court approval to tap into the principal of an endowment meant to last into perpetuity. That kind of negative publicity doesn't help development executives at other healthcare organizations.

Despite receiving a $135 million endowment bequest in the mid-1990s, Long Island College Hospital in Brooklyn, NY, is on the brink of shuttering its doors.

The principal donation was supposed to remain untouched with only the income from its investments being used to meet the hospital's financial needs. However, over the past two decades, LICH has dipped into the principal many times—after receiving court approvals to do so—in order to use the fund for a variety of operating expenses and to make payments on malpractice settlements.

Now the State University of New York Downstate Medical Center, which has owned LICH since 2011, wants to close the hospital for good. In a recent statement, SUNY Downstate spokesperson Robert J. Bellafiore said, "LICH has lost money for nearly 18 years in a row and simply does not generate enough revenue to maintain the status quo. At this point, the hospital is losing $15 million each month."

A state judge has blocked the hospital closure with a temporary restraining order, and the battle is currently being waged in the legal system, as well as the court of public opinion.

Over the years that LICH repeatedly raided the endowment, its administrators argued that the hospital had to spend the principal in order to remain open, saying that is what the donors would have wanted—an argument that is difficult to accept given that the donors specifically stipulated the initial fund was to be held "in perpetuity," according to an account of the matter in The Wall Street Journal.

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