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.
Exactly why the courts would allow LICH to tap into the principal is hard to understand, says Susan Doliner, vice president of development at Maine Medical Center, a 600-bed hospital in Portland.
"I'm not sure how they got the court orders to let them spend those funds. It is unusual because you are required to permanently restrict those funds and never spend the original principle," Doliner says. "To permanently restrict, that is what endowment means. ... That principal must always stay in hand according to accounting guidelines and the fiduciary responsibility of the institution."
Interest from the principal provides an income stream, and that is the only revenue that should be spent, Doliner says. "You would never touch the principal, which will grow over the years."
What is even harder to understand is why LICH would break one of the fundamental codes of philanthropy and go against the express wishes of the donors.
Doliner says it is "absolutely important" for hospitals to spend donations in the way donors intend.
"Rule number one is that our job is to professionally steward the assets of the institution. We must make sure the funds are spent in the way the donors intended. If you make a gift to cardiology, our job is to make sure it is spent on cardiology," she says.
Doliner believes most hospital development departments live by the Donor Bill of Rights, a document that was developed by the Association of Fundraising Professionals and the Association for Healthcare Philanthropy, among others, to protect donors and keep them informed of how their contributions are being spent.
"We all endorse it," she says. "I make my staff read the Donor Bill of Rights once a year as a team, and we discuss it. It sets the standards of conduct related to philanthropy. If someone [were] to make a gift to Maine Medical Center for cardiac research, and we didn't use it for that purpose, then shame on us. That is exactly what we should be using it for."
Although The Wall Street Journal may have gotten it right when it called the LICH scandal a "cautionary tale for wealthy donors," that kind of negative publicity doesn't help Doliner and executives in similar roles at healthcare organizations around the country.
"Any bad news around philanthropy hurts all of us. It really does," she says.
Disgraced LICH is also a cautionary tale for hospitals. Spending down principal donations and flouting donor requests are definite no-nos in the realm of healthcare philanthropy.
"Our number one responsibility is to the people who are giving those resources," Doliner says. "It's our job, and we are responsible for that. … The donor has a right to know how their funds are being invested and being used. That is just good stewardship."