Gary Yates

Health-care foundations with more than $9.3 billion in assets are operating nationwide as a result of the sale or conversion of nonprofit hospitals and health-care plans into for-profit businesses--and California has led the way. But not without controversy. What happens to health care for the poor when hospitals or health-care plans concentrate on people more readily able to pay for treatment or insurance?

State law requires that the assets built up by nonprofits, which receive favorable tax treatment, be used for charitable purposes, so most conversions result in the establishment of foundations. Three of the largest such foundations are in California: the California Health Care Foundation and the California Endowment, created when Blue Cross of California converted to a for-profit business, and the California Wellness Foundation, set up when the Health Net plan converted in 1992.

While these conversions were occurring, Congress changed the welfare laws and shifted more responsibility onto state and local governments, which now serve more poor people. California Wellness Foundation President Gary L. Yates insists that foundations cannot--and should not--take the place of sustained government commitment, but that they can play a role. In addition to helping community clinics make needed changes in the post-welfare era, the foundation also may be expanding the definition of wellness. For example, one set of grants goes to organizations helping young people use computers. “We think that’s an important health intervention, because we’re helping them to have better employment, better wage jobs, therefore better benefit packages,” Yates said. The foundation also targets grant money for teen-pregnancy prevention and efforts to reduce gun violence, the leading cause of death of Californians under age 20.

Yates, 54, came to the foundation after many years at Children’s Hospital, where he focused on adolescent medicine. He also taught at University of Southern California Medical School, training doctors, psychologists, social workers and others about working with adolescents. Earlier, he taught in Hawaii at a high school for young people with academic or behavioral problems. His wife, Ann, teaches first grade in Irvine. They have five sons, ranging in age from 22 to 15. A government major with a degree from American University as well as a master’s degree in counseling psychology, he still enjoys reading history.

It’s often difficult for a foundation head to attend an event without being approached by people with hope for a grant in their eyes. “I think that it’s part of the job,” Yates says. “I understand it because I was on the other side of the grant-making world for a long time. For 20-plus years I wrote grants to foundations. It’s just part of what you do. But anywhere I go, I make sure I carry my cards.”

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Question: The controversy over the sale of Queen of Angels Hospital has spotlighted foundations formed when nonprofit health-care organizations are sold or converted to for-profits. Aren’t poor people the losers in these conversions?

Answer: I certainly don’t think poor people are the losers in conversions of the type that we are part of--the conversion of a health insurance plan to for-profit from nonprofit. The vast bulk of our grant-making goes to disadvantaged communities. I don’t think you could say that about the vast amount of people who were covered under Health Net when it was a not-for-profit HMO. Most of us, in order to get covered that way, have to have a pretty well-paying job with a good benefit package. So the poor benefit dramatically from the work that gets done.

Q: You make a distinction between hospital sales and HMO conversions?

A: There is a big distinction. What I think people are pointing to is that hospitals like Queen of Angels provide a great deal of care for people who do not have the ability to pay. Who is going to pick up that indigent care? The attorney general in this state has taken a strong stance that a foundation that will be created from such a sale is going to put a lot of its grant-making into funding the types of care done by the nonprofit hospital.

Q: What percentage of the Wellness Foundation grants go for direct services for the indigent, and if it’s not 100%, why not?

A: The conversion order for the foundation said that every year at least 50% had to go for direct services, and we’ve met that. I can’t say it’s all for indigent because that wasn’t part of the order.

Q: OK, low income.

A: It doesn’t say that either. But that’s where our grant-making has focused. Most of the recipients of the direct services provided through our grants have either been low-income or indigent folks. And we’ve usually exceeded that amount. Last year, it was 70%.

It’s important to realize that foundations can do a lot more than provide direct service. If all they do is provide direct service, they are not going to have the resources to provide the services at the level required. A foundation like this, that makes $40 million a year in grants--even if it was all direct service--doesn’t come close to providing the services needed. We’re focused on prevention so, hopefully, the type of services that we’re paying for--for example, prenatal care, family planning, immunization--are actually going to help decrease the cost.

Q: Two of the largest conversions--yours and the one from Blue Cross of California--occurred in this state. That means you and those two foundations help set the agenda for health-care philanthropy here. If projects don’t fall within your target areas, isn’t there a grave risk that some innovative programs fall through the cracks?

A: Oh, absolutely, which is one of the reasons that we have five priority areas. But we also have what we call a special projects fund. That allows us to deal with what you’re talking about--a creative, important, needed program, that would come to our attention, we still have the ability to fund even though it’s not within one of those five priority areas.

This is where most of the work we’ve done around federal devolution has been done--out of the special projects fund. We’ve made millions of dollars in grants over the last two years to shore up community clinics, to provide funds for community advocates around access to health care, to provide some monitoring and evaluation of MediCal managed care as it’s being implemented in the different counties--none of which fit under our priority areas, but all of which fit under the rubric of improving the health of the people of California.

Q: Do you feel it’s a fair description that you have a lot of influence on the money that gets spent on health care and perhaps on what the state will ultimately do?

A: I’m not sure about a lot of influence. There is a potential to be helpful. Foundations which care about the health of the people of the state can certainly put some of their grant-making money into programs and institutions that help educate policy-makers and opinion leaders in some of the thinking about how best to write policies and programs that will help enhance the health of the people of the state.

The ship of state is tough to influence, and to think that just because a foundation makes $40 million in grants a year, it’s going to be able to influence state policy--that, in and of itself, will not do that. We give funds to the Health Policy Institute at UCLA. They provide good information to policy-makers on a lot of the issues. We have funded the California Center for Health Improvement in Sacramento. It has conducted regular surveys of the state population and their opinions about health issues and provided that in informational packets to the Legislature. Last year, they did one on welfare reform. Welfare reform has a clear potential to impact health of those affected by it.

Those are the ways you can have some influence, but we are not--these two foundations--going to be able to set the agenda for health care in California.

Q: The health-care industry has so much more money--

A: Oh, absolutely. And not only that, but the health-care industry can directly lobby the state for changes. Private foundations are prohibited from lobbying. Again, we can provide information and education, but this foundation’s mission is to improve the health of the people of California. Our way of doing it is by making grants.

Q: Four years ago, the foundation spent about $4 million on TV commercials on Proposition 188 that the tobacco industry was sponsoring. It was defeated. Now, isn’t that lobbying?

A: It certainly would have been lobbying if we had taken a stance on it one way or the other. If we’d have said, “Vote Yes for 188,” or “Vote No on 188,” that would have crossed the line. We gave a grant to another organization to do a public education campaign that was neutral on 188. It basically said the citizens of this state should get the facts about that ballot initiative. It was an important health initiative. People who saw those ads were shown what one side said about it and what another side said about it--straight out of the voter guide.

I personally believe that in a democracy, around any issue, whether it’s health or something else, an informed public is best. This is another role that foundations have an opportunity to play--providing grants to entities that can help inform the public.

Q: Some people applaud the foundation’s advocacy stance and the attempts to make systemic change; other people say it’s out of line. How far do you think you can go with advocacy?

A: If all we were doing were the grants that were advocacy or information oriented, people might have a legitimate concern about that’s all the foundation does. We are much broader than that. We provide everything from direct patient care to information and advocacy programs. When you’re criticized, it usually means you’re having an effect. You’re not a neutral.

How far one goes? As far as one needs to go to help improve the people of California, within existing state and federal law. We are fiduciaries at the foundation’s board level, with a public trust to make the grants of the foundation within the guidelines given to us. As long as we do that, we haven’t gone too far.

Q: How is the foundation working with community clinics?

A: In some areas, the community clinics are not together in an association. One of the things when you’re working to try to be a provider for MediCal, you’re going to have a better negotiating stance to take, not just with MediCal but with HMOs for being providers for their patients, if you are a collective, as opposed to a single entity. So helping them form associations where they can speak as one voice for a multiple group of clinics is certainly one area.

They also have to have the appropriate infrastructure--to bill in a timely fashion and follow up on patients, for example. For a nonprofit community clinic, now one of the things they have to do is put together a good business plan because this whole environment of health care funding is changing. To help them survive through this transition time is one way the foundation can help ensure that preventive services stay in place for the indigent population. Our hope is that five years from now, they won’t need our money to provide preventive services. They’ll be able to do it based on their new capacity for reimbursement.

I think both the California Endowment and us, when L.A. County’s health system melted down, got approached about somehow fixing it--but that is a lack of understanding of what these asset bases are and the grant-making budgets. It was a huge amount--hundreds of millions of dollars--that the two of us together couldn’t make up.

So what happened? We provided some money for community clinics here to work with the health department, and the endowment did, too. But who bailed the county out? The federal government.

That’s an important thing to remember--that these foundations, large as they are, pale in comparison with the revenues available from state government and the federal government. The fact that we exist does not mean that government can go away in regard to its responsibility for caring for the indigent or providing services to the local level and funds for the county health departments to do the job they’re mandated to do.

Q: Foundations are not going to take the place of government’s responsibility?

A: They cannot. They do not have the resources or the capacity. This conversion phenomena has created thinking on some people’s part that they do. In a time of tightening budgets, some people, especially at the government level, feel these foundations will be able to pick up the slack, and that’s why the safety net won’t get shredded. That’s just nonsensical. Foundations and government can work in partnership, but we can’t begin to do what federal and state government can do.