Introduction to Nonprofit Symposium Issue

Evelyn Brody1 A glance at the titles of the articles in this symposium reveals the hot topic in the nonprofit sector: Many of the contributions have been inspired, at least in part, by the apparent exodus of hospitals from the nonprofit form. James Fishman provides the legal framework for analyzing "conversion transactions" in Checkpoints on the Conversion Highway: Some Trouble Spots in the Conversion of Nonprofit Health Care Organizations to For-Profit Status. Harvey Goldschmid uses conversion transactions as one of the case studies in The Fiduciary Duties of Nonprofit Directors and Officers: Paradoxes, Problems, and Proposed Reforms. Rob Atkinson's piece, Unsettled Standing: Who (Else) Should Enforce the Duties of Charitable Fiduciaries?, considers, among other examples, the appropriateness of granting standing to private parties seeking to forestall a nonprofit hospital sale. In A Proposal for an Exit Tax on Nonprofit Hospital Conversions, John Colombo suggests that the government should be entitled to some of the sale proceeds in the form of an "exit" tax on the assets removed from the exempt sector. Nonprofit hospitals account for almost half of the income of the nonprofit sector. They therefore attract a great deal of attention. Should we really be witnessing the wholesale sell-off of nonprofit hospital assets to for-profit buyers, any legal analysis might be too little, too late. Fortunately, as David Hyman discusses in Hospital Conversions: Fact, Fantasy, and Regulatory Follies, nationwide the percentage of hospitals which are forprofit has remained fairly stable during the last two decades, although regional differences are obviously important. Thus, the data suggest that we have plenty of time to adopt appropriate legal responses to these developments. What should those legal responses be? Our symposium authors express a range of views. Both Professor Goldschmid and Professor Fishman would like to see some sort of elevated standard of review. Professor Goldschmid suggests, for conversions as well as similar transactions, applying a modified version of the business judgment rule unless conflicts of interest are present, in which case the transaction would be scrutinized for substantive fairness. Professor Fishman suggests that the conversion decisions of nonprofit boards should be subject to the enhanced scrutiny and fiduciary standards that the Delaware courts apply to directors of business corporations engaged in change-in-control decisions. Professor Atkinson doesn't even reach the question of standard of review, because, in addressing standing, he would leave so many more of these transactions to attorney general decision making with the board enjoying broad discretion in interpreting their duty of care. Finally, expressing skepticism that the nonprofit form is superior to the proprietary form for hospital care, Professor Hyman criticizes the recent wave of state nonprofit hospital sales statutes that apply only to sales to proprietary acquirers, and not to nonprofit acquirers. Indeed, he asks, if the sale of hospital assets merits scrutiny, "[w]hy not subject all nonprofit hospitals to periodic external monitoring to ensure that they are providing sufficient community benefit?" Professor Hyman suggests that the debate over nonprofit hospital conversions "is a distraction from the more significant normative question which should be answered: what services, cross-subsidies, and intangible elements of value do we desire from our hospitals?" In analyzing the public role in nonprofit hospital conversions, traditional legal analysis has been limited to the "front-end" cy-pres inquiry and the "back-end" cy-pres inquiry:2 To what degree should parties (public and private) other than the charity fiduciaries be involved in, first, the decision of whether to sell the assets, and, second, what to do with the resulting money? The difficult and important issues raised by nonprofit hospital sales provide only the leading edge of similar concerns arising in other contexts. …