839

PRIVATE FOUNDATION HEALTH EXPENDITURES: A SURVEY ANALYSIS JOHN E. CRAIG, M.P.A., BETTY L. DOOLEY, B.A., AND DAVID A. PARKER, M.P.A. Health Policy Research Group Georgetown University School of Medicine

MEGAN MCDONALD, A.B. Ernst and Ernst Washington, D.C.

A CCORDING to the American Association of Fund-Raising Counsel, private philanthropy spends more than four billion dollars each year in health-sector activities. These dollars help to pay for health-care services delivered to the poor; contribute to financing health-professional schools; underwrite a substantial share of biomedical research; and build, renovate, and equip health-care facilities. The association estimates that between 19 and 20% of private foundations' outlays of more than $2 billion per year contribute to health-sector activities. Private foundations' health spending, then, amounts to between 400 and 500 million dollars each year. 1 While private foundations' half billion dollars is relatively small compared to total private philanthropic health spending of more than four billion, federal health spending of more than 50 billion, and total national health spending of more than 160 billion dollars each year, the argument is frequently heard that private foundations' relative influence in the health sector is substantially greater than their relative dollar contribution. This disproportionate influence is said to stem from crucial "gap-filling" and the innovative nature of much private foundation health spending. For example, foundation and other private philanthropic hospital subsidies are important in keeping the doors of these facilities open to the uninsured population who lack private health-insurance coverage or who are ineligible for insurance under Medicaid and Medicare programs. Because of their This study was supported by grants from the Robert Wood Johnson Foundation, Princeton, New

Jersey. Address for reprint requests: John Craig, Health Policy Research Group, 2233 Wisconsin Avenue, N.W., Suite 525, Washington, D.C. 20007.

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structure and independence, private foundations are also said to be a key source of venture capital for experimentation with new and better ways to deliver health-care services, to train new types of health professionals, and to extend the health-care delivery and financing system to insure equitable access for all.2 Not all observers agree that private foundations have so pivotal a role in the nation's health-care delivery system. Statements criticizing foundations for conservative use of their funds are about as frequent as those applauding foundations for venturesome or innovative undertakings in the health sector.3 Evidence presented to date supports the view that private foundations do indeed focus relatively more on health-sector investment activities-new delivery programs, building construction, and equipment purchases, for example.4 Beyond this, however, little information is available to assess the scope and content of private foundation health activities.

Survey Design Anyone attempting to obtain information to describe the private foundation world is confronted by more than 26,000 institutions, some 21,000 of which make grants each year. This number of institutions rules out a complete census, and necessitates analysis of a sample instead. Because private foundations vary widely in scope and level of spending, considerable care had to be taken in selecting a sample to represent the entire universe of foundations. It was not possible, for example, to select from the health spenders reporting to the principal central information source, the Foundation Center's Grants Index, because of the probability that larger foundations and those focusing on nontraditional activities (such as innovative service-delivery programs or new health-practitioner training programs) would be disproportionately represented. A stratified random sampling design was used to select the sample of foundations. Stratification was necessary to take into account the skewed distribution of foundation spending. It was also designed to focus on those foundations. that available information suggested were most actively involved in the health sector. As described in the detailed report which this paper summarizes,5 all foundations were grouped according to their spending volume and patterns into 10 categories. From these categories a total sample of 304 foundations was drawn. All foundations with grant outlays of four million dollars or more annually were included in the survey. The data sought for each foundation in the sample included total grant Bull. N.Y. Acad. Med.

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outlays in federal fiscal year 1976 and domestic health outlays, by individual grant program, in that year. Data were obtained from foundations' published annual reports and their annual returns to the Internal Revenue Service. Information in these documents was generally adequate to identify individual foundation-grant expenditures and to categorize each expenditure according to purpose. Sample data were analyzed and results weighted to apply to all foundations. A key step in the survey was the development of a framework to categorize foundation health expenditures. This classification scheme divides health expenditures into two categories: those that finance the current provision of health-care services and those that finance investments in the various components of the health-care-delivery system. The delivery system components that are the focus of investment expenditures are the following: delivery system infrastructure (the administrative structure and basic know-how to facilitate a service), health-professional manpower, facilities and equipment, technology and biomedical research, and financing mechanisms. Expenditures on current services or investments in any of the five components of the delivery system are further categorized according to the specific types of activities they involve. For example, current services are identified as general hospital care, general ambulatory care, services especially for the aged or mothers and infants, special services (e.g., alcoholism treatment) cutting across demographic lines, and so on. Each of the investment categories is also extensively disaggregated. Infrastructure investments-the research, planning, and start-up costs of new delivery programs and outlays for management information and statistics systems-are identified as dealing with hospital, ambulatory, special population, or special services. Manpower-training expenditures are distinguished according to the type of manpower supported. Capital expenditures on facilities and equipment are identified according to the eventual use of the facility-hospital or ambulatory service, professional manpower training, or biomedical research. The categorization scheme assigns investment activities to one of three categories: research or evaluations involving the use of the component; experiments, demonstrations, or initiatives using the component in an innovative fashion; or investments to maintain or expand the system in a conventional fashion. Specific criteria were developed to categorize expenditures along these lines. Considerable judgment was required to apply these criteria because adequate information was sometimes unavailable and grants sometimes Vol. 55, No. 9, October 1979

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TABLE I. RELATIVE EXPENDITURES FOR HEALTH FISCAL YEAR 1976

Private foundations Private philanthropyt Federal government National total

Total expenditures ($ millions) 2,171 * 28,150* 365,643 :

1,706,500§

Health expenditures ($ millions) 481** 4,190* 43,613: 141,013:

Health as percent of total expenditures 22.2 14.9 11.9 8.3

*American Association of Fund-Raising Counsel: Giving U.S.A. 1977. Annual Report, processed. New York, 1978. **Domestic outlays only. Private foundations spend approximately 25 million dollars additionally in international health activities. Source: Health Policy Research Group survey of private foundation health expenditures. tAverage of 1975 and 1976 calendar years. tDepartment of Health, Education, and Welfare, Health Care Financing Administration: HCFA Health Notes, processed. Washington, D.C., May 1978. §Gross National Product. U.S. Executive Office of the President: Economic Report of the President, January 1978. Washington, D.C., Govt. Print. Off., 1978, p. 257.

satisfied criteria for more than one category. In view of the large number of foundations surveyed (304), the large number of grants analyzed (approximately 4,000), and consistent use of a single set of criteria by a limited number of researchers, the overall error arising from sampling and data-collection procedures is expected to be fairly small, but, as in all sample surveys, some margin of error is inevitable. Estimates thought to have particularly large margins of error are identified in the tabular material which follows. Survey Findings The major summary findings of the survey are presented in Tables I-VIII. Expenditure data are for actual domestic health outlays during the period corresponding most closely to the federal government's 1976 fiscal year (July 1, 1975 to June 31, 1976). Because individual foundations' fiscal years vary substantially and often do not coincide with the federal government's fiscal year, not all expenditures reported actually occurred during that period. On balance, however, the data do reflect the expenditure picture in fiscal 1976. TRENDS IN TOTAL HEALTH SPENDING

The survey revealed that private foundations spent almost one half billion dollars ($480 million) on domestic health activities during 1976 Bull. N.Y. Acad. Med.

PRIVATE FOUNDATIONS PRIVATE FOUNDATIONS

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(Table I). While this figure constitutes a relatively large share (22%) of all private foundation funds, it represents only a small fraction of total national expenditures for health-less than one half of 1%. Total foundation health outlays are slightly more than 1% as large as the federal government's health spending, and account for approximately 12% of the philanthropic total spent on health. Much variation exists among foundations of different sizes with regard to total health spending. Fifty-eight large foundations with annual outlays of more than four million dollars are responsible for one third of the total foundation expenditures in this area, somewhat less than their 37% share of spending in all areas. The largest foundations account for nearly three fourths of all large foundation health spending, or 24% of the total. Medium-sized foundations (annual outlays between one half and four million dollars) make up 3% of the number of all foundations, but make 27% of all outlays for health. Small (annual outlays between 75,000 and one half million dollars) and very small foundations (outlays of less than 75,000 dollars), constitute more than 97% of all foundations and distribute 32% of all foundation dollars to account for the remaining 30% of foundation health spending. Examination of the relative allocation of foundation expenditures reveals that the health share of funds for the different foundation groups ranges from about 20 to 29%, averaging 22%. Large and medium-sized foundations spend a relatively low 20% share for health. In contrast, smaller foundations, especially those spending between 75 and 500,000 dollars per year, are above average in allocation of funds to health activities. Data indicate that most small and midrange foundations allocate some of their funds to health: one of the surprises of the survey was that approximately 42% of health spending came from foundations not previously identified as active in this area. Available evidence suggests that allocation of private foundation resources to the health sector is relatively stable at the 22% level. A survey undertaken by the Commission on Foundations and Private Philanthropy in 1968,') for example, indicated that the health share was 21% in that year. A three-year (1974-1976) analysis of grants reported to The Foundation Center revealed a 23% share for that period.7 Stable allocation of foundation dollars to health contrasts to the apparently reduced importance that health-care institutions are accorded by other parts of the philanthropic sector. United Way contributed to health care, Vol. 55, No. 9, October 1979

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TABLE II. TRENDS IN FOUNDATION GIVING*

1968 1969 1970 1971 1972 1973 1974 1975 1976 1977

Current dollars (billions) 1.60 1.80 1.90 1.95 2.00 2.00 2.11 2.01 2.13 2.01

Constant (1968) dollars (billions) 1.60 1.68 1.64 1.60 1.58 1.51 1.46 1.27 1.24 1.09

*American Association of Fund-Raising Counsel: Giving U.S.A. Annual Report, processed. New York, 1972, 1978.

for example, fell from 31% of United Way outlays in 1961 to 22% in 1976. Overall, since 1965 the proportion of total philanthropic dollars spent in the health sector has declined from 17 to 15%.1 This withdrawal of philanthropic dollars from the health sector can be attributed primarily to the influx of government and private health insurance dollars since the mid- 1960s. One reason that foundations do not follow a general philanthropic trend away from health giving may be that much of their health spending is done by small foundations with purely local or regional interests. Typically, the structure and objectives of such institutions supports only slow changes in traditional spending patterns. This conservatism in historical fundallocation policies may apply equally well to many medium-sized and large foundations. Available evidence also suggests that, whatever the health spending trends of small foundations, large foundations both maintain traditional interests and embark on new ones in this area. Among the 12 largest foundations, for example, the health allocation rose from 10% in 1968 to 21% in 1976. The composition of these large health spenders, of course, changed substantially over this period. A few large foundations, such as the A.W. Mellon and the Mott Foundations, effectively withdrew from the health sector; others, including the Duke Endowment and the Pew Memorial Trust, maintained past spending practices; still others increased their spending on health activities-the Ford, Rockefeller, and Kresge Foundations, for example; and one new large foundation exclusively devoted to health issues, the Robert Wood Johnson Foundation, appeared on the Bull. N.Y. Acad. Med.

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TABLE III. ESTIMATES OF PRIVATE FOUNDATION DOMESTIC HEALTH EXPENDITURES 1976 ($000) Foundation size group All foundations Large

Medium Small Very small

Total health spending 481,210 (100.0)** 160,360 (100.0) 131,282 (100.0) 129,355

Current services 141,081 (29.3) 9,437 (5.9) 29,726 (22.6) 72,566

Investment activities 324,256 (67.4) 149,819 (93.4) 96,516 (73.5) 51,411

(100.0)

(56.1)

(39.7)

(4.2)

60,213 (100.0)

29,351 (48.7)

26,511 t (44.0)

4,351 (7.2)

Other* 15,873

(3.3) 1,105

(0.7) 5,040

(3.8) 5,378

*Primarily support of national health agencies (e.g., March of Dimes).

**Percent of total foundation health spending, by foundation size group. Percent figures may not

add to totals because of rounding. tRelative standard error greater than 33%. Source: Health Policy Research Group survey of private foundation health expenditures.

scene. On balance, large foundations are at least as much involved in health activities now as 10 years ago. The relative stability of the health portion of the private foundation dollar should not be confused with trends in the value and importance in health-sector activities of foundation health dollars. In current dollars, foundation outlays maintain a small upward trend with cyclical fluctuations, but, when adjusted for inflation, their real constant dollar contribution is decreasing. In view of the especially high health-sector inflation rates, the role of private foundations, in constant dollar terms, is clearly a small and declining one in the area of health care (Table II). THE DISTRIBUTION OF FOUNDATION HEALTH SPENDING

Foundations as a group devote approximately two thirds of their health expenditures to investment undertakings, as opposed to current services (Table III), confirming a commonly held view that foundations focus on longer-range undertakings. But the relatively few large foundations which account for a third of foundation health spending distribute their funds very differently from their sister institutions. These foundations devote 93% of their health expenditures to long-range investment activities. Small foundations, in contrast, tend to spend more than half of their funds for the Vol. 55, No. 9, October 1979

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current delivery of services or for the activities of national health agencies. Reviewing the distribution of foundation funds for current services, substantial contrasts are also evident between different types of foundations (Table IV). Overall, most foundation funds in this area (64%) support inpatient hospital care. Large foundations, however, focus relatively less on hospital and general service programs and relatively more on such special services as alcohol and drug-addiction programs and emergency medical services. Smaller foundations devote more of their money to programs for such specific populations as infants or the aged. Sixteen percent of smaller foundation service delivery funds, for example, support programs for the aged and disabled. Large foundations devote only 7% of their service delivery funds to these populations. In the investment category (Table V), almost half of the 324 million dollar total for 1976 constructed health-care facilities and bought equipment. Another 22% funded manpower-training programs. The other two important outlay areas were technology development and biomedical research (16% on investment funds) and infrastructure development, i.e., statistics gathering and planning and start-up funds for new delivery programs (11% of the investment total). Notably, private foundations are almost totally inactive in promoting new ways to finance medical services-to change insurance coverage or to revise service delivery accounting practices, for example-that many observers regard as essential to serious reform of the delivery system. The health-sector investment pattern of large foundations differs from that of small foundations in at least one important respect. Large foundations account for most foundation-supported infrastructure development, while smaller foundations provide very little venture capital of this sort. Foundations vary surprisingly little with respect to their contributions to biomedical research, and most allocate about 10% of their total health funds to this field. In the manpower area, the relative contribution of small and very small foundations to health professional school and student incomes is almost as great as that of the large foundations. Large foundations use 39% of their health funds for equipment purchases and facility construction, more than the 32% average for all foundations. Two thirds of these funds (for all foundations) are devoted to health-care service facilities, primarily hospitals. Fourteen and 17% of these funds underwrite the construction of educational and research facilities, respectively. Vol. 55, No. 9, October 1979

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TABLE VI. ESTIMATES OF PRIVATE FOUNDATION HEALTH EXPENDITURES-HEALTH RESEARCH AND DEVELOPMENT, FISCAL YEAR 1976 ($000)

Foundation size group All foundations Large

Total health expenditures

481,210 160,360

Total

77,243 (16. 1)* 37,153

R& D Biom. & tech. Health svc. del. development

50,845

26,398

21,314

15,839

15,315

7,319

8,694

2,795*

Other -

(23.2) Medium

131,282

22,634

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129,355

11,489

(8.9) Very small

National totalt Federal totalt Foundation expenditures as percentage of national total

60,213

5,966** (9.9)

5,522**

444*

141,013,000

4,748,300 (3.4) 2,818,000 (6.5)

3,924,055

112,000

712,245

2,307,942

84,540

425,518

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43,613,000 0.3

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*Percentage of total health expenditures for foundation size group. The definition of health research used in this survey is more restrictive than that used in the health R & D data series published by NIH and SSA (cited below). Specifically, this definition excludes some predominantly occupational, safety, environmental, and behavioral research, as well as research with an international focus that is included in the national and federal data series. Columns may not add to totals due to rounding. Unless otherwise indicated, data are from the Health Policy Research Group survey of private foundation health expenditures. **Relative standard error greater than 33%. tResearch subtotals are estimated from data in U.S. Department of Health, Education, and Welfare, National Institutes of Health: Dollars for Health Research and Development. Washington, D.C., Govt. Print. Off., 1977. The national total in the Social Security Administration series (Gibson, R. M. and Mueller, M. S.: National health expenditures, fiscal year 1976. Soc. Sec. Bull. 40:3-22, 1977) is $3.327 billion. Most of this discrepancy arises from the fact that the NIH series does not include research undertakings of drug and medical equipment manufacturers. tGibson and Mueller: National health expenditures. The research total corresponds closely to the latest (1975) figure reported in the NIH series, of $2.799 billion. The subtotal distribution is estimated, based on the distribution in the national series.

In addition to the biomedical research funds included in the "technology development and biomedical research" investment category of Table V, foundations support research activities in other health-sector components. This research, which concerns the use and development of infrastructure, manpower, facilities, and so on, is defined broadly as "health services delivery research." Research and evaluation funds for this purpose are Vol. 55, No. 9, October 1979

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included in the respective component categories of Table V. In Table VI all research and evaluation funds are separated for specific consideration, and private foundation health-research activities are compared with those of the federal government. The bulk of foundation health-research funds support biomedical research. The foundation world, however, significantly contributes to the emerging field of health-services delivery research. All but the very small foundations, in fact, apply 20% or more of their health-research funds for this purpose. This is one of the few areas in which foundation outlays constitute a considerable share of all the funds going into the area. Foundation health-care delivery research funds amount to about 24% of the total from all sources and about 31 % as much as comes from the federal government. In contrast, foundation expenditures for biomedical research, manpower training, and construction are only 2%, 5%, and 12%, respectively, as large as those of the federal government. They constitute only 1% of the national total for both biomedical research and manpower training and only 3% of the national total for facilities and equipment. Trend data on private foundation health-research outlays are scarce and often questionably reliable, but available evidence suggests that the role of private foundations is a declining one. In 1950 foundations provided approximately 8% of all biomedical research funds; by 1970 that share had fallen to 2.2%, and today it appears to have stabilized at approximately 1.4 to 1. 6% of the total.8 PRIVATE FOUNDATIONS AS HEALTH INNOVATORS

Another area on which the survey sheds some light is the extent to which foundation investment activities can be described as innovative. Innovation is a quality that lies in the eye of the beholder,9 and considerable judgment was exercised to establish criteria to distinguish innovative from conventional investments, and to use these criteria to sort the investments undertaken in the areas of infrastructure, manpower, and facilities. All research relating to these components was classified as innovative. Other projects were labeled either as concerned with expansion or maintenance of the existing health-care delivery system or as experiments, demonstrations, or initiatives oriented toward changing the delivery system. Funds for the latter group were also labeled as innovative. The results of this analysis are presented in Table VII. Most infrastructure investments can be described as innovative, almost Vol. 55, No. 9, October 1979

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839 PRIVATE FOUNDATION HEALTH EXPENDITURES: A SURVEY ANALYSIS JOHN E. CRAIG, M.P.A., BETTY L. DOOLEY, B.A., AND DAVID A. PARKER, M.P.A. Health Policy...
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