Category Archives: Not-for-profits

Who Are These Guys, and Where Do They Get All Their Money?

Shenandoah Valley Juvenile Center

The report issued by the Northam administration investigating charges of abuse at the Shenandoah Valley Juvenile Center has come under withering criticism by nonprofit groups that filed a lawsuit last year bringing attention to the treatment of unaccompanied immigrant children held there. The Virginia Mercury has the story here.

While I used the Department of Juvenile Justice report as the basis for a blog post yesterday arguing that people were making much ado about a non-scandal, I have to concede that the criticisms of the report are substantive. By substantive, I don’t presume them to be valid. But they are are not frivolous. If I were reporting the story, I would deem them worth probing to see if they were valid.

An interesting sidebar to the controversy is the revelation of the existence of two nonprofit groups that revealed (or, depending upon your viewpoint, concocted) the abuses the first place. One is the Washington, D.C.-based Washington Lawyers Committee for Civil Rights and Urban Affairs. The other is the Henrico County-based disAbility Law Center of Virginia. Both pursue social-justice work. One hews to high standards of transparency; the other does not. 

The Washington Lawyer’s Committee (WLC) is forthright about its commitment to social justice — or at least a leftist perspective on social justice. States the organization’s Guidestar profile: “While we fight discrimination against all people, we recognize the central role that current and historic race discrimination plays in sustaining inequity and recognize the critical importance of identifying, exposing, combating and dismantling the systems that sustain racial oppression.”

The organization reported more than $5 million in revenue in its 2016 990 form, makes the forms accessible on its website, and lists 27 employees on its website. Unlike many nonprofits, the WLC is open about where its money comes from. in 2016 about $3 million came from “contributions and grants,” $830,000 from fund-raising events, and $1.8 million from “legal fees and court awards.”

Most impressively (from a transparency perspective), WLC lists many of its major donors, which include Wiley, Rein & Fielding, a K Street law firm ($414,000); Dentons US LLP, also a K Street Law firm ($173,000), and the Morrison & Foerster Foundation, a San Francisco-based foundation ($215,000); the D.C. Bar Association ($80,000); and Kirkland and Ellis, a Chicago law firm ($153,000), among others. WLC reported another $1.7 million in contributions from unnamed individuals who contributed less than 2% of total revenue.

What emerges is a picture of a well-funded activist group funded mainly by wealthy lawyers, which supplements its income by collecting legal fees and awards from the lawsuits its files. This is not a grassroots organization. It reflects the views of the nation’s liberal legal elite.

In describing what it does, WLC notes a special concern for “people of color, women, children and persons with disabilities [who] are disproportionately forced to live in poverty” (my italics). That may explain the connection with the disAbility Law Center of Virginia. which provides advocacy services across Virginia for people with disabilities.

The disAbilities Law Center is not nearly as transparent. Its 2015 990 form reported $2.9 million in revenue, and its website lists 34 employees. But the nonprofit did not reveal who its major contributors are. More than $2.6 million was classified as “Government grants (contributions),” another $109,000 was described as “National Disability Rights,” $61,000 came from “other attorneys fees,” and $4,000 from settlement fees. The nonprofit reported no revenue from membership dues or fundraising events. As with the WLC, it is safe to say that the disAbilities Law Center is not a grassroots organization, but rather relies upon generous benefactors. I would conjecture that the group’s priorities reflect the preoccupations of liberal elites, but further research is required to document the suspicion.

How does a nonprofit focused on disabilities get mixed up with a center holding illegal unaccompanied-minor immigrants? In its own description, the disAbilities Law Center is part of a “nationwide network of organizations known as ‘Protection and Advocacy systems,’ designed to offer an array of education and legal representation services to people with disabilities and to combat abuse and neglect in both governmentally operated and privately operated facilities.”

The federal government officially recognized the disAbilities Law Center in July 2018 as a group with “authority to monitor conditions and treatment in immigration facilities if those facilities have residents with disabilities.”

So, what does all this mean? The Virginia Mercury was the only media outlet to report today on the follow-up criticism to the report. Reporter Ned Oliver describes the groups as “advocates for the immigrant teens,” never mentioning their social-justice mission or the fact that they are part of a larger constellation of organizations seeking to influence public policy.

Now, this network may be totally benign and above-board. Or it may be part of a larger coalition of nonprofit and advocacy groups intent upon undermining the Trump administration immigration policy by filing lawsuits and generating publicity. I don’t know the truth of the matter. My point here is not to criticize either group, for I have no tangible basis for doing so, but to raise the kind of questions that the media should be asking when they report on the Shenandoah Valley Juvenile Center controversy. If a right-wing legal advocacy group were filing a lawsuit, the ideological orientation of the group surely would be noted in any story. The same rule should apply to liberal-progressive groups and their causes.

Love Is A Juicy Tomato, A Ripe Melon

“We as a country have fallen out of love with healthy fruits and vegetables.”

Dominic Barrett said that while sitting at a picnic table a few feet from an acre of healthy fruits and vegetables, a new urban garden in the heart of Northside Richmond created by Shalom Farms.  The location is in my neighborhood beside my normal walking path.  Looking for a story I asked Barrett to meet me there and talk.

Turns out the story is there is no big story, and it’s told from time to time.  This is another example of Richmonders (Virginians, Americans) seeing a problem and doing something about it.  No fuss, no muss, no parade permits, no angry tweets.  The non-profit farm was stared a decade ago as a United Methodist urban mission, has spun off and is now approaching $1 million in annual budget, its staff supplemented by thousands of volunteer hours.

Dominic Barrett, Executive Director Shalom Farms

While official statistics indicate that only one in ten of us eats enough healthy fruits and vegetables, Barrett and his group have plenty of customers for their produce.  Nobody has fallen out of love with fresh-picked tomatoes or corn. Shalom Farms sells product at discounted prices from a “Grown to Go” truck which stops at 11 locations in the city (the stop I saw was bustling), through Richmond Healthy Corner Stores, and give much of it away through a network of other distribution points.

They measure their 2017 output as about 550,000 “servings.”  They also offer food preparation classes, have visitors out to their larger 12-acre farm off Virginia 288 in Powhatan County, and for a few people offer a personalized prescription produce plan to restore health.  A key partner is Health Brigade, formally known as the Fan Free Clinic.

Click on Image for Annual Report

The stories about “food deserts” often fail to mention that decades ago home or neighborhood vegetable gardens or fruit trees were common, even in the city, supplementing purchased food.  This time of year, people were awash with produce grown, given or traded.  At least some of the bounty was then canned or preserved in some other way.  Modern distractions, growing incomes, sprawling supermarkets – all have had a hand in the decline of home gardens.

And of course, as Barrett lists as his biggest lesson from his time in the work, farming is hard and risky.  Why risk a failure from weather or insects when stores have abundant supplies?  But big stores are rare in parts of the city, while cheap and attractive unhealthy food choices are everywhere.  Barrett reported that the group has strong relationships with grocery chains in the area, who do not see Shalom as competition.

The farm on the Westwood Tract inside the city has generated no controversy, Barrett reported.  Five acres are rented from Union Theological Seminary and sit on the edge of a large park-like expanse which is actually at risk for future development.  Many neighbors would prefer the farm to 300 more apartments.

Shalom Farms follows organic practices and has been certified as a natural grower but has not taken the steps (which can be expensive) for official organic certification.  Nor does it preach the Gospel of Organic that discourages people from commercially-grown or even canned or frozen vegetables or fruits.   Fresh is great, local is great, but it’s all better than most prepared foods, so enjoy.

There are aspects of the nutrition challenge Shalom Farms leaves to others, despite what Barrett called “the temptation to be all things.”  The mission is not to rekindle the practice of home gardening, or to feed mass numbers of people.  Like millions of other Americans, they do what they can for those they can reach.  As I said, no big story, nothing new here, but a welcome reminder that more good is being done daily than most realize, and we don’t celebrate that enough.

Moneysaurus and the Trumpenproletariat

Since the end of World War II, the nonprofit sector has consumed an increasing share of the United States economy. Health care, which is dominated by nonprofit hospitals, now hogs an 18% share. The growth of higher education, an overwhelmingly nonprofit industry, continues to outpace the general economy. Millionaires and billionaires are converting wealth into non-taxable foundations on an unprecedented scale, supporting the proliferation of tax-exempt foundations and nonprofit enterprises.

There are now some 1.6 million nonprofit institutions in the U.S. employing 11.4 million people and comprising the third largest employer in the country after retail and manufacturing, according to the Independent Sector website. In 2016 the PHP Staffing Group reported that employment over the previous 10 years had grown 20%  for non-profits compared to 2% to 3% for the for-profit sector.

Americans typically think of the U.S. economy as divided between the government sector and the private sector. But that view grossly oversimplifies the modern American economy. The nonprofit sector, which comprises 10% of the economy, belongs in category by itself. Nonprofit entities are private in the sense that they are not government organizations. But they behave very differently from for-profit enterprises. Most importantly, they aren’t accountable to the public in the same way that government and corporations are.

Americans have a U.S. Constitution and 50 state constitutions with checks and balances. We hold elections to throw out politicians we don’t like. We have the right to attend public meetings and to petition the government. We have transparency rules governing access to information. We have a fourth estate which, though diminished in size and capacity, views its central mission as acting as a watchdog over government. Governance leaves much to be desired — gerrymandering is a travesty of democracy — but the public is acutely aware of the inadequacies, and people are working to fix them.

We have a different set of mechanisms to hold corporations accountable. Executives of U.S. corporations answer to boards of directors, to equity investors, to bond holders, to banks and other financiers, and, most dramatically, to the marketplace. Unlike failed governments, failed corporations go out of business. Their corporate DNA exits the economic gene pool. Government functions as an additional backstop against corporate abuses against the public health and safety.

To whom do nonprofits answer in exchange for the massive benefit of being exempt from taxes? Nonprofits do have boards of directors (or trustees) but they don’t have investors capable of overthrowing them in a shareholder revolt or otherwise enforcing accountability. Most nonprofit boards are docile; they rubber stamp management’s vision for institutional advancement. While nonprofits aren’t as immune to catastrophic failure as governments are, they don’t pay the same price that corporations do for failure. Indeed, nonprofits with large endowments can be immune to outside pressure. Not that anyone notices. Transparency standards are minimal compared to those for government and publicly traded companies. Billions of dollars of so-called “dark money” slosh through the nonprofit system with almost no oversight and accountability. Except when scandals erupt, the fourth estate considers nonprofit activities of secondary interest. 

The political economy of nonprofits. Nonprofit entities have fundamentally changed the nature of American society, the economy. and the political system. Americans have been astonishingly sanguine about the creation of a new set of winners and losers.

Who are the winners? There are two sets of clear-cut winners — the millionaires and billionaires who get to shelter their wealth, and the nonprofit managerial class that gets to administer it. Insofar as the nonprofit managerial class is comprised of university-educated progressives who prioritize social justice issues, poor people and minorities are intended beneficiaries. However, insofar as the therapeutic ministrations of social-justice minions are counter-productive — a point I have argued repeatedly on this blog — the poor and minorities may be in actuality more victims than beneficiaries.

Whatever may be the case in that particular regard, the priorities of millionaires, billionaires and nonprofit administrators rarely extend to the well-being of working-class and middle-class Americans — especially the alienated, white Trump-voting segment of the electorate whom some have labeled the Trumpenproletariat.

These biases are most clearly visible in the higher education sector. The number one goal of the managerial class at colleges and universities is institutional advancement: building edifices, programs, and bureaucratic empires that maximize the prestige of the institution. In the pursuit of this goal, the managerial class is responsive to two main constituencies: (1) affluent alumni and their offspring (commonly referred to as legacies) whose good will they cultivate for gifts and benefactions, and (2)  lower-income and minority Americans in alignment with the leftist, politically correct value system of academe. The Trumpenproletariat, representing some 40% or so of the nation’s population, has zero influence. Continue reading

Health Care Dies in Darkness

VCU Health System has broken ground on a $349 million outpatient facility, the largest investment in its history.

The City of Richmond has an annual budget of about $700 million a year. The city gets loads of coverage by local media. Henrico County has an annual budget of about $1 billion a year. County government doesn’t warrant the same number of column inches or minutes of air time, but local media do catch the highlights.

The publicly owned and operated VCU Health System has a budget of about $1.5 billion a year. The quality of medical care there has just as critical an impact on the lives of the Richmond-area residents as, say, schools, roads, and municipal services. Moreover, increases in hospital charges have rapidly outpaced the increase in local tax rates for years — perhaps decades. Yet no one raises a peep, and local media tell us nothing about the hospital’s internal deliberations.

My purpose here is not to dis local media, which are under tremendous cost-cutting pressure and have shrinking resources to cover the news. It is simply to suggest than an institution so large and vitally important to a community — and the same could be said of Sentara in Norfolk, Riverside in Newport News, Carilion in Roanoke, Inova in Northern Virginia, and the University of Virginia Hospital in Charlottesville — needs public accountability. Oversight is all the more imperative when an institution enjoys nonprofit status that frees it from the burden of paying property taxes, sales taxes, corporate income taxes, and miscellaneous levies and excises.

It’s fair to say that the general public knows almost nothing about how VCU is run, what it’s long-range goals are, or how well it’s doing its job. Its annual report (like all annual reports) is essentially a public relations document. The only glimmer of accountability comes from the Virginia Health Information website, which compiles hospital data and publishes some “efficiency” metrics,  but provides no narrative analysis.

VCU Health generated an operating income of $136 million in fiscal 2016 — $120 million, if non-operating gains and losses are taken into account. It enjoys a protected market thanks to state and federal restrictions on competition. What is the public getting for the quasi monopoly status conferred upon VCU and the massive profits it generates? Not efficiency, that’s for sure.

Source: Virginia Health Information

Virginia Health Information compares gross and net hospital revenues per admission, adjusting for the acuity of cases. (As a tertiary care hospital and trauma center, VCU gets a disproportionate share of the hard cases, but the VFI methodology accounts for that.) For both categories, VCU falls within the most expensive quartile of hospitals, as shown in the table above.

Source: Virginia Health Information

VHI also looks at underlying costs. Again, VCU consistently comes out as one of the most expensive hospitals in Virginia, whether labor cost per admission, non-labor cost, or capital cost. Other tables shows that productivity/utilization ratios fall in the bottom two quartiles.

Despite these unfavorable comparisons — which VCU undoubtedly will say are unfair, perhaps with good reason — the health system retains $120 million a year in profits (what VHI terms “Revenue and gains in excess of expenses and losses”). An industry rule of thumb is that hospitals need to retain 3% of their earnings to reinvest in new plant, equipment and technology. VCU retains 8%, a difference of about $75 million a year.

In theory, VCU could rebate that $75 million a year to the community in the form of lower charges to patients. But hospital management, with the backing of the VCU board, has chosen to invest in institutional expansion. That includes, most controversially, significant expenditures to create the Virginia Treatment Center for Children, even though philanthropist William H. Goodwin had pledged to give $350 million to create an independent children’s treatment and research hospital. VCU declined to collaborate with Goodwin, preferring to charge ahead with plans to keep the children’s hospital under its own corporate umbrella. Goodwin has not announced how he might otherwise dispose of his proposed gift, but there is no guarantee that the Richmond community will be the beneficiary.

Nonprofit hospitals, like colleges and universities, are not profit-maximizing institutions — they are prestige-maximizing institutions. Hospital administrators don’t go into the hospital business to make massive fortunes (although they do very nicely). They go into the hospital business to enhance the status of the institutions with which they are affiliated. Nonprofit status is not some magic fairy dust that makes self-interest and self-dealing disappear. As with the quest for profit, there is no limit to how much money hospital leaders will spend to advance their institutional standing in a never-ending race with other institutions seeking to do the same.

These massive revenue- and profit-generating enterprises — VCU is hardly alone — operate with no effective restraint or public oversight in Virginia. For time immemorial, Virginia’s news media has defined its mission as holding government entities accountable. It’s high time they begin holding nonprofit universities and hospitals accountable as well. But they can’t — they lack the resources. As nonprofit universities and hospitals metastasize, growing swaths of Virginia’s economy function in darkness.

Medicaid Expansion and the Coming Gusher of Hospital Profits


S&P Global Ratings, a big-three bond rating agency, predicts that Medicaid expansion will be “credit positive” for Virginia hospitals by reducing the level of uncompensated and charity care. Reports the Richmond Times-Dispatch:

The report does not change the current credit ratings of any Virginia health system, but S&P credit analyst Anne E. Cosgrove said the positive outlook “should help their bottom lines.”

“If you don’t have as much uncompensated care, this should help your underlying profitability,” Cosgrove said in an interview on Wednesday.

Virginia hospital officials played down the S&P announcement because they said enrollment under expanded Medical eligibility hasn’t begun and the benefits will vary among health systems depending on the mix of patients they serve.

Let’s get a sense of what the impact will be when an estimated additional 400,000 Virginians enroll in Medicaid. I have downloaded the latest financial data for Virginia acute care hospitals from the Virginia Health Information website, as displayed above. Collectively, they provided $2.6 billion in charity care and wrote off $1.9 billion in bad debts in the fiscal year 2016. They also made nearly $1.7 billion in profit (including “surplus” revenue reported by nonprofits).

Speaking in rough numbers, the federal and state budget for Medicaid expansion will inject about $3 billion annually into Virginia’s health system. I don’t know how that money is to be distributed between acute care hospitals, physicians, long-term care facilities and other medical providers. But for purposes of illustration and subject to verification, let us assume that one-third goes to acute care hospitals, thus reducing charity care and bad-debt write-offs by $1 billion. Virginia hospitals still will be providing a lot of free health care, but they could see a roughly 60% increase in profits.

So, yeah, I expect Medicaid expansion will be “credit positive” for the industry.

Now, let’s conduct another mental exercise. Let’s ask what the impact will be on Virginia’s most profitable hospitals. I totaled the charity care and bad debts for each institution and assumed that Medicaid would reduce them by one-third. Please note, these estimates represent no more than a Scientific Wild Ass Guess useful only for ascertaining order-of-magnitude effects. Here’s what the numbers look like:

Of the hospitals reporting the highest profits in FY 2016, all but Henrico Doctors Hospital were “non profit.”

As Bacon’s Rebellion readers know, I think profits are a beautiful thing. But some profits — those that arise from innovation, productivity, efficiency, and the like — are more socially beneficial than others. Profits that arise from creating monopolies and cartels, restricting competition through the exercise of political influence on government rules and regulations, and relentlessly jacking up charges to paying patients is not socially beneficial. The problem is compounded when the entities engaging in this behavior are nonprofit. Whatever else you say about the business practices of Andrew Carnegie, Henry Clay Frick and John D. Rockefeller, at least they paid taxes!

Bacon’s Rebellion will be watching hospital profitability closely. The big question: What will the highly profitable non-profits do with the gusher of money? Will they hold down charges to patients… or will they continue plowing the money into institutional expansion?

Update: Readers have pointed out that hospitals’ reports of charity care are wildly inflated because they are pegged to absurdly high nominal prices for care that almost no one pays. One implication is that hospitals are far less generous than they purport to be. Another is that my methodology for calculating the financial impact of Medicaid reform on profits is inflated by a similar amount.

Transparency for Thee But Not for Me

Is Ralph Nader the driving force behind UnKoch My Campus?

In response to attacks from left-wing critics, the Charles Koch Foundation said last week that it will post all future multiyear agreements with universities online. The Foundation is one of the nation’s most generous contributors to higher education in the United States, ladling out $90 million in gifts in 2017. Among the biggest beneficiaries has been the Mercatus Center, a free market/fiscal conservative think tank, and to a lesser degree the Antonin Scalia Law School, at George Mason University

Reported the Wall Street Journal last week:

Private colleges and universities aren’t subject to public-record disclosures; some public-university relationships are forged through the schools’ foundations, which can also be exempt from disclosure requirements. Some schools receiving Koch grants have shared the agreement details publicly, but historically not all have been required to do so.

The UnKoch My Campus group has led the criticism of Koch Foundation influence at GMU and elsewhere nationally. Ironically, it is not clear who funds UnKoch My Campus or what strings might be attached to its funding agreements.

In an age in which politics is polarized — and in which everything is deemed political — “dark money” is a massive issue. Millionaires and billionaires influence public policy not just directly through campaign contributions and paid lobbyists but indirectly by funneling foundation money through programs to influence public opinion — as well as those, such as university scholars and new media outlets, who shape public opinion.

Although the Koch Foundation has committed to increased transparency, its critics are not satisfied.

“Unless they are going to release all past agreements, and documentation for all their programs, Koch is not providing clarity, but simply executing a p.r. move to deflect scrutiny from the programs on hundreds of campuses where they continue to leverage undue influence for private gain,” Ralph Wilson, research director for UnKoch My Campus, told the Journal.

At least the Koch Foundation files a 990 form with the Internal Revenue Service, which you can view here. The foundation may not live up to UnKoch My Campus’s lofty ideals for transparency, but then… neither does UnKoch My Campus.

UnKoch My Campus does not publish any agreements it has with funders. It doesn’t even identify its funders. Indeed, it doesn’t even file a 990 form. Here’s what you see when you search the Foundation Center’s 990 finder:


While UnKoch’s web page says nothing about where it gets its money, if you want to donate, you can stroke a check to “Essential Information,” a Washington, D.C.,-based outfit, founded in 1992 by Ralph Nader, whose affiliation is not explained.  You can see a a 990 form for Essential Information here.

Reporting total assets of $86,000, Essential Information does not appear to have an endowment or to be otherwise self-funded. The group reported receiving $382,000 in gifts, grants and contributions in 2016 but it did not identify the source of those funds.

The foundation listed $97,000 in salary and other administrative expenses, and it listed the Free Africa Foundation as the recipient of a $25,000 grant. (The previous year, it gave $50,000 to the Environmental Action Center.) The foundation provided no indication of how the other $260,000 was spent.

The president of Essential Information is listed as John Richard, who devoted on average five hours of week to foundation duties. And who is John Richard? According to the Public Citizen website, upon whose board he sits, he “supervises staff at The Center for Study of Responsive Law, the hub of Ralph Nader’s public interest activities in Washington.”

The Center for Study of Responsive Law takes donations on its website, but does not say where its money comes from. The Center’s 990 form is only partially illuminating. The group collected $808,000 in 2016, and it supported a staff of 11 with wages, payroll taxes and benefits of $574,000. Where did that money come from? The group didn’t say. And what did the Center spend its money on? Three things mainly: two Breaking Through Power conferences, the DC Library Renaissance Project and “a wide variety of research and educational projects to encourage government and corporate institutions to be more aware of the needs of the citizen consumer.”

Did Ralph Nader’s Center for Study of Responsive Law donate money to Essential Information and/or UnKoch My Campus? Publicly available data provides no answer. Where did Nader’s $808,000 in 2016 contributions come from? Did he rely upon small-dollar donations? Did he self-fund? Did he rely upon one or two big donors? If there is a funding agreement in the mix, I’d love to see it. Good luck with that.

Sixty Percent of Slover Foundation Budget Goes Toward Administration

Paul Fraim. Photo credit: Virginian-Pilot

The Slover Literary Foundation, a tax-exempt charity set up to support Norfolk’s flagship Slover Library, plans to spend more on salaries next year than on direct aid to the library, the Virginian-Pilot reports today.

The Slover foundation will spend almost 60% of its fiscal 2018 budget on administrative costs including a $150,000 salary for former Norfolk Mayor Paul Fraim, according to figures Fraim provided the Pilot. The highest-rated charities on Charity Navigator tend to spend 10% or less on administration, the newspaper notes.

Foundation board members argue that the salary paid to the 67-year-old Fraim is worth it. The former mayor brings a vast network of relationships to the foundation and can make things happen. His skills and connections have helped bring high-profile events to the library such as a NATO panel and a “future of the Navy symposium as well as guest speakers, music, and youth programs.

Slover is one of 13 public libraries in Norfolk. The city has tried to make it a cultural destination with technology, architecture and events.

Bacon’s bottom line: Read the Pilot article on the pros and cons of paying Fraim a $150,000 salary. I can see both sides of the story. But I’m mainly interested in a different point: Whether the salary is justified or not, transparency is vital. If a charity or non-profit benefits from tax-exempt status, it owes an obligation to the public. Tax exemptions, after all, are an indirect subsidy from taxpayers.

Most charities report this data in 990 forms. But The Slover foundation did not release the data for four years. Reports Eric Hartley:

Until now, it had been difficult for donors or other outsiders to evaluate the Slover foundation’s spending. Founded in 2008 to raise money to build a downtown library, the organization did not make its finances public between 2013 and this year. Its outside accountants said it was not required to, unlike most charities, because it was a “supporting organization” to the city government.

The justification for not releasing the financial information is specious. If anything, its affiliation with the City of Norfolk means it should be held to the same Freedom of Information Act standards as Virginia government! Who could be blamed for suspecting that Fraim avoided so long releasing the information to avoid embarrassment of having it appear in the Pilot?

There’s a bigger point here: the lack of accountability of non-profit organizations generally. Nonprofits are required to basic financial information in 990 forms. But non-profits have minimal government regulatory oversight. They have no shareholders to answer to. They receive little press scrutiny. (The Pilot’s coverage of Slover is a rarity). And boards of directors are typically clubby conclaves of well-heeled members of the business and political elite who don’t want to rock the boat.

I’m reminded of a recent column by Walter Williams, an economics professor at George Mason University, who wrote of university trustees:

Every board of trustees has fiduciary responsibility for the governance of a university, shaping its broad policies. Unfortunately, most trustees are wealthy businessmen who are busy and aren’t interested in spending time on university matters. They become trustees for the prestige it brings, and as such, they are little more than yes men for the university president and provost.

The same critique extends to many government boards and nonprofit boards. There are always exceptions — in my coverage, I’ve seen a few individuals willing to ask tough questions — but they are rare. I sometimes wonder if the best way I could “give back” to the community when I retire is to convert Bacon’s Rebellion into a platform for covering governance of Virginia’s foundations, charities, universities and health systems. I’d be interested to know what readers think of the idea.

How Inova Hopes to Reinvent Health Care

Inova is betting that personalized medicine + big data can transform health care.

Inova is betting that personalized medicine + big data can transform health care. Illustration credit: Richmond Times-Dispatch

Published this morning in the Richmond Times-Dispatch.

As Republicans and Democrats brace for a battle royal over Obamacare and what might replace it, they would do well to pay heed to an important experiment south of the Potomac.

In Congress the debate centers on who pays for health care and how costs can be shifted to someone else — a zero-sum game. At Inova Health System, the dominant health-care provider in Northern Virginia, the focus is on improving peoples’ health at lower cost by practicing medicine differently. If Inova is successful, everyone wins.

The plan at Inova’s Center for Personalized Health, located across the road from Inova’s flagship hospital in Fairfax County, is to draw upon diverse data — electronic health records, user-generated data (such as fitness trackers and other wearable devices), family history, social milieu, and a patient’s genetic and biochemical make-up — to develop wellness and treatment strategies tailored to the individual.

“Take a cancer drug that’s effective 30 percent of the time,” says Todd Stottlemyer, CEO of the center. “A better way to understand it is that the drug is 100 percent effective for 30 percent of the people who possess certain genes or proteins.”

If physicians can target the treatment to the patient’s unique biochemistry, they can avoid giving drugs that don’t work. That leads to better health for the patient and saves society a lot of money.

***

Inova is building its Center for Personalized Medicine on the old Exxon-Mobil corporate campus, and adapting it for use as a medical research center. Construction is underway there for the Schar Cancer Institute, a multidisciplinary institute where precision medicine will be practiced.

The Inova Clinic will provide genomic testing and consultations. Other centers, institutes and incubators will conduct research, crunch data and, hopefully, spin off new business enterprises. Meanwhile, the Center has already begun recruiting national-caliber scientists.

Many other medical colleges and research centers around the country are doing similar things. What sets Inova apart is not just treating disease but keeping people well in the first place.

Let’s say a 48-year-old woman has breast cancer. Here’s how Stottlemyer sees things working: Physicians will want to understand her genetic make-up. They’ll want to know the biomarkers of the particular type of cancer she has. They will design a treatment, based upon the unique facts of her case, that will target the biomarkers and offer a higher probability of success than conventional approaches.

But the work doesn’t end there. What if the woman’s daughters have the same genetic markers? Should they screen more aggressively? Should they have mastectomies before getting the disease themselves? Inova will have genetic counselors trained in interpreting the scientific data and then walking patients through the complex decision-making process. Says Stottlemyer: “We want to empower good, informed choices.”

***

Inova will draw upon Northern Virginia’s strength in information technology. Harnessing so-called “Big Data” will help researchers and practitioners gain insight into not only individual patients but entire demographic groups.

The Center will cobble together health records, family histories, genome sequences, and sociodemographic statistics, and then compare the data against its database that houses more than 10,000 genome sequences from 134 countries of birth around the world.

The nonprofit health system is sinking hundreds of millions of dollars of its own money into the Center — acquiring the Exxon-Mobil building, funding venture capital, setting up the institutes and centers — and supplementing it with state dollars, philanthropic dollars, and funds from corporations and academic partners.

Late last year, Inova inked a $112 million deal with the University of Virginia School of Medicine allowing U.Va. medical students to participate in the discovery and commercialization of treatments for cancer and other diseases.

Stottlemyer sees the launch of a new center of research and innovation as a booster shot for Northern Virginia’s economy, which is still staggering under the impact of sequestration-related cuts in defense spending. Building bridges to U.Va., Virginia Tech, and Virginia Commonwealth University should provide a stimulus to downstate economic development, too, he says.

But the ultimate justification for a nonprofit enterprise like Inova to spend millions on an initiative like the Center for Personalized Health is to help the people of Northern Virginia and the commonwealth to enjoy better health at lower cost. When the center opens for business next year, health teams will disseminate insights from the center’s research to Inova hospitals throughout Northern Virginia.

The U.S. health care system is organized around treating people when they get sick, not keeping them well. “It’s a transactional system,” says Stottlemyer. Doctors and hospitals get paid only when they conduct a test or procedure or other service. “We’re trying to change the game.”

Bikes, Bees, Beauty

lowline2

by James A. Bacon

New York City has its High Line park built upon an abandoned, elevated freight rail line. The City of Richmond has its Low Line park, built underneath CSX Corp. railroad trestles.

In the seven years since opening to great fanfare, Manhattan’s High Line has attracted millions of visitors and inspired the construction of nearly 1,400 housing units along its two-mile route. By contrast, the opening of Richmond’s Low Line has been decidedly low key, and no one is expecting it to become a magnet for real estate development. But the Low Line could well become an integral part of Richmond’s park system and spur reclamation of the riverfront.

The vision for the $6 million project calls for flower plots with benches, covered walkways beneath the trestles, rain gardens along the Kanawha Canal, and trees shading HOW MANY?? hundred yards of bike path. Capital Trees, a not-for-profit organized to promote urban greening, has committed to fund the ongoing maintenance.

A year ago, the area was an overgrown ruin, neglected by CSX and the City of Richmond, which shared ownership of the land for more than a century. Located in the flood plain, the property had little value. No one had reason to invest in it or even care about it.

“There was no advocate for this area. It was blighted,” says Susan Robertson, co-chair of Capital Trees. “People would ride on the canal boats from the manicured, renovated canal walk [in Shockoe Bottom] and encounter a scene with invasive weeds and trees. From June through November, you couldn’t see the canal [from the land].”

When the Low Line is complete, it will knit together a cluster of recreational assets including the Richmond terminus of the 52-mile Capital Trail, the Great Shiplock Park, the Kanawha Canal, and Chapel Island with its trails and kayak launch. The Low Line also will provide an amenity for the 1,500 residents of Tobacco Row apartments and condominiums on the far side of the flood wall.

“It’s so great,” Victoria Hedegger, a Tobacco Row resident, said recently while walking her new-born in a stroller. “It was nice before. Now it’s even nicer. [The gardens] make the trail so much more attractive.”

Before Capital Trees got involved, this was the view from the Capital Trails bike path.

Before Capital Trees got involved, this was the view from the Capital Trails bike path.

Capital Trees originated as a collaboration between the Richmond region’s four garden clubs in the expectation that they could undertake projects with greater impact if they worked together. The new generation of garden club leaders aren’t content with traditional beautification projects. They are exploring the intersection of beautification, conservation, storm water management and urban place making.

In its early incarnation, the group worked with city officials to reform the urban tree-planting program. Then it spear-headed the building of rain gardens on 14th street in Richmond’s downtown to control storm water runoff. With each success, Capital Trees’ projects became more ambitious.

In 2011 Lynda Miller, head of New York City’s Central Park Conservancy, visited Richmond to describe how volunteers had reclaimed part of Central Park. “She told use we could tackle big, important projects that can make our lives better, recalls Clare Osdene Schapiro, a Richmond Times-Dispatch writer active in the organization. Continue reading

Another $100 Million for Venture Capital? Who Is Accountable at Inova?

Inova CEO J. Knox Singleton (left) with Governor Terry McAuliffe and George Mason University President Angel Cabrera announcing Inova-GMU strategic partnership. Photo credit: The Connection.

Inova CEO J. Knox Singleton (left) with Governor Terry McAuliffe and George Mason University President Angel Cabrera announcing Inova-GMU strategic partnership. Photo credit: The Connection.

by James A. Bacon

In February Inova Health System announced its intention to create a $100 million venture fund dedicated to precision medicine, an initiative timed to coincide with an Obama administration event highlighting the nascent science, and designed to support Inova’s own $300 million plan for a center for personalized health just outside Tysons Corner.

From an economic development perspective, such a fund is just what the doctor ordered for a Northern Virginia economy overly dependent upon defense, intelligence and homeland security funding. The giant health system has signaled its willingness to spend what it takes to build a nationally recognized medical R&D hub centered on preventing disease by understanding patients’ unique genetic make-up, and there are plenty of interests, from George Mason University and Virginia’s biotech industry to the McAuliffe administration and real estate companies hungry for the next development play, who want to see Inova succeed.

“We think it’s transformational, something that can really propel this region,” Josh Levi, vice president of policy for the Northern Virginia Technology Council told the Washington Business Journal. “It’s not just the money. It’s the acceleration, the incubation of partners. The thing they’re really bringing is the expertise.”

When questioned by the WBJ, Inova officials declined to provide the most basic details about the fund. Who will manage it? What kind of companies will Inova back? Most importantly, where will the money come from? The company says that it will share more information as it becomes available.

From what I’ve seen, it appears that the WBJ is the only Washington-area media entity asking questions. And the scope of its questions are very narrow, befitting the focus of a business publication.

But there are even bigger questions that no one is asking. Is this an appropriate business for Inova to be in? Is it appropriate for a health system to be allocating such a large sum to an enterprise (a) in which it has no experience, and (b) is so divorced from its mandate of delivering health care services to the citizens of Northern Virginia?

I am truly of two minds on this issue. On the one hand, I can see a great future for the Center for Personalized Health as a job and wealth creator. On the other hand, the initiative seems to be barreling ahead with no questions whatsoever. The only skepticism I’ve seen are in the comments section of this blog, when Reed Fawell has asked what massive commercial development in the Merrifield area of Fairfax County implies for traffic along the already congested Interstate 66. I’ll let Reed continue to examine the traffic/land use implications in the comments section. In the meantime, I will continue to ask how appropriate it is for Inova as a not-for-profit entity serving the community to undertake this initiative at all — not because I am adamantly opposed to what Inova is doing but because the enterprises seems to be making multi hundred-million dollar commitments without any pushback whatsoever, and somebody has to ask the questions.

As I observed in December:

The not-for-profit Inova, which exercises near monopoly dominance in the Northern Virginia health care market, generated operating income of $218 million in 2014 on $2.7 billion in operating revenue. That’s a profit margin of about 8%, more than twice the profitability that non-profits normally need to maintain healthy operations. That translates into about $109 million in what one could classify as excess profit.

Unlike a for-profit company, Inova is not obligated to maximize profits. To the contrary, insofar as the company is exempt from taxes and has a community mission, one could argue that it is morally obligated to (a) reduce charges to patients afflicted by ever-escalating medical bills or (b) provide more care to low-income patients not covered by Medicaid.

How has Inova been allowed to morph from a community hospital system into a budding underwriter of Northern Virginia economic development? Perhaps we can find some clues by examining the NoVa board, a Who’s Who of the Northern Virginia business and political establishment. Here is a list of the men and women who are, in Inova’s own words, “responsible for oversight of Inova’s finances, strategic planning and management”:

Continue reading

The Small Business Route out of Poverty

Raheim Watson grew up in Harlem, New York, surrounded by drugs and violence but decided he wanted a different life when his son was born. He moved to Richmond in 2014, where he has purchased a home, the first one in his family to do so, and started his own business. His window washing business is focused on the residential and small-commercial market.

Raheim Watson grew up in Harlem, New York, surrounded by drugs and violence but decided he wanted a different life when his son was born. He moved to Richmond in 2014, where he has purchased a home, the first one in his family to do so, and, with help from UnBoundRVA, started his own business. His window-washing business is focused on the residential and small-commercial market.

by James A. Bacon

UnBoundRVA is my kind of anti-poverty initiative! The organization identifies people in low-income neighborhoods who have the potential to succeed as small business owners, and then provides them a year of training, advice and networking support as they develop a business plan.

Once the business models are in place, each hopeful business owner makes a pitch for startup capital from a collective pool of $100,000 in low-interest loans. UnBoundRVA then connects the businesses with partners who provide pro bono services in areas such as legal, accounting, marketing and banking.

UnBoundRVA made it into the news recently when the Richmond Times-Dispatch highlighted a $20,000 donation to the group by Pat Hull, the entrepreneur behind logistics apps Getloaded.com and Scoopmonkey.com. “Your dream may not be the next Google. But who cares, if you are supporting your family and creating jobs?”

The not-for-profit enterprise was founded by Sarah Mullens and Richard Luck, who met while teaching in the inner city as part of the Teach for America program. They saw a large number of talented individuals who weren’t pursuing a college track for reasons that had nothing to do with ability or work ethic. “We believe that potential is restricted by the forces of the poverty cycle, and that the human capital of these individuals is our nation’s greatest underutilized asset,” states the UnBoundRVA website.

High-potential individuals in the current class, which will finish in June, are pursuing businesses in the following areas: clean-up services for construction projects, a mobile auto detailing service, a professional house organizing and redesign service, vegan cookies, and a mobile virtual reality gaming experience.

Bacon’s bottom line: Give a man a fish, you feed him for a day. Teach him how to fish, and you feed him for his life. In contrast to so many leftist-inspired “social justice” programs that don’t even feed a man for a day — they teach him to march and protest until someone gives him a fish — UnBoundRVA teaches people to fish. It may not provide a systemic cure for poverty, a goal that has eluded this nation despite the expenditure of trillions of dollars in public and philanthropic anti-poverty programs over the years, but it can make a tremendous difference to the people whose lives it touches.

If you want to address the “root causes” of poverty, you have to change the lives of people one individual at a time. UnBoundRVA does that.

That said, it’s not clear from the website if UnBoundRVA is a cost-effective way to address poverty. The program has an annual budget of $268,000, supporting a staff of four full-time employees and one part-time. How many people does it help with that annual investment? According to the website, UnBoundRVA collects the names of individuals interested in starting their own business, enrolls twelve candidates in a six-week workshop and selects the five most promising for a one-year program of business support. The website does not say how many times it runs through this cycle each year. If only once, not so good. If eight or nine times, helping 40 or more people, that’s more defensible. One thing I do believe: It’s a model worth trying.

Geography, Charity and Competitive Advantage

Source: "The State of the Region: Hampton Roads 2015"

Source: “The State of the Region: Hampton Roads 2015”

by James A. Bacon

I had always thought that Virginians were more charitably inclined on average than other Americans, but apparently that’s not the case. Data published in Old Dominion University’s “State of the Region: Hampton Roads 2015” report indicate that Virginians give a considerably smaller percentage of their income to charity (presumably as measured by itemized charitable deductions in tax filings) than do Americans overall. Hampton Roads residents buck the trend, contributing significantly more than the state average of 2.85% of income — though still below the national average of 3.7%.

“It is certainly notable that Portsmouth, a city whose residents are much less prosperous financially, nonetheless more than doubled Loudoun County in terms of the percentage of residents’ income given to charitable endeavors,” states the report, whose lead author is ODU President Emeritus James V. Koch. “This suggests a degree of anomie and lack of identification of Loudoun County residents with their surroundings.”

Koch raises an interesting point. I would go a step further and suggest a hypothesis that Koch, who has amassed an enormous database of local- and metropolitan-level statistics, perhaps could test: The longer people have lived in an area and the more they have sunk their roots there, the more likely they are to contribute philanthropically. Many of Loudoun County’s residents are newcomers who have yet to develop strong ties to their communities. To cast that statement in the form of a testable hypothesis, I would predict a strong correlation between the average length of residence and the rate of migration in and out of a locality and/or a metropolitan region and the proclivity of the population to give to charity. That is not the only factor influencing the rate of giving, but it would be an important one.

By this logic, the charity-mindedness of Hampton Roads actually may be understated. Because the region’s largest industry is the military, which rotates a significant percentage of the population in and out  with great regularity, the population of long-term residents has a lot of slack to take up.

The report also publishes a list of largest Virginia-based charitable organizations, ranked by 2012 grants. The largest are national in scope, such as the NRA Foundation and the Freddie Mac Foundation. But of those that are primarily local in scope, Hampton Roads leads the pack. Leading the way is the Batten family, associated with three different foundations that dispensed more than $30 million in 2012. All told, eight of the state’s 40 largest foundations are located in Hampton Roads.

“State of the Region” pays particular attention to the South Hampton Roads United Way and whether the multitude of programs it oversees could be more efficiently funded.

The United Way’s review of funding candidates is unquestionably laudable; however, the consensus in the charitable world is that analogous programs need to be in place to provide additional ongoing monitoring and guidance for existing charitable organizations that have long been around. Such organizations can get stuck in a rut operationally and lose their energy and efficiency. It is not easy to scrutinize existing charities, but it is an important task that directly affects the eventual impact of the United Way.

Bacon’s bottom line: More attention needs to be given to the role and influence of philanthropy and not-for-profits in the study of U.S. metropolitan areas — not just to their operational efficiency but to how well they advance a community’s strategic goals. To grow the economy, raise the standard of living, make the community attractive to newcomers, and address the needs of the less fortunate requires collective action over and above what government can do. From my observations of the Richmond area, there is a relatively stable “philanthropic capacity” — a sum of money that corporations and affluent individuals are willing to donate over the course of a year. How much money a community raises and how it dispenses that money — either to present-oriented projects such as supporting cultural institutions and helping the poor, or to future-oriented projects such as investing in universities, medical facilities and economic development — shapes the region for better or worse.