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After years of legal wrangling, the new health foundation that was the prize for the public following Empire State Blue Cross and Blue Shield’s privatization in 2002 is up and operating. After hiring an executive director a year ago and dispersing $6 million in the remainder of 2006, in 2007 the New York State Health Foundation plans to award $22 million in grants to health care providers and nonprofits all over the state.

Executive director James Knickman said the foundation is still refining its mission and considering its future, but has already made a splash in health care philanthropy with grants supporting Mount Sinai Hospital’s effort to set up a self-management program for adults with asthma in East Harlem, Phipps Community Development Corporation’s nutrition and environmental education program in the Bronx, and the Fund for Public Health in New York’s supply of free pharmaceuticals to health clinics, among others.

The foundation was established in 2002 after Empire State Blue Cross and Blue Shield, which had operated as a nonprofit health care provider in New York for 70 years, surrendered its tax-exempt status and became a private health insurance company. Because it had been exempt from taxes throughout its existence, the assets from the sale of Blue Cross’ stock were taken by the state, as is the legal standard nationally for health care corporations – whether public hospitals or nonprofit insurance companies – that convert to private companies.

Since the early 1980s, 187 such corporations have converted, according to Brent Ewig, senior program associate at Grantmakers in Health, which tracks health care philanthropy. In most states the proceeds from Blue Cross conversions have been applied in their entirety to new public benefit corporations, Ewig said. For example, the California Endowment established when that state’s Blue Cross went private in 1996 has $4 billion.

But in New York, former Gov. George Pataki made an election-year deal with Dennis Rivera, president of the 1199 SEIU health care workers’ union, to use much of the Blue Cross windfall to fund a pay raise for state health care workers. Five percent of the Blue Cross stock, which was then valued at $1 billion, was reserved for the nascent New York State Health Foundation.

Health care advocates, led by Consumers Union, cried foul and sued in state supreme court, arguing that the legislature did not have the constitutional authority to reassign the Blue Cross assets, because charitable assets are under the jurisdiction of the courts. The case took three years to resolve, ending in June 2005 when the state’s court of appeals upheld the constitutionality of the deal. So the new foundation began operations with the 5 percent of Blue Cross stock. However, in the intervening years that $50 million was invested and grew to $250 million. The total endowment now stands at close to $290 million, according to director Knickman. The original $1 billion in BCBS assets has grown to $6 billion, according to Charles Bell of Consumers Union. The extra $5 billion is still funding the wages of 1199 SEIU members.

“Would we prefer $6 billion to $250 million? Sure, but this is the way New York has decided to do it,” said Knickman, asserting that even with the lesser endowment, the foundation leapt on the scene as a major player in health-related grantmaking.

“We just brought a sense of hope that there is a capacity to fund public health projects,” he said. “A lot of organizations find the type of funds we give can really make things happen.” Knickman has long experience in these areas: He was vice president for research and evaluation at the mammoth, health-focused Robert Wood Johnson Foundation for the past 14 years, and taught at NYU’s Robert F. Wagner Graduate School of Public Service for 16 years before that.

The young NYS Health Foundation was established by the state legislature with a broadly worded mission to expand access to health insurance for low-income New Yorkers, increase access to high-quality health care for populations that have trouble getting services, and improve public health by educating New Yorkers about health issues and empowering communities to address them. It is governed by a nine-member board of directors, of which three members are granted voting authority. The voting members are appointed by the governor, the state senate president and the speaker of the assembly.

The foundation narrowed its focus by making treatment, maintenance and prevention of diabetes a major priority. Since January the foundation has awarded grants to programs ranging from a fitness program for teens at Montefiore Hospital in the Bronx, to a review of school nutrition policies upstate at the Health Association of Niagara County.

Toward the goal of encouraging innovation in the maintenance and treatment of chronic disease and building the capacity of smaller organizations to have an impact on public health matters, the foundation will more than triple its grants to public health initiatives large and small this year, Knickman said.

The board of directors and staff are still determining which, if any, issues beyond insurance access and diabetes will receive funding. “We’ll see where the need is high and the opportunity to make a difference exists,” he said. The projects submitted for the special opportunity grants should “give us a way of really learning what’s out there in terms of capacity.”

There is little doubt the foundation will have a considerable impact on health-related funding in the state.

“The conversions are often spoken of as the largest redeployment of charitable assets in history,” said Ewig, from Grantmakers in Health. “Certainly they’ve enhanced the field of health care philanthropy. The conversions really gave [the foundations] the opportunity to try new grantmaking initiatives,” he said, but cautioned that while health care philanthropy may seem like a major expenditure, it is only a “drop in the bucket compared to what the government spends on Medicaid and Medicare.”

Bell, the program director from Consumers Union who fought the Blue Cross conversion but then served on one of the panels reviewing applications in the NYS Health Foundation’s first round of grants, said it was premature to measure the foundation’s effectiveness.

“It’s pretty early to say,” he said. “New York is badly in need of a statewide health fund – before this there was none. I’m guardedly optimistic that this will be a good thing, but the jury is still out.”

He pointed out that the makeup of the board of directors led by political appointees was unusual for a nonprofit foundation. He also cautioned that the foundation could inadvertently favor large health care providers like hospitals over community organizations because the large organizations have greater resources in applying for grants. “I’m urging them to do outreach and needs assessment. It’s really essential that they are listening to the community they serve and getting input,” he said.

The foundation’s current request for proposals seeks to fund initiatives outside its core mission of expanded insurance access and diabetes care. The application, due June 16, calls for programs that “would have a large impact on the health of a large group of people or significantly improve the state’s health care system.”

Phipps Community Development Corporation won a $100,000 grant from the foundation this year to fund programs in its garden in the West Farms section of the Bronx. Phipps, which already sponsors a Community Supported Agriculture project linking Bronx residents with produce from a New York State farm, will use the garden to teach nutrition and cooking skills, based on the idea that healthier eating habits will fight obesity and what it often leads to: Type 2 diabetes.

“The funding we got has allowed us to expand a lot of our programs and start new ones,” said Jennifer Plewka, Phipps’s director of environmental education, who has instituted diabetes awareness workshops for teens, canning demonstrations for gardeners and tai chi classes in the garden with the funds. “It gives us the sense that there’s somebody out there who is willing to recognize the work we’re doing,” she said.

While the foundation has jumped into its mission with both feet, Knickman says the board of directors is still considering the foundation’s long-term plans. Whether it will invest a sizable portion of its endowment and dispense only a small percentage each year to ensure longevity, or whether it will spend its assets and close up shop on a set schedule is yet to be determined.

Last month the state legislature authorized the conversion of HIP – the Health Insurance Plan of New York – to a private company. HIP, valued at between $3 billion and $5 billion in the estimation of Consumer Union, is widely expected to follow Blue Cross’ lead in the coming months. The state’s conversion authorization set aside 10 percent of those assets for the NYS Health Foundation. But that set-aside leaves the lion’s share of any potential HIP privatization money to be used for the state’s general operating expenses.

“Unfortunately that pattern was set” by the BCBS deal, said Judy Wessler, director of the Commission on the Public’s Health System. “At least it’s increased to 10 percent, but now the government thinks it can get its hands on this money.”

This story has been corrected. 5/16/07

– Eileen Markey

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