Are Californians better off with a foundation now worth nearly $4 billion than with nonprofit Blue Cross? Ross isn't sure. He worries that the endowment will simply end up funding services that are being diminished in the for-profit marketplace that created the foundation in the first place. "I can't say that California is a healthier state because of the conversion," Ross says.

Meanwhile, the California HealthCare Foundation, the second entity created by the Blue Cross conversion, has granted millions for research into market issues in health and managed-care delivery, to Internet websites and even to for-profit health maintenance companies. Funding for-profits isn't illegal, but consumer advocate Jamie Court thinks it's a violation of the charitable purpose of conversion foundations. "What's legal isn't necessarily what's right," says Court, director of the Foundation for Taxpayer and Consumer Rights in Santa Monica. "I'm concerned that taxpayer money is being used against the taxpayers."

Court cites, as one example, a $40,000 grant CHCF made in 1998 to the California Association of Health Plans, an HMO lobbying group that Court says has fought his organization on every HMO reform it has proposed. CHCF president Dr. Mark Smith said the grant was for research on how health plans could improve services for the elderly, and he dismissed Court's criticisms as "part of a campaign of smears and distortions" based on his "political agenda." A $730,800 grant last year went to the Advisory Board Company, a Washington, DC-based for-profit organization of drug companies, hospitals and health plans, to support a free online news service for "healthcare decisionmakers and practitioners" in California.

Not that CHCF doesn't fund smaller nonprofits: Its 1998 grants included $65 to the San Francisco Food Bank, $1,000 to Homeless Healthcare-LA and $2,100 to Asian Health Services.

The Buck Stops Where?

The basic problem with healthcare conversion foundations is that they're the products of a deal with the devil, a tantalizing payoff to communities that lose a nonprofit healthcare institution. While nonprofit hospitals are not always above criticism and can fall short in serving their communities, they are not governed by the bottom-line imperative of delivering dividends to shareholders. Consumer advocates who were critical of the for-profit conversion mania were caught up in trying to save the pieces--the proceeds of nonprofit sales--because they were unable to turn back the conversion trend.

"When we first got into this issue, we tried to get the approving agencies to rule on whether the conversion was in the public interest," says Harry Snyder, director of Consumers Union's West Coast office, who was involved in the California Blue Cross conversion. "There was such a mantra about the marketplace being good, so that was settled. Getting the money focused our attention. We did not have enough energy or resources to look at what happened to the money. Then we found there were foundations doing funny things."

Turning back the for-profit tide would be a task of Sisyphean proportions. But holding foundations accountable to the public, whose trust they are betraying, ought to be a matter of governmental concern. And if communities cannot halt a conversion, they can insure that the new foundation is properly set up and monitored, which is just what happened in Framingham, Massachusetts. There, backed by an aggressive state attorney general, community activists helped create the MetroWest Health Care Foundation, with current assets of $50 million, an exclusive funding focus on healthcare and a board that includes community representatives.

Whether MetroWest will prove to be more valuable to the community than the nonprofit hospital it lost remains to be seen. But what is already clear is that conversions, no matter how well done, are almost certain to weaken, rather than strengthen, the quality of healthcare. That's because for-profit conversions, like all other results of the drive toward privatization that began in the Reagan era, put marketplace concerns above public service. Until we find an antidote for that illness, healthcare dollars will keep hemorrhaging from the communities that need them most.

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