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Community Reinvestment Act: Case Study

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Community Reinvestment Act: Case Study KIN Challenge: Funding Roadmap Katie Golden, Lexi Mele-Algus, Rochelle Ross, Sheila Shah June 2014 1 KIN Challenge Methodology • Identify the portfolio of emerging financing opportunities Objective for HICCup communities to fund “production of health” efforts • The team identified a broad range of funding Philanthropic Financial Approach mechanisms available to communities • The mechanisms were narrowed down to 8 prioritized options based on scalability, feasibility, and timing • Based on interviews and research, the findings of the prioritized mechanisms are packaged in a Funding Output Roadmap which can be delivered to the interested communities to help them navigate their options 2 Table of Contents HICCup Discussion • KIN Challenge Methodology • Strategic Considerations • Funding Roadmap Overview Funding Roadmap • Range of Investing Options • Overview of Funding Mechanisms • Supporting Detail on Funding Mechanisms • Community Benefit • Community Development Financial Institutions • Community Reinvestment Act • Conditional Cash Transfers • Creative Fundraising • Medicaid 1115 Waivers • Social impact Bonds • Wellness Trusts 3 Sample of Interview Contacts Contact Category / Organization Nirav Shah Social Finance Laura-Min Proctor J.P. Morgan Lisa Thomas Microfinance/Kellogg Professor Nikki Taylor Social Impact Bonds David Chen Impact Investing Josh Shapiro Investment Banking David Dranove Healthcare Economics Andrew Ziskind Huron Consulting Group Tim Shannon Student/General Investing Aaron Isaac Baum Earth Institute Zoila Jennings J.P. Morgan Daniel Byrne Private Wealth Management Barrett Willich Private Equity Scott Kleimen Social Impact Bond Technical Assistance Lab 4 Strategic Considerations for HICCup Timing and Evaluation • Not all positive outcomes of production of health efforts will be seen within 5 years. HICCup should consider how to continue evaluation and lessons learned beyond the 5-year competition period • Smaller communities may have difficulty with having a great enough prevalence of a condition (e.g., 100k may not be a large enough population to be statistically significant if only a fraction of that population has diabetes) Community Leadership • As community leaders (e.g., government officials) within an area turn over, HICCup should focus on continuity and ensuring an integrated Way to Wellville stakeholder group over time • Addressing other areas (e.g., education, poverty) may provide greater production of health outcomes than narrowly focused healthcare initiatives 5 Strategic Considerations for HICCup (continued) Integration • Ensure potential partners and informational sources for funding are available to benefit all communities that seek support; limit competition among communities for limited funding sources to extent possible • Consider facilitating a competition-wide business development / financing forum to share best practices and ensure communities leverage the power of “one HICCup” instead of separate communities Funding • There may not be one ideal funding option for the communities to utilize given the investment requirements and nuances of health ROI • Funding (and other aspects of production of health) may benefit from the larger, aggregated scale of multiple communities. However, this brings additional complexity with healthcare needs and measurement. HICCup should work to leverage the “Way to Wellville” overall brand and strength, while balancing this with the needs of the individual communities 6 Funding Roadmap Overview The communities can refer to the following Funding Roadmap to help navigate the range of funding mechanisms that are available to them. The roadmap includes the following key components: Overview of Community Criteria Detail on Funding Impact Investing for Mechanisms Options 7 Funding Roadmap: A Guide for HICCup Communities to Fund Production of Health 8 Finding Capital to Fund Initiatives Production of health is expensive. • We recognize that production of health within a community requires significant health capital, and securing this financing may seem like a daunting task There are a variety of options that a community can pursue. • This Roadmap provides an overview of 8 prioritized financing options. The list is not exhaustive; some options are already used in the healthcare industry, but others are new and relatively innovative for healthcare • For each of the options, we outline what they are, how they can be scaled, what a community can do to help make them successful, risks, and potential partners There is no one-size-fits all approach to funding. • Health capital will likely come from a variety of public and private sources, some which can be realized quickly for use as seed money, others will take some time to set up • Based on differing characteristics of each community, what is best for one community may not be the best option for another community 9 Range of Investing Options Philanthropic Activities Investment Management negative returns below market returns market returns Impact Impact Venture Investing Investing Responsible Traditional Grants Philanthropy (Impact (Financial Investing Investing First) First) Prioritized Funding Options in this Roadmap: • Community Benefit • Community Development Financial Institutions • Community Reinvestment Act • Conditional Cash Transfers • Creative Fundraising • Medicaid 1115 Waivers • Social impact Bonds • Wellness Trusts 10 Key Questions to Consider When Determining Which Mechanisms to Use • What is the financial or (non-financial) return required for the investment? • What is the risk tolerance of the community? • Who bears the risk in the investment? • What is the payor mix of the community? • What is the time frame the community is working with? 11 Overview of Prioritized Funding Mechanisms Community Solution Mechanism Description Characteristics Characteristics ACA requires non-profit • Sufficient number Community hospitals to engage in the • Activities per IRS of not-for-profit Benefit community to maintain specifications hospitals tax-exempt status Community Provides credit/financial Development • Low-to-mid income • Positive financial services to underserved Financial level returns markets Institution • Open to new, non- traditional funding Community Law mandating • Requires tangible methods for the Reinvestment commercial banks to re- assets (e.g., industry Act invest in communities fitness center) • Low-to-mid income level • Active involvement Creative Crowd-funding, lotteries, from whole • Varies Fundraising sponsorships community 12 Overview of Prioritized Funding Mechanisms (continued) Community Solution Mechanism Description Characteristics Characteristics Payment contingent Conditional • Have active on individual • Individual or family Cash involvement from participants meeting based Transfers whole community certain criteria Medicaid Federal Medicaid • Significant Medicaid 1115 funds for innovative • Budget neutral population Waivers experiments Social Private investments • Be open to risk and • Targeted intervention Impact that generate financial innovative, new for targeted Bonds & social return funding methods population Pool of money • Willing and capable Wellness reserved for • At community of instituting new Trusts promoting health discretion legislation production 13 Community Benefit 14 Community Benefit: Overview Community benefits are “initiatives and activities undertaken by nonprofit hospitals to improve health in the communities they serve.” Community benefit is a requirement for tax-exempt hospitals to sustain their 501(c)(3) status. Activities must address one of the following Description objectives: improve access to health care services, enhance population health, advance increased general knowledge, relieve or reduce the burden of government to improve health. The three main categories of community benefit are: financial assistance, government-sponsored means-tested health care and community benefit services Investment Variable - some states have requirements for minimum spending on community benefit (e.g., IL requires community benefit equal property Scale tax liability) but others do not specify and use a case-by-case basis Time to Variable Implement http://www.hilltopinstitute.org/publications/WhatAreHCBsTwoPager-February2013.pdf 15 Community Benefit: Additional Information Requirements and ACA Reform • Federally, the IRS provides guidelines on what can be reported as community benefit • States have differing regulations, but some federal requirements to prove tax-exempt status include: • Conducting community health needs assessment • Developing implementation strategy every three years • Adopting and publicizing a financial assistance policy • Limitations on charges, billing and collections for those under the financial assistance policy • Community Building Activities – part of Part II of tax exemption requirements and if used, must be specified how it improves community health. Examples include: physical improvements and housing, economic development, community support, environmental improvements, etc. • State requirements may be more stringent and will need to be looked at for each community to understand what will qualify for their local hospital • State profiles can be found at the following site: http://www.hilltopinstitute.org/HCBP_CBL_state_table.cfm with a snapshot on the next page 16 Community Benefit: State Profiles 17 Community Benefit: Success Criteria Community benefit must be significant in order for non-profit hospitals to remain tax-exempt. These requirements
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