The Financial Rationale for Health Philanthropy
Charitable giving in the United States presents a significant mission opportunity. Charitable giving from all sources—including individuals, corporations and foundations—reached $484.85 billion in 2021.¹ This represents a 4.0 percent increase in current dollars and a -0.7 percent decrease in inflation-adjusted dollars over the prior year.² Of that, 7.7 percent—equaling $40.58 billion—went to health causes including not only hospitals and health systems but also health research and advocacy organizations.³ Health organizations also have a rising opportunity to secure a larger piece of the giving pie as they increasingly reach beyond hospital walls to address social determinants of health—such as housing, food access and more—as well as health equity; this creates opportunities to tap into significant dollars given to support human services ($65.33 billion), public-society benefit ($55.85 billion) and more.⁴
In considering the performance specifically of hospitals and health systems, Association for Healthcare Philanthropy shows median production revenue (recorded revenue and “certain documented” pledges) increased to $8.8 million. However, significant performance variations exist based upon hospital type with standalone community hospitals raising a median of $2.4 million while academic ($28.1M) and children’s ($75.6M) hospitals and health systems ($15.1M) raise significantly more.⁵ Health philanthropy also delivers an exceptional Return on Investment (ROI). In FY2021, health philanthropy organizations produced $5.41 in median production revenue for each dollar invested in fund development; this represents a significant uptick from performance across the last seven years that hovered at an ROI of about $4.00 for each dollar invested.⁶ This improvement is likely due to hospitals chasing multiple paths to elevate performance by leveraging data and business intelligence, pursuing systemization, increasing focus on relationship-based giving and more. Ultimately, this means a health philanthropy organization performing at the median must raise only $1.22 million to put $1.0 million in net revenue on the bottom line for reinvestment in the organization’s mission. This means philanthropy delivers revenue at rate of return that far exceeds what is possible from any clinical service line, so health organizations must focus attention on leveraging this strategic asset.
…philanthropy delivers revenue at rate of return that far exceeds what is possible from any clinical service line, so health organizations must focus attention on leveraging this strategic asset.
Philanthropy is increasingly critical as U.S. not-for-profit health care organizations face historic financial fragility driven by labor and supply cost increases alongside anemic volumes and reimbursements. In fact, in 2022, hospitals posted the worst financial results since the beginning of the pandemic with a median annual net operating margin of -0.2 percent.⁷ Yet, hospitals must invest in strategic capital and programmatic initiatives to maintain the physical plant, keep up with evolving medical technology, pursue growth opportunities and more. Beyond enabling investment, philanthropy has also been validated as a core financial strategy by bond rating agencies that consider the financial strength and stability of hospitals to determine creditworthiness. Multiple agencies—including S&P Global Ratings (formerly Standard & Poor’s), Moody’s Investors Service and Fitch Ratings—indicate the strength of philanthropy as a complementary revenue-generating strategy is a key consideration in their credit assessment. All this ups the ante for hospitals to proactively pursue philanthropy as a low risk, alternative revenue resource.
Ultimately, creating a smart, integrated and aligned approach to philanthropy as part of the health organization’s overall approach to financial management not only provides access to critical revenue for reinvestment in the mission but also boosts bond ratings to enable hospitals to access debt to drive future progress. With all this on the table, most hospitals now place a keen focus on leveraging the potential of philanthropy.
¹ Giving USA 2022: The Annual Report on Philanthropy for the Year 2021 (2022). Chicago: Giving USA Foundation, p.22.
²,³,⁴ Giving USA 2022: The Annual Report on Philanthropy for the Year 2021 (2022). Chicago: Giving USA Foundation, p.23.
⁵ Giving USA 2022: The Annual Report on Philanthropy for the Year 2021 (2022). Chicago: Giving USA Foundation, p.10.
⁶ Giving USA 2022: The Annual Report on Philanthropy for the Year 2021 (2022). Chicago: Giving USA Foundation, p.14.
⁷ National Hospital Flash Report: January 2023; KaufmanHall; January 30, 2023; https://www.kaufmanhall.com/insights/research-report/national-hospital-flash-report-january-2023