March 1, 2010 by Kevin R. McMahon
Blending for-profits and not-for-profits to create a new organizational model
In Akron, Ohio, the locals refer to her as the “grand old lady” of Merriman Road. Born in 1917, she is stately and statuesque, bordering on the sublime. Showing some of the inevitable signs of aging attributable to anything that has been on this planet for 90-plus years, she is, nonetheless, a testament to a proper upbringing.
A brief history
This particular grande dame is not a woman but, in fact, a gracious mansion situated in an historic neighborhood along a winding tree-lined road. Her life began as a private residence and, in 1951, she became a home for elderly well-to-do Akronites born to rubber company wealth and prosperity.
A not-for-profit philanthropic organization, Sumner Home for the Aged, operated this mansion as a care facility, naming it Sumner on Merriman. Several large additions eventually incorporated assisted living and nursing care services for 120 older adults through the generosity of wealthy benefactors.
As with most not-for-profits, Sumner on Merriman took very good care of a fixed and static population of older adults. Those who resided there received some of the most lavish care and services a nursing home resident could ever imagine or expect.
But, in the waning months of 2003, Sumner on Merriman ceased to exist. On November 30, 2003, its owners built a new CCRC, named Sumner on Ridgewood, six miles away, taking a large percentage of 209 Merriman's staff and residents with it. With that move, the philanthropic foundation transferred their considerable assets to their new location.
The Merriman is born
Arriving as administrator at 209 Merriman, renamed The Merriman, three months after the transition, I quickly realized that the philanthropic spirit of this magical place remained intact. During the following months, The Merriman attempted to reconstitute itself as a viably operating for-profit long-term care facility in the old shell of the former not-for-profit Sumner on Merriman.
On August 15, 2004, everything came to a head when the facility's management team, employees, residents, and families were introduced to Brian Colleran, president and owner of Provider Services, the new operating entity of The Merriman. The company runs the management functions of the nursing home and the property itself is owned by a healthcare REIT (real estate investment trust) arm of HCR ManorCare. Colleran immediately recognized that the Merriman and its environs were far from the typical nursing home operation. Provider Services' philosophy of allowing its facilities to retain their character and uniqueness was welcomed by all who cherish this special place.
A new organizational model
In the early days of Provider's arrival at The Merriman, Colleran visited the facility to attend a family/resident meeting. At that time, I had the opportunity to spend some time with Colleran discussing the historical background of 209 Merriman Road.
We also talked about an idea that I had written about for a publication back in 1986. Having worked in both the for-profit and nonprofit sectors, my premise was that the sheer weight of demographic forces combined with the shrinking federal and state dollars necessary to provide for nursing home care would result in an inefficient and undesirable two-tiered healthcare system for residents. I posited that part of the solution to this looming crisis might be to create a new hybrid organizational model-one that combines the best of the for-profit and not-for-profit models of delivering care.
Also having worked in both the for-profit and nonprofit sectors, Colleran knew the respective strengths and weaknesses of both and he immediately recognized the potential of such an approach. It rang especially true as he learned about the deep and far-reaching philanthropic roots of the Sumner on Merriman organization. Over the coming months and years, we discussed the feasibility of establishing a 501(c)3 charitable foundation at The Merriman. With the help of attorneys working on a pro bono basis, our foundation, called The Merriman Good Life Foundation, received its 501(c)3 designation in November 2007.
Good Life for great people
In its infancy as The Merriman, the tradition of giving connected with this special building continued. Families would regularly write checks to enable us to do the extras for residents that are a part of this facility's unique culture, such as special activity items, resident outings, and generally doing anything that adds richness and fulfillment to our residents' lives. Or moved by the death of a special friend or family member, individuals honored the deceased through this type of giving.
Early on, it was decided to make the foundation's goals narrow, modest, and focused. It would seek to provide a tax-exempt giving opportunity for those who wish to support our provisions of the “extras” to our residents.
By establishing this tax-exempt giving opportunity, we believed that donations would increase over time. In addition, we felt that having a not-for-profit foundation with no connection to the for-profit operating entity would assure donors that their dollars would be spent directly for the residents and in no way personally benefit the owners and operators of The Merriman.
The Merriman Good Life Foundation is seeking foundation support to assist with the legal and consulting costs associated with establishing this hybrid model. Application has been made to the Draper Richards and Kauffman Foundations for assistance. We are targeting these and other similar foundations that seek to support social entrepreneurial ventures such as The Merriman Good Life Foundation.
The Good Life Foundation has created a web site at http://www.TMGLFoundation.org. They have also launched the Daisy Project (described on the web site) to encourage pets and their owners to visit nursing homes.
Growing the Good Life
While the short-term goals of the foundation are modest, the long-term plan is to create a more robust not-for-profit organization. The Merriman Good Life Foundation's first goal was to establish a solid financial base. The facility's staff volunteered its time and talents in fund-raising activities. These included development of a brochure, print materials, and spreading the word to both internal and external audiences. Other opportunities planned for creating a financial base include special events, an annual giving campaign, deferred giving opportunities, and bequests from wills and estates. As the foundation's assets grow, we will be positioned to attract high-caliber individuals from the Akron community to serve as foundation trustees. As the leaders of the Merriman Good Life Foundation establish credibility and a proven track record, we expect to expand significantly.
The traditional model vs…
The traditional arrangement of not-for-profit nursing homes is based on the not-for-profit entity “owning” the real estate, with the governing board maintaining fairly intensive and wide-ranging oversight of the facility. The board typically hires an executive director to carry out daily operations.
In today's world, the ground-up creation of a new not-for-profit entity using the traditional model would be problematic at best. Absent a once-in-a-lifetime bequest from a wealthy benefactor, the enormous financial resources necessary to acquire/build a long-term care facility would make such a development an almost impossible task.
Notwithstanding the hurdle of significant financial resources, it is ever more difficult for not-for-profit organizations to attract trustees that possess the time and talent to shepherd the responsibilities of complex multimillion dollar operations. Not only do prospective trustees need to have the ability and inclination to raise philanthropic dollars, but they need to bring a skill set to the boardroom table to help the not-for-profit navigate the many twists and turns that characterize the provision of long-term care.
…The Merriman model
In contrast, The Merriman Good Life Foundation model minimizes the need for huge capital outlays to build/acquire a nursing facility. Our model allows trustees to focus on fund development activities and minimize the need for it to be consumed by operational issues.
Our proposed model allows the not-for-profit to function as the leaseholder of the property. The Merriman Good Life Foundation pays the building's owner a traditional lease payment for the use of the “bricks and mortar.” In addition, the foundation holds a management contract with the operator to handle the facility's daily operations. The Good Life Foundation serves as the conduit for revenues. Because the management company has a fixed-fee management contract, any revenue dollars that exceed expenses flow into the foundation. These funds (foregone profits) would allow us to enrich the lives of residents or to potentially offset any losses resulting from future reimbursement take-backs from state and federal reimbursement sources.
In the final analysis, The Merriman Good Life Foundation will write two checks each month-one to the building owner and one to the management company. The board of trustees has an oversight responsibility but it is very global and does not entail involvement in the ever-changing operational realities of long-term care. This arrangement allows experts to run the facility and free the board to concentrate its fundraising efforts to continue to make the care and services provided at The Merriman the very best they can be.
Is the Good Life for you?
Undeniably, the LTC industry has gone through some turbulent times in the past 20 years. And these difficulties will continue. For-profits and most specifically large national chains have, by and large, failed in the delivery of consistent quality care to a large number of residents, and the nonprofits have failed to replicate themselves. While demographics will drive demand for increased skilled nursing services, this will collide with the increasingly constrained pool of available state and federal dollars to pay for such care and services.
The Merriman Good Life Foundation, on the other hand, lends itself to replication by both the for-profit and not-for-profit segments of long-term care, and our model requires only a modest sum of money to create a tax-exempt entity that serves as a bridge between both segments. In the right environment, the potential for expansion beyond this initial stage is possible without huge outlays for facility acquisitions.
Our hybrid has distinct advantages over the separate for-profit and not-for-profit nursing home models:
The efficiency of for-profits is embroidered into the fabric of the facility's operation.
An entrepreneurial capitalist will be in the position of acquiring and maintaining facilities.
This hybrid organization is positioned to raise tax-exempt dollars to maximize the quality of care and services provided to residents.
Profits are maximized, providing “extras” to the resident or, if necessary, serving as a bulwark against state and/or federal reimbursement cuts.
The mission focus of not-for-profits in serving older adults is expanded beyond the relatively small number of not-for-profit providers serving a relatively small and fixed population of older adults (in comparison to the market domination by for-profit providers).
- Blending for-profits and not-for-profits to create a new organizational model
A hybrid organization is positioned to trumpet its devotion to service for older adults, while optimizing the resources used in care/service delivery.
Our reinvented organizational model has the following advantages over the traditional not-for-profit model:
No huge outlays of dollars are needed to build/acquire/maintain a long-term care facility.
Trustees are able to focus efforts on fund development activities and not on operational issues.
The for-profit management entity (Provider Services) is able to bring economies of scale and the expertise necessary to operate the increasingly complex long-term care operation.
Trustees are more willing to serve because they are isolated from operational issues and the associated liability.
The Good Life model is born of the belief that the long-term care industry cannot stand still. More importantly, it cannot suffer under the illusion that simply tweaking the existing system will somehow magically deliver it from the demographic/fiscal crisis it is facing and which will soon worsen. Innovation is necessary to achieve the solution: to reconcile the supply of quality care deliverers with the burgeoning demand for long-term care services over the coming years and decades. Quite possibly, The Merriman Good Life Foundation, or some variation, will be a part of that solution.
Kevin R. McMahon is a Board Member of The Merriman Good Life Foundation in Akron, Ohio. For more information on the foundation, call 330-858-7143 or e-mail