Introduction: Conversion as the ultimate commercialism?

If to behave commercially is to act like a for-profit firm, then the ultimate expression of commercialism for a nonprofit is to convert its legal status to the for-profit form. Conversion is increasingly common, most notably in health care, and is now attracting considerable public attention. Some observers believe that nonprofits and for-profits inevitably behave in fundamentally different ways, and question whether conversions can ever serve the public interest. Others are more concerned about the terms, arguing that public assets must remain devoted to the purpose for which nonprofit status was originally granted, and not be redirected toward private gain.

This chapter seeks to advance understanding of nonprofit conversions and their public-policy implications. To set the stage, we introduce some key issues by reviewing briefly conversion activity in health care. We then consider the concept of conversion more closely, discussing various means of transferring control of nonprofit assets. Next we explore the possible motives for conversion, and speculate about the reasons for the rampant conversion activity in health care. Finally, we discuss at some length the important public-policy questions raised by conversions. In our view, the most important are the following:

1. Under what circumstances is conversion appropriate?

2. How should the nonprofit's assets be valued? and

3. What should happen to the financial assets that remain after the conversion?