Everywhere you look, there are headlines about non-profit hospitals starting and joining startup ventures . Usually, there is some nod to “advancing patient care” or “improving outcomes” in the mission statement of these venture funds, but if you look beyond the first line or two you see that the primary purpose of these vehicles is revenue generation, revenue diversification, and commercialization of products and services. For example, UPMC Enterprises is the innovation, commercialization, and venture capital arm of UPMC, and uses “the clinical acumen of thousands of UPMC physicians” as well as access to “UPMC Health Plan[‘s] … 4.5 million members” and the data they generate to create and spinoff products for profit. Another example is Ascension Ventures, a “strategic healthcare venture fund and innovation catalyst with more than $1 billion in capital under management.”
It is no secret that these nonprofit hospitals are increasingly establishing venture capital arms, indeed, they are quite vocal about their creation, growth and the amount of capital managed within these funds. And while much has been written about these very same non-profit hospital systems shortchanging their community benefit obligations, I hadn’t fully baked the connection between these two behaviors in my head.
The latest announcement—UPMC, Vanderbilt, and nine other health systems joining forces with Aegis Ventures to commercialize digital health solutions—really got me thinking: Why does this feel so wrong?
These are non-profit hospitals receiving massive public subsidies, billions in FEMA dollars, tens of billions in tax exemptions, and they never cease to ask for more public and private funding. They constantly claim razor-thin margins as justification for consolidation and lobbying for even more government support. Yet they’re spending time and resources to “diversify revenue streams” by spinning off products built with public funding.
In my prior life, I was a bankruptcy practitioner, focusing on corporate restructuring and reorganizations. What does this have to do with non-profit hospital revenue diversification? Well, one of the primary focuses of my practice was on fraudulent transfers – specifically, when insiders would strip valuable assets from a struggling company (or a company that struggled as a result of the stripping), leaving behind debt and obligations while enriching the insider organizations. Again, in bankruptcy law, there’s a legal remedy for this—fraudulent transfers—and it’s worth asking whether a similar concept applies here.
Fraudulent Transfers in Bankruptcy: A Primer
In bankruptcy law, a company’s assets are considered part of an estate held in trust for creditors. This ensures that stakeholders—creditors in this case—have access to the company’s resources to recover what they’re owed. To prevent abuse, the bankruptcy code allows courts to reverse transactions deemed fraudulent. These include: (i) transfers made with the intent to hinder, delay, or defraud creditors; or (ii) transfers made for less than reasonably equivalent value, particularly if the company was insolvent or rendered insolvent as a result. This framework ensures insiders can’t enrich themselves by transferring valuable assets out of the company before bankruptcy, or out of the company in a manner that would lead to bankruptcy. Courts unwind these transactions, returning the value to the estate and protecting creditors.
Non-Profit Hospitals: A Public Trust at Risk
While non-profit hospitals may not face insolvency in the traditional sense, they hold assets in a similar trust-like relationship—with taxpayers, patients, and local communities as their "creditors." These hospitals benefit from taxpayer subsidies in the form of Federal funding through Medicare, Medicaid, and Disproportionate Share Hospital (DSH) payments.They are also recipients of FEMA project grants which have amounted to more than $100B since 2020, as well as ongoing federal fundingfrom the Hospital Preparedness Program in excess of $1.7B from 2020 to present. Finally, these institutions enjoy tax-exempt status, with local, state, and federal governments forgoing property and sales taxes in return for the promise of delivering meaningful community benefits.
These supposedly non-profit institutions receive hundreds of billions of dollars from government payers, taxpayers, employers, and employees in order to support their charitable missions—providing care to vulnerable populations and serving their communities. Yet, when these hospitals spin off innovations like AI platforms, patient engagement tools, or other in-house technologies into for-profit ventures, they are redirecting public-funded resources into private hands.
How does spinning off an AI-powered diagnostic platform fulfill a hospital’s community benefit obligation? How does monetizing patient engagement software help underserved populations? These spin-offs often occur without fair compensation, with for-profit entities acquiring assets at little or no cost and no reinvestment into the hospital’s mission. Meanwhile, the public—who subsidized the development of these tools—sees no tangible return. Are these actions consistent with the promises made to the communities they are meant to serve? If this happened in bankruptcy, courts would likely view these as fraudulent transfers—transactions that strip value from stakeholders for private gain.
UPMC, Vanderbilt, and the Aegis Venture Fund
Take the recent announcement from UPMC, Vanderbilt, and others. They’ve joined a digital consortium with Aegis Ventures, a for-profit startup studio, to develop and spin off new technologies. The stated goal is to “build solutions” for workflow automation, continuity of care, and patient experience. On paper, it sounds good: collaboration to tackle healthcare challenges. But when you dig deeper, it’s clear that these for-profit spin-offs will primarily benefit private investors and the hospitals’ commercial arms—not the communities and taxpayers that funded the underlying research and development.
This isn’t just a theoretical concern. When Northwell Health joined Aegis five years ago, the partnership launched multiple for-profit ventures, including AI-powered automation and patient engagement platforms. Now, Northwell’s innovations are being marketed to other health systems in the consortium—many of which, like UPMC and Vanderbilt, are tax-exempt non-profits. The question remains: how much of the revenue from these ventures is flowing back into public benefit? Or is it simply padding the pockets of private stakeholders?
The Sackler Example: Courts Have Seen This Before
This isn’t the first time we’ve seen value stripped away from stakeholders. Purdue Pharma’s bankruptcy offers a striking parallel. In the years leading up to its collapse, the Sackler family withdrew billions of dollars from the company, enriching themselves while leaving Purdue underfunded and unable to address its massive liabilities from the opioid crisis. These withdrawals were challenged as fraudulent transfers, and the courts intervened, requiring the Sacklers to return $6 billion to the bankruptcy estate.
Non-profit hospitals’ behavior bears an uncomfortable resemblance, even if they are not a bankrupt debtor “per se.” But let’s be clear: the reason we’re not talking about hospitals filing bankruptcy is largely because we, as a society, keep bailing them out. We funnel endless public subsidies, FEMA grants, and government handouts into these institutions because they claim that, without them, their communities would be left without care. Meanwhile, they continue to engage in empire building across the globe, fly their private jets, and pay their executives tens of millions of dollars while health outcomes in the US largely stagnate and 100 million Americans are in medical debt. They aren’t filing for bankruptcy because they’ve created a system where they can jack up their prices to unreasonable, unjustified levels to improve their margins—ensuring they never reach a financial breaking point. In a way, we are perpetually underwriting their survival, while they continue to exploit public funds for private gain. Like Purdue’s creditors, the public is left footing the bill while private stakeholders reap the rewards.
Is there Path Forward?
Non-profit hospitals are meant to be stewards of public trust, not vehicles for private enrichment. To prevent further erosion of that trust, I propose that we need the following radical trasnparency as a first step:
Hospitals must publicly disclose all spin-offs and commercialization efforts, including financial terms of transfers, agreements on revenue sharing or licensing, and reinvestment plans;
Amend Form 990 to include specific reporting on venture arms, detailing compensation for executives and board members involved in these entities
Disclose salaries, bonuses, and other compensation for individuals managing or sitting on boards of the hospital’s for-profit subsidiaries or venture arms;
Provide a full accounting of where proceeds from spin-offs are held (e.g., reinvested in the hospital, reserved for future projects, or distributed to private investors);
Make these disclosures readily available online, ensuring stakeholders can track whether proceeds align with the hospital’s charitable mission.
Only once we understand the full extent of the financial machinations hospitals are engaging in can we adequately propose remedies, if they are indeed in order. Once we have a clearer picture of the scope and scale of these activities, options that could be on the table include mandatory reinvestment and clawback mechanisms. It does not seem a stretch to argue that revenue generated from publicly funded innovations be reinvested into the hospital’s mission or directly into the community. This would ensure that public resources are used for public benefit rather than private profit. In some cases, regulators and state attorneys general could have the authority to unwind transactions that divert public resources without fair compensation, applying principles similar to fraudulent transfer provisions in bankruptcy law. This would allow for the recovery of assets improperly removed from public stewardship.
Until we fully understand the depths of these practices, any discussion of solutions remains incomplete. Transparency is the first step toward holding hospitals accountable for their obligations to the communities they serve.
The commercialization of non-profit assets without accountability is more than ethically questionable—it’s a breach of the public trust. Borrowing from bankruptcy principles, we must demand that non-profit hospitals honor their commitments to the communities they serve. Public dollars cannot continue to be siphoned off for private gain without transparency or consequence.
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