Not-for-profits face endowment spending pressure

As we recently reported in our sister publication FierceHealthcare, medical schools, including Harvard, have recently begun offering students much bigger subsidies on their tuition costs. Now, I don't doubt that these organizations have good intentions, but they're also under pressures that are going to be a huge source of stress for not-for-profits over the next year or two.

Over the last several months Congress, the IRS and some states have begun pushing colleges and universities (including medical schools) to spend more of their endowment funds each year, with many critics seeking to force endowments to disburse 5 percent of their assets annually. Massachusetts, for example, is considering a 2.5 percent tax on endowment assets over $1 billion.

Much of the hullabaloo is over endowments enjoyed by high-profile universities like Harvard, which controls $35 billion in such funds and makes a nice fat target. However, it's been further encouraged by the bullish returns such funds have earned; for example, from June 30, 2005 to June 30, 2008, schools with more than $1 billion in endowments earned 16.4 percent return on their investment, according to the National Association of College-University Business Officers.

In theory, this could lead to bigger subsidies for medical student tuition, more choice for students and maybe an influx students who can afford to specialize in primary care. Over the short term, however, you can be confident that the schools aren't going to take changes in endowment rules lying down.

It will be interesting to see where this leads this year. Let's see whether colleges find a way to compromise with the regulators and in the process, foster more options for medical students. While no institution likes being forced to spend money as others see fit, being forced to make medical school cheaper for worthy candidates would be an outcome the industry could benefit from, I think. How about you?  - Anne