Editor's Note: Since publication, many companies have reached out to state that they also operate as public benefit corporations. The list of companies that operate as PBCs has been updated below, but by no means is meant to be an exhaustive list.
Health tech unicorn Aledade recently announced that it made the strategic decision to become a public benefit corporation (PBC).
The company joins just a handful of others in healthcare that are structured this way.
So what exactly is a PBC, and why does it matter?
PBCs are a type of for-profit corporate entity that has also adopted a public benefit purpose and is currently authorized by 35 states and the District of Columbia. A PBC must consider the nonfinancial interests of its shareholders and other stakeholders when making decisions. As a public benefit corporation, companies have to weigh their social/environmental objectives alongside maximizing value for shareholders.
While PBC and B Corp. are often used interchangeably, they are not the same. A B Corp. is a certification provided to eligible companies by the nonprofit, B Lab. A PBC is an actual legal entity that bakes into its certificate of incorporation a “public benefit," according to Rubicon Law Group.
"I don't think that there is a trade-off between either you do things that are good for society or you make profits in your business." —Farzad Mostashari, M.D.
PBCs also are required to provide a report to shareholders every two years that detail how well the company is achieving its overall public benefit objectives. In some states, the report must be assessed against a third-party standard and be made publicly available. Delaware PBCs are not required to report publicly or against a third-party standard.
Aledade launched in 2014 and uses data analytics to help independent doctors’ offices transition to value-based care models. The company currently partners with more than 1,000 independent primary care practices comprising over 11,000 physicians and has nearly 150 contracts covering more than 1.7 million patients and $17 billion in total healthcare spending. Last June, the company raised $123 million in a series E round, boosting its valuation to $3.1 billion.
In a blog post, Aledade CEO and co-founder Farzad Mostashari, M.D., explained the company's reasoning behind the move and said the corporate structure of a PBC is "well suited to mission-oriented companies where alignment with stakeholders is a key driver of the business model."
"Aledade's public benefit purpose means that we must weigh the interests of our primary care practice partners, their patients, our employees, and those who bear the burden of rising health care costs, alongside those of our shareholders, when we make decisions," Mostashari said in an interview. This duty extends to all significant board decisions, including decisions on whether to go public, to make acquisitions or to sell the company, he noted.
The PBC structure helps create alignment among stakeholders and build trust, he said. "I don't think that there is a trade-off between either you do things that are good for society or you make profits in your business. That might be true for fee-for-service businesses. It's not true for Aledade," he said.
He added, "For businesses that are built on trust and alignment, not considering stakeholder benefits gets you neither social good nor profits. If you're in a business like our business where it's actually really important that everybody have faith and belief that you are doing what's best for patients, that you are actually in it for the long-term for practices, that's what makes us successful as a business."
In 2020, the Delaware legislature made it much simpler for an existing corporation to become a PBC, by, among other things, lowering the required statutory stockholder approval to a simple majority vote.
Aledade's stated public benefit purpose is to "deliver better health, better care, and lower costs, creating a health care system that is good for patients, good for practices, and good for society."
Mark Cuban Cost Plus Drugs, which launched in January 2022 to offer low-cost rivals to overpriced generic drugs, also is structured as a public benefit corporation. The company's founder and CEO Alexander Oshmyansky started the company in 2015 as a nonprofit, according to a feature story in D Magazine. Through Y Combinator, investors told Oshmyansky that the nonprofit model wouldn't be able to raise the needed funds. He then reworked the business model to a PBC and launched Osh's Affordable Pharmaceuticals in 2018.
Cuban, the entrepreneur well known for the TV series "Shark Tank," jumped on board the online pharmacy after it became a PBC. When asked why it was important for the company to have that public mission, Cuban replied via email, "It is the entire reason we started the company."
Osmind, a San Francisco-based startup that built electronic health record software for mental health providers, and newly launched Crescendo Health, a real-world data startup, both launched as PBCs.
"Our mission remains the same which is to empower clinicians and researchers to bring innovative mental health treatments to patients who need it most. When we started the company, we thought it was really important to have that ethos baked in from the very beginning," Lucia Huang, CEO and co-founder of Osmind, told Fierce Healthcare. "It really allows us to think a lot about patient access to these innovative treatments and to run that alongside our fiduciary duty."
Sam Roosz, co-founder and CEO of Crescendo Health, said PBC status felt like a "natural fit" for the company as a reflection of its values. "It enables us at a corporate level to make decisions that consider not just our shareholders but also the broader community of patients and researchers Crescendo serves," he said.
Other companies that operate as PBCs include newly launched rural healthcare startup Homeward Health, Perlara, the first biotech PBC, Rarebase, also a biotech company, Sage Health At-Home, Savvy Cooperative, which is described as "the first and only patient-owned public benefit co-op," OWP Pharmaceuticals, Medicaid-focused company Waymark and Trial Library, a cancer precision medicine company.
Breaking new ground
Outside of healthcare, there are a number of public benefit corporations, including privately-held companies like Patagonia and ice cream manufacturer Ben & Jerry’s. Publicly traded companies include Warby Parker, Allbirds and home insurance company Lemonade, which is both a B Corp. and a PBC and went public in 2020.
While there are only a few examples in the healthcare industry, Veeva, a cloud-based software provider for life sciences companies, boasts that it was the first publicly traded company and the largest ever to convert to a PBC in February 2021. United Therapeutics announced in September 2021 it was converting to a PBC, the first public biotech or pharmaceutical company to do so.
Back in 2018, Veeva began exploring ways to make the way it operates and its values more permanent, Josh Faddis, senior vice president and general counsel at Veeva, said in an interview. "We wanted to solidify those values for the long-term."
Veeva's public benefit purpose stated in its legal charter is to "help make the industries it serves more productive and create high-quality employment opportunities."
"I think it really helps to drive accountability. I think that's important, especially in healthcare where it's easy sometimes to get misaligned with all the different stakeholders that are involved in the industry."— Lucia Huang, CEO and co-founder of Osmind
The biggest challenge, Faddis said, was educating shareholders about the corporate structure. "Some people had literally just never heard of the concept. They didn't know if it was a big change or if it was still a for-profit entity or how it might affect their voting rights. That was a hurdle we were able to overcome."
The company's proposal to become a PBC passed by a landslide with 99% of shareholders supporting it.
Being a PBC gives the company flexibility to make decisions that differ from standard practice at comparable companies and that may not have short-term financial benefits to shareholders, Faddis said.
For example, Veeva has long been an advocate for the elimination of employee noncompete agreements, and efforts to ban noncompetes are now a part of the company's PBC focus.
As another example, during the COVID-19 pandemic, Veeva offered pharma reps a solution for remote meetings with doctors free of charge for a year.
Transitioning to a PBC enables Veeva to have a more "long-term holistic view," according to Caleb Tuten, senior manager for PBC and ESG engagement at Veeva.
"That's how the best companies have always succeeded, with a more holistic mindset. If you're too myopically focused on just a few things, you're going to miss opportunities and we want to be around for 20, 30 or 50 years," Tuten said. "These are things we would have been able to do as a C Corp. as well but it does allow us to just view things a little bit more holistically and put our stake in the ground more strongly because we have this obligation to consider all of our stakeholders."
The pros and cons
Even a traditional for-profit C corporation can work toward a public mission without becoming a PBC. But, in an industry like healthcare, too often the duty to maximize financial returns for shareholders or investors can be in conflict with what is best for patients, executives say.
"With a startup, it might limit the ability to sell their business to a larger company in the future because there might be some limitations on what the larger company could do with the organization."—Jodi Daniel, a partner in Crowell & Moring's Health Care Group
According to some healthcare experts, PBCs offer a promising alternative as a business model for healthcare companies by providing a "North Star" by which a company can navigate critical business decisions.
"I think it really helps to drive accountability," Huang, Osmind's chief executive, said. "I think that's important, especially in healthcare where it's easy sometimes to get misaligned with all the different stakeholders that are involved in the industry. We wanted to make sure we had something to be accountable to. Second, it's ingrained in the culture. The third element of why it was so helpful for us from the beginning is just on focus and alignment. I think we can be much more clear and transparent about what we're focused on, our values, how we try to use that transparently to influence our decisions and how we can build a business that really ties all of that together."
In a Health Affairs article, medical researchers at Stanford, including Jimmy Qian, a co-founder of Osmind, laid out the case for why PBCs may simultaneously improve individual patient outcomes and collective benefit without sacrificing institutions’ financial stability.
PBCs are held legally accountable to a predefined public benefit, which, for hospitals, could involve delivering high-quality, affordable care to local populations. PBCs are required to produce annual benefits reports that are assessed against a third-party standard. "These reports could be used by regulatory agencies such as the Centers for Medicare and Medicaid Services (CMS) or local health authorities to evaluate whether the PBC is making progress toward its stated mission and respond accordingly," the researchers wrote.
But are there any trade-offs?
Having a public benefit obligation could potentially "tie the hands" of board members who can't just focus on profits and must focus on those dual responsibilities, noted Jodi Daniel, a partner in Crowell & Moring's Health Care Group.
"Companies that transition to being a public benefit corporation are intentionally trying to ensure that that the company's mission doesn't get diminished over time because it's in their charter. So it helps [the mission] to endure. But there are pros and cons to that. It is somewhat binding the future board members and executives to follow that mission," she said.
Daniel said she has spoken with several healthcare companies recently that are weighing the possibility of transitioning to a PBC. "Companies often don't want to necessarily limit their options in their decision-making in the future. With a startup, it might limit the ability to sell their business to a larger company in the future because there might be some limitations on what the larger company could do with the organization," she said in an interview.
By making decisions based on interests outside of financial ones, organizations may put themselves at a margin disadvantage as compared to pure for-profit players in the space, wrote Hospitalogy founder Blake Madden.
Faddis with Veeva said the company hasn't seen any financial or performance trade-off as a result of operating as a PBC. He noted that the move has been good for recruiting, spurred more long-term conversations with customers and has been a source of new ideas.
"Prior to the conversion, you had employees who were thinking of new products or new functionality with the mindset of getting to be commercially successful," Faddis said. "Now, you also have people thinking about it from the angle of, 'Does it further one of our PBC purposes and then maybe it's also going to be commercially successful?'"
Converting to a PBC also can be a tactic to build trust, Daniel noted, especially in healthcare, and that holds the potential to drive business.
One factor that isn't clear is whether there is sufficient oversight to hold these companies accountable to their stated public mission. Who checks to make sure companies are making progress toward their objectives to improve healthcare?
Osmind publishes its benefit corporation report on its website to make it available to the public even though it is not required to do so. "I think that really highlights the accountability piece of you need to tell the world or at least tell your shareholders how you're really trying to uphold your public benefit," Huang said.
For public companies like Veeva, benefit corporation reports also can be found on the company's investor relations page or through proxy filings with the Securities and Exchange Commission.
Are PBCs the prescription to improve healthcare?
The number of PBCs in the healthcare industry is increasing, yet relatively little is known about the model’s potential role in healthcare delivery, the Stanford researchers wrote in the Health Affairs piece.
For hospitals and health systems, there is little incentive to incorporate as PBCs. "To address this issue, tax incentives or Medicare payments for health care organizations that incorporate as PBCs have previously been suggested. However, policymakers should be cautious to not recreate problems similar to those surrounding tax exemptions and loopholes for nonprofit hospitals," the researchers wrote.
Mostashari said he hoped Aledade's move would "encourage other leaders to consider whether this corporate structure might be right for their companies."
But he added, "If you're a company that, in the decisions of your board, does not actually balance what's best for your customers or for patients, in particular for providers or for society, then this isn't the right model for you."
Tuten with Veeva believes authenticity is key to making this business model work.
"It might not be the right choice for all public companies, and that's OK. I do see some articles coming out here saying this is the way of the future but I think there's still a lot of dust to settle before we know for sure where this is going to end up," he noted.