Navigating Cy Pres Issues in Hospital Governance

Rob Cepielik and Mike Fine (Wyatt Tarrant & Combs LLP) write about topics including the history behind “cy pres,” the importance of cy pres and planning, the process of cy pres, the five elements of revenue recognition, and leading practices for donor consent.

Pressures on margins and the push toward value-based care have led to a rush of mergers and acquisitions between hospitals and health systems in recent years. Accountants and attorneys behind these transactions must combine large entities’ assets, liabilities, operating strategies, and corporate cultures.

Many hospitals rely on endowments and foundations to support their missions, but these resources nearly always come with conditions. Given the vast array of legal and financial considerations in any merger or acquisition, the potential impact of a charitable gift’s conditions should be considered as part of the acquisition due diligence process.

When circumstances change, a legal process often begins to identify a purpose that is “as near as possible” to the original intent behind the donation, often referred to as “cy pres.”

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