Despite Endowment, Challenges Abound
At first glance, Dartmouth-Hitchcock, a medical system with net assets of $410 million at the end of last fiscal year, seems an unlikely cavalry to be riding to the financial rescue of a medical school whose parent — Dartmouth College, please don’t call it a university — finished the year with net assets of $5.33 billion.
But such simple comparisons don’t provide especially useful benchmarks to outside observers as they watch the institutions wrestle with the financial and other complexities that come with collaborating to deliver health care, education and research in an evolving landscape, and trying to realign their relationships and roles.
Different metrics yield different comparisons. D-H’s $1.56 billion in fiscal 2015 revenue nearly was double Dartmouth’s $876.2 million. Both posted small operating losses that were offset by other financial factors.
At Dartmouth, $15.2 million in red ink was washed away by $56.4 million in non-operating gains and a $195.3 million gain in the value of its endowment.
At D-H, $9.2 million of operating losses and $12.3 million in investment and other non-operating losses were offset — and more — by a $92.5 million windfall posted when it acquired the assets of Mt. Ascutney Hospital and Health Center and Cheshire Medical Center.
But D-H still faces financial pressures, including expectations noted in a February 2015 report from Fitch, a bond rating firm, that cited D-H’s “targeted goal” of an operating margin — the percentage by which operating revenue exceeds expenses — of at least 4 percent.
D-H continues to fall short of that benchmark. During the first six months of the current fiscal year, D-H posted $24.9 million in nonoperating losses, which offset a small profit of $4.3 million from operations and drained $20.7 million from its balance sheet, according to a report to holders of bonds issued by the medical system. During the quarter that ended Dec. 31, D-H posted a $3.2 million operating loss and another $3.5 million in nonoperating losses.
So why assume the financial burdens that Dartmouth is anxious to shed? The medical school, which occupies space on the D-H campus in Lebanon as well as on the Dartmouth campus, is viewed by D-H as “an important partner in our clinical and research endeavors,” said Rick Adams, a D-H spokesman, “We want to ensure the sustainability of Geisel.”
Yet D-H, with an endowment of $99 million, lacks the financial cushion of its Hanover cousin, where the store of accumulated wealth was valued at $4.66 billion, according to the fiscal 2015 audited financial statements of both institutions.
The endowment is a critical term in the Dartmouth’s financial equation. In the last fiscal year, the college wrote a $212.5 million check — figuratively — on the accounts that comprise its endowment and used the cash to pay a portion of the $891.4 million in bills it ran up operating all the things it operates, according to its audited financial statement.
Some of the $4.66 billion endowment is associated with the medical school. About 11.6 percent of Dartmouth’s trove of accumulated wealth, or assets valued at $540.4 million, were in “Geisel funds within the Dartmouth endowment,” college spokesman Justin Anderson said in an email. That was just short of the $550 million goal set for the year 2020 by a strategic plan issued in by Geisel in 2012, representing a hefty 32 percent increase in three years.
Distribution of endowment gains provided $25.4 million in support to Geisel operations in fiscal 2015, Anderson said.
During that year, the operating deficit at Geisel was $12.6 million, according to a supplemental report to bondholders.
The endowment comprises decades of gifts and bequests from alumni and others and the gains from investing those assets. The medical school now bears the family name of one such supporter: creator of Dr. Seuss and Dartmouth alumnus Theodor Geisel.
The renaming of the medical school was announced in a news release that acknowledged Geisel and his widow’s “generosity to Dartmouth during their lifetimes and through their estate plan” and described them as “the most significant philanthropist to Dartmouth in its history.”
But the college has not yet disclosed the amount of the Geisel commitment.
The news release offered a clue. It was issued in April 2012, about five months before the college cut the ribbon on a new visual arts center that was financed with a $48 million gift from Leon Black, a billionaire investor who at that time sat on the college’s board of trustees. That seems to indicate that the Geisel family’s past and future giving to Dartmouth was somewhere around $50 million, or higher.
Medical school naming rights have produced windfalls at other institutions.
In September 2014, Harvard University announced it had named its School of Public Health after billionaire Hong Kong real estate investor named T.H. Chan, whose family foundation had donated $350 million. A Boston Globe story suggested the asking price to rename Harvard’s medical school could reach or exceed $1 billion.
Other universities have done well. In 2013, the family foundation of Dell Computer founder Michael Dell announced its commitment of $50 million to establish an eponymous medical school at the University of Texas at Austin.
In 2011, a Philadelphia industrialist and his wife forked over $225 million to the University of Pennsylvania, which renamed the nation’s oldest medical school the Raymond and Ruth Perelman School of Medicine.