CONVERSION FROM NONPROFIT TO FOR-PROFIT LEGAL STATUS - WHY DOES IT HAPPEN AND SHOULD ANYONE CARE

The conversion of a nonprofit firm to the for-profit form is commercia lism carried to an extreme. Conversion is increasingly common, most no tably in health cave. We seek to advance understanding of why nonprofi t conversions occur and what public policy should be toward them. A tr ansfer of control-the essence of a conversion-over nonprofit assets ca n be accomplished in various ways. Thus, if would be a public policy m istake to focus narrowly on formal legal conversions or outright sales . We explore the possible motives for conversion, and speculate about the reasons for the flurry of conversion activity in hospitals and hea lth maintenance organizations (HMOs). We conclude that there are three central public policy questions raised by conversions: (1) under what circumstances is conversion appropriate-when does it represent an eff icient reallocation of resources and when only a redistribution of wea lth ?; (2) how should the nonprofit's assets be valued?; and (3) what should happen to the financial assets that remain after a conversion?