As nonprofit hospitals shift from volume-based to value-based care, a powerful opportunity emerges to invest in the social determinants of health.
Research indicates that only 10-20% of health outcomes stem from clinical care, while the remaining 80% is shaped by social and environmental factors. By investing strategically in areas like housing, nutrition, and workforce stability, hospitals can reduce healthcare costs, meet regulatory requirements, and address community health needs.
Community development financial institutions, or CDFIs, and Community Reinvestment Act -motivated investors are natural allies in this effort, providing low-cost, high-impact investments that advance population health goals and create sustainable community benefits as mandated under the Affordable Care Act.
Natural partners
The ACA mandates that nonprofit hospitals allocate part of their spending toward “community benefits” to maintain their tax-exempt status. Eligible activities include charity care, debt write-offs for uninsured patients, and “community building” initiatives such as affordable housing, workforce development, and environmental improvements. Hospitals that fail to meet community benefit requirements risk losing their tax-exempt status, underscoring the importance of proactive community investments.
CDFIs, mission-driven financial institutions specializing in underserved communities, have traditionally been funded by banks fulfilling CRA obligations to support low- and moderate-income areas. Often, these areas overlap with hospital service areas, creating a shared investment landscape. In 2016, the CRA was expanded to include health-related activities, creating a synergy between banks seeking CRA compliance and hospitals aiming to meet ACA community benefit requirements.
Under the ACA, hospitals must complete a ‘community health needs assessment’ every three years and respond to identified needs with a ‘community health implementation plan.’ CDFIs allow CRA-motivated investors and hospitals to pool resources into high-impact ‘social determinants of health’ projects that address these health needs and meet regulatory requirements simultaneously.
Some examples of this in practice include The ProMedica Health System in Toledo, Ohio, which partnered with LISC Toledo, a CDFI, to establish a grocery store in a food desert. In addition, the Rutland Regional Medical Center collaborated with NeighborWorks of Western Vermont on the Healthy Homes Initiative, to improve housing quality for asthma patients by replacing carpets and upgrading heating systems. These partnerships exemplify how CDFI-financed projects can improve nutrition, local employment, and community health while addressing specific health risks through targeted social determinants of health interventions.
Unlocking opportunity
For health systems exploring impact investing, two practical challenges need to be addressed. First, as in most large organizations, there is often limited communication between the programmatic staff responsible for implementing the community benefits requirement and the investment team that oversees operating and strategic investments.
A focused effort is needed to engage the investment team – along with their consultants – during the community health assessment process to identify investment managers who meet place-based investing goals. Internal advocates within the health system should also work to incorporate the assessment priorities into the system’s investment policy statement, fostering alignment across the investment, consulting, and community benefits teams.
The second challenge involves return expectations and liquidity constraints. Most hospitals maintain 60-90 days of cash on hand, primarily drawn from elective, non-routine procedures, which limits their operating portfolio to liquid assets like core fixed-income and money-market accounts.
Other impact-investing assets are typically held in the hospital’s foundation or strategic asset pool. Although CDFIs can offer returns in the 1-4% range, this falls short of the 10-12% typical of private-credit investments, making it difficult for CDFIs to secure a place in hospital portfolios without dedicated impact-investing mandates.
Given these constraints, the most practical way for hospitals to engage in social determinants of health-related investments, while fulfilling fiduciary obligations, is through cash deposits and targeted CDFI debt purchases. Most CDFI credit unions and banks offer FDIC or NCUA-insured accounts where health systems can deposit funds, increasing local lending capacity in a way that benefits the community more directly than a standard bank deposit.
Treasury departments and investment committees can also utilize innovative products like CNote’s Impact Cash to diversify cash holdings across various vetted CDFI banks and credit unions – a practice especially prudent following the recent collapse of Silicon Valley Bank.
Additionally, many CDFIs offer promissory notes to facilitate community lending. However, as these products may lack ratings from major agencies, they are best suited for sophisticated investors who understand the distinctions between CDFIs and traditional banks and are prepared to underwrite the individual loan funds, their impact, and risk. (For those inclined, Aeris provides resources and ratings to assist with underwriting CDFIs directly).
An alternative to individual notes are the suite of Calvert Impact Capital products (Community Investment Note, The Mission Driven Bank Fund, for example) or CNote’s Flagship Fund that distribute dollars across various vetted CDFIs. These are appropriate for investors who do not have the expertise or bandwidth to diligence and monitor CDFIs themselves.
Economic + community health
For nonprofit hospitals, partnering with CDFIs and CRA-motivated investors offers a path to meaningful, measurable community impact that aligns with investment priorities. These partnerships reduce healthcare costs, fulfill obligations under the ACA, and contribute to a more resilient healthcare system. Through these collaborations, hospitals and CRA-motivated investors can build healthier, more equitable communities – addressing the upstream determinants of health that extend far beyond traditional clinical care.
Ibrahim Rashid is a Chicago:Blend VC Fellow and impact investing consultant. Rashid is also the founder and author of Strong Haulers.
