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The hybrid ESOP/research trust and the public hospital

January 3, 2015

The hybrid ESOP/research trust and the public hospital

  • The public hospital remains as the majority owner and controlling entity
  • A ESOP or employee stock ownership plan is a for profit entity so the public hospital would have to be in partnership with a for profit partner that would purchase 20% of the public hospital.For Profit Physicians groups do this with a general partnership with non-profit hospital.
  • The public hospital would own the for profit entity on behave of the public hospital employees(ESOP/ERISA)
  • The public hospital employees would remain in any 203 (B) public pension and savings plans in addition to the ESOP
  • We ask senator Stabenow to assist us in what amounts to a request for a IRS private letter ruling; better to have legislation.
  • We request that a public hospital 203 (B) combined with an ESOP be permitted to exceed the IRS 20 percent rule only in cases where the following conditions are met,(A)(1) the purchase price or funds that flow from the ESOP to purchase an interest in the public hospital must be invested in a scientific research trust(A)(2) the research trust may use a portion of the interest earned annually on funding scientific research and hiring scientific research staff(a)(3) the research trust may use a portion of the annual research budget to amortize over 30 years building and equipment for scientific research utilizing NIH and NSF grant and funding rules.Building and equipment as public hospital properties are partly owned by the ESOP. 
  • This business model does not work with a leveraged ESOP unless the research trust hires research scientists who have a proven track record of winning NIH research grants; these would subsidize the annual earnings from the ESOP/trust and allow the public hospital to amortize with positive cash flows the debt owed to the leveraged ESOP.The concept of building laboratory spaces and real property  using tax exempt bonds is known as arbitrage, to use tax exempt bonds to build research campuses in partnership with a leveraged ESOP is a concept invented and blogged about here and elsewhere since 1996 
  • A leveraged ESOP/research trust could empower the research scientists and public hospitals employees alike in innovation  for the betterment of humanity and of their own personal and financial enrichment
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