Image: JoNel Aleccia
By JoNel Aleccia Health writer
updated 6/29/2009 11:51:50 AM ET 2009-06-29T15:51:50

In the sweeping scope of the Bernard Madoff investment scandal, it’s just a little loss.

The $50,000 in annual donations that paid for home health care for elderly Nazi victims is only a tiny fraction of missing funds estimated at between $50 billion and $65 billion, money swindled from a growing list of almost 9,000 investors.

But as Madoff, 71, was sentenced to 150 years in prison Monday, health agencies that rely on philanthropy for patient services say fallout from the largest-ever Ponzi scheme continues to affect care for vulnerable people who never gave the self-confessed con man a dime.

That includes Holocaust survivors who received bathing, housekeeping and post-surgical care from Selfhelp Community Services Inc. of New York, which serves nearly 5,600 elderly Nazi victims.

“Every year, we could count on their support,” said Elihu Kover, a vice president at the agency that for 13 years has received Madoff-backed donations of $25,000 to $75,000 a year.

Hospitals, medical centers and social service agencies across the country say the ripple effect of the Madoff fraud has torpedoed donations large and small, prompting postponed construction projects, delayed equipment purchases, reduced development goals and, in some cases, emergency requests for funds to avoid cutting client care.

‘A storm of historic proportions’
“It is a storm of historic proportions,” said Thomas J. Sullivan, president of the foundation for Children’s Memorial Hospital in Chicago, which has seen donations from Madoff investors deferred or delayed. “It is the general economic malaise exacerbated by these select scandals.”

At Selfhelp, Kover said care for 40 clients was jeopardized by the loss of annual contributions from the $958 million Picower Foundation, which collapsed in December in the wake of Madoff's arrest.

“The $50,000 we’ve gotten from Picower goes to subsidized home care and it paid for two housekeepers,” he said. Instead, the group had to turn to the United Jewish Federation of New York to fill the gap.

Businessman Jeffry Picower and his wife, Barbara, who ran the foundation, have been accused of knowing about Madoff’s scheme and taking $5.1 billion more than they invested , according to a lawsuit filed by Irving Picard, the trustee for Madoff fraud victims. William D. Zabel, a lawyer representing the Picowers, did not immediately respond to an e-mail about the Madoff situation. 

But the Picower Foundation was only one of at least 147 private foundations whose assets were exposed in the Madoff scheme, according to an analysis compiled by Daniel E. Smith of Benefit Technology Inc. at the request of Nicholas Kristof, a reporter for the New York Times.

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Many of the foundations gave millions of dollars to health- and medical-related institutions and causes, raising questions about how the abrupt withdrawal of those funds might affect patient care.

Sullivan, of the Chicago Children’s Memorial Foundation, said there’s no question that losing vast sums of money cuts into an institution’s ability to enhance or improve services.

“When it forces you to delay or defer or put off a special piece of equipment, it impacts the quality of care,” he said.

Some of the affected foundations likely defaulted on their charitable pledges, including those to hospitals and medical centers.

The Chais Family Foundation of Encino, Calif., with assets of $198 million, was forced to shut down in the wake of Madoff's arrest, and Stanley Chais, its president, has been accused of fraud in connection with the case by the federal Securities and Exchange Commission. The foundation had previously given $40,000 to the Children's Hospital of Los Angeles, among several other organizations, tax records showed.

Others managed to fulfill their promises. One donor who gave $5.7 million to the North Shore Long Island Jewish Health System insisted that the hospital invest the funds with Madoff, but he replaced the money that was lost, said hospital spokesman Terry Lynam.

In other cases, the fate of the pledged funds was not clear because the recipients of large donations declined even to discuss the impact of such losses.

“We’re going to pass on this one,” Nicole White, a spokeswoman for Cedars-Sinai Medical Center in Los Angeles, responded in an e-mail.

She did not say why the hospital wouldn’t discuss the fate of contributions from the Wunderkinder Foundation, the private Los Angeles foundation of filmmaker Steven Spielberg, who invested with Madoff. Tax records showed the medical center had received $2 million from the foundation, plus the promise of another $3 million in future payments.

Construction project delayed
At the Mayo Clinic in Rochester, Minn., which was promised $1.8 million from the Miles and Shirley Fiterman Foundation of Palm Beach, Fla., spokesman Lee Aase acknowledged the effect of the Madoff scandal.

“We have to work harder to raise the funds to replace what we’ve lost,” Aase said.  “We’re still committed to providing the care and doing the research. It’s clear it will be a loss, but we can’t say that it has affected patient care.”

That message was echoed by Lynam, the spokesman for the North Shore Long Island Jewish Health System, which received multiple large donations, including $2.5 million from the Susan and Leonard Feinstein Foundation of Farmingdale, N.Y.

The losses have forced hospital officials to postpone construction on a 100,000-square-foot addition to its Schneider Children’s Hospital, Lynam said.

“This is resulting in tens of millions of dollars in potentially lost pledges,” Lynam said. “It certainly has shrunk the number of pledges we anticipate having in place. But it has not had a direct effect on patients.”

If medical beneficiaries are reluctant to discuss or acknowledge specific effects of the Madoff losses, it’s for good reason, said Stacy Palmer, editor of the Chronicle of Philanthropy, a journal focused on charitable and nonprofit giving that explored the Madoff fallout in a recent article. Many of them are still trying to sort out the impact of the scandal, she said.

Second, many are wary of being associated with failed investments.

“Will it seem like in any way that they were colluding with Madoff?” she said.

Especially at a time when a spiraling economy has cut donations and decimated endowments, hospitals and medical centers are being more cautious than ever.

“Just the hint of scandal is something they want to stay away from,” she said. “Madoff is the last straw for a lot of these groups.”

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