Crowdfunding: Assessing Benefits and Risks
Healthcare leaders should form crowdfunding risk assessments from three perspectives: legal and regulatory, economic, and ethical.
Crowdfunding platforms are increasing and spreading across the globe. Crowdfunding became popular with entrepreneurs who financed their companies on Kickstarter, creatives who financed their art projects on Indiegogo, and everyday citizens strapped for cash seeking funds on Go Fund Me. There are at least 1,250 crowdfunding platforms globally that raised $16.2 billion in 2014 ( The Crowdfunding Industry Report , Massolution, 2015). Crowdfunding is an online platform where project initiators and funders meet and then a decision is made by the crowd of funders on whether to fund the project.
There are four types of crowdfunding platforms: reward-based, donation-based, investment-based, and debt-based.
- Reward-based platforms exchange prizes for funding.
- Donation platforms are philanthropic models where funders provide financial resources for “worthy projects.”
- Investment-based platforms exchange money for equity in an organization.
- Debt-based platforms exchange money for repaying the principal plus interest of legal obligations.
In the health sector, there are other types of crowdfunding platforms beside the four previously mentioned (Renwick, M.J., and Mossialos, E., “Crowdfunding Our Health: Economic Risks and Benefits,” Social Science & Medicine, 2017).
- Health expenses platforms fund, through donations, an individual’s out-of-pocket medical expenses.
- Health initiatives platforms fund, through rewards—contributions in return for prizes—and donations, health initiatives that address the public or a specific group.
- Health research platforms support, through donations, health research that often focuses on rare or neglected diseases.
- Commercial health innovation platforms ask for investments to fund for-profit health ventures.
Benefits Versus Risks
There are numerous benefits and risks related to crowdfunding applicable to healthcare leaders. The benefits include, but are not limited to, the following (Renwick and Mossialos, 2017):
- Increases investor participation particularly among nonaccredited investors
- Provides greater financial support for individual and small firms
- Raises awareness of neglected health issues
- Enhances social engagement among project initiators and potential funders
There are also risks, which include, but are not limited to, the following (Renwick and Mossialos, 2017):
- Inefficient health priority setting
- Financial risk to project initiators and investors/donors
- Emerging legal/regulatory framework
- Information asymmetry between project initiators and investors/donors causing accountability, transparency, and due diligence challenges
- Money laundering
Beyond these risks, other ethical issues related to medical care crowdfunding include the following (Snyder, J., “Crowdfunding for Medical Care: Ethical Issues in an Emerging Health Care Funding Practice,” The Hastings Center Report, Nov. 22, 2016):
- Perpetuating systemic injustice
- Shifting healthcare valuations to increasing commoditization
“Despite its protean promises, however, medical crowdfunding raises a constellation of ethical and legal hurdles for patients, clinicians, institutions, and society,” notes one researcher (Young, M.J., and Scheinberg, E., “The Rise of Crowdfunding for Medical Care: Promises and Perils,” JAMA, March 2017). It is argued that many of those ethical hurdles fall on the desks of healthcare leaders.
Audits and Policies
It is essential that healthcare leaders first audit their organizations’ existing relationships with crowdfunding platforms from three vantage points:
- Project initiator
- Beneficiary of a project initiator, such as a patient who pays for care from crowdfunding fees or an employee who pays for care from crowdfunding fees
After conducting this audit, healthcare leaders should categorize the degree to which their organizations’ existing involvement in crowdfunding results in benefits or risks, such as those mentioned above. Then, they should determine whether the overall benefits outweigh the risks. Risk calculations should be framed from three perspectives:
The legal/regulatory lens will focus on compliance with existing laws such as The JOBS Act— crowdfunding was catalyzed out of the JOBS Act—HIPAA, and Securities and Exchange Commission rules.
The economic lens emphasizes the efficiency of raising capital, accessing debt financing, and engaging in philanthropy using crowdfunding platforms in contrast to more traditional ways of raising funds.
The legal lens highlights the reality that any existing legal/regulatory standard determines what “must be done” to decrease legal liability and increasingly reputational liability.
In contrast, the ethical standard determines what “should be done.” This is called normative ethics by ethicists. The vision, mission, and values of the organization should frame the crowdfunding policy, and the policy should address whether the organization will engage in crowdfunding or not and for what specific purposes with a detailed elucidation of the potential benefits (beneficence ethical principle), elucidation of potential harms (nonmalifence principle), and elucidation of balancing the risks and benefits (justice).
Regardless of the final weighting of benefits versus risks, it is critical that organizations develop and communicate organizational crowdfunding policies. The following key players should be involved in audit and policy development:
- Member of ethics committee
- Finance leaders
- Investment committee board members
- Those responsible for research/clinical trials
- Human resources
- Public relations
Crowdfunding can be a useful means of outreach and financial assistance with the proper risk assessment and policy development.
- University of Colorado Denver, Anschutz Medical Campus Fiscal Policy
- Pauls Valley Hospital to Keep Going, For Now, on Donations
William Marty Martin is a professor of Health Sector Management and Entrepreneurship, DePaul University, Chicago.