The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week’s article.
Some of the toughest jobs in healthcare may be held by people that don’t get paid. They are the directors and trustees in the not-for-profit hospitals and health systems that serve most of our communities.
Investor owned hospital chains, drug and device manufacturers, health insurers, and others in the healthcare ecosystem recruit directors to fill slots based on a view that corporate governance is a central feature in the sustainability of their enterprise and its independence is necessary to compliance with market rules. The job for their directors is taken seriously: conflicts of interest, fiduciary responsibility, disclosures and committee responsibilities get lots of attention. The selection and recruitment of board members is meticulous: industry experience, business savvy and personal leadership traits weigh heavily. And these board members spend 20-40 days annually evaluating company strategy, assessing its performance and gauging the effectiveness of its leaders.(1)
By contrast, most local not-for-profit hospital boards are composed of community leaders who contribute their time and expertise. (2) Compliance with Joint Commission for accreditation and other organizational standards guide management interaction with these boards, but at the end of the day, the burden for the hospital’s direction falls on management to deliver results. Community boards are generally supportive of management decisions, unless embarrassed by a major hiccup in the financial performance of the hospital or an egregious lapse in the performance of the CEO. Community hospital trustees are respected, appreciated, and not conflicted: theirs is a mission to serve, not to profit from the relationship or otherwise benefit personally. They’re good people doing important work.
I have participated in more than 300 not-for-profit board retreats and spoken to countless others. There’s an urgent need for these boards to step up, not for the purpose of making life miserable for the hospital’s management team but to assure that the hospital is served best. These good people must answer some tough questions:
- Is the quality, safety and cost effectiveness of care in this hospital competitive with industry best practices? Is objective data readily available and understood by the board and transparent to the community?
- How is the hospital transitioning actively to value-based pricing across its lines of business, with bundled payments and accountable care capabilities embedded in core operations?
- Is the cost structure of the hospital lean and non-core functions outsourced for optimal efficiency? Are big ticket items in the supply chain contracted for optimal purchasing clout and workforce optimization strategies in place to improve productivity and reward performance?
- Is capital deployed optimally? Have uses of capital for non-core patient care programs been assessed to determine alternative funding opportunities?
- Are investments in information technologies aligned with system connectivity goals and operational priorities? Can the board independently affirm health information technology project investments as the highest and best use of the institution’s capital?
- Is the board knowledgeable about the health system beyond its understanding of a hospital? Are the roles and strategies of other key stakeholders - physicians, employers, drug and device manufacturers, regulators, payers, and et al. - understood and integrated into the board’s oversight?
- Is management of the hospital capable to lead the organization through changes necessary for sustainability and growth? Is the composition of the board appropriate to fulfilling its fiduciary responsibilities to the investors in the hospital: Taxpayers, bond holders and lenders?
- Is the hospital prepared to share business risk with physicians capable of managing outcomes and costs? What is the hospital’s strategy to transition from a ‘medical staff relationship’ model to ‘physician partnership’ as a core strategy? And how will adherence to evidence-based best practices supplant physician preferences when in conflict?
- What is the institution’s plan for growth? How do retail health, long-term care, wellness, insurance offerings and others figure into increased scale and scope of services?
- Can the hospital survive independently or should it align its interest within a stronger system?
Two weeks ago, Standard and Poor’s released its assessment of the not-for-profit acute sector (3). It found:
- Revenue increased +6.5% in FY13 from FY12 vs. +5.0% in increase in operating expense, but operating margins decreased to +2.1% in FY13 from +2.6% in FY12.
- Balance sheets were stronger as a result of more conservative use of debt and investment gains.
It issued a dire outlook: margins will shrink, volume will decline, patient revenue growth with slow, bad debt will increase (especially in the 24 states that did not expand their Medicaid programs) and consolidation will accelerate in the sector as hospitals seek to survive.
That forecast is chilling. It means boards must shoulder the burden of charting a course for their hospital working with management. And it means these complicated questions must be answered.
The toughest job in healthcare may be a trustee serving a hospital or not-for-profit health system. Given the storm clouds gathering above the U.S. health system, it’s a job not for the faint of heart.
(1) McKinsey, “2013 Global Survey of Directors,” mckinsey.com, August 2013; Luis Aguilar, “Looking at Corporate Governance from the Investor’s Perspective,” Emory University School of Law, Corporate Governance Lecture Series, Atlanta, Georgia, April 21, 2014
(2) “The Board Compensation Debate,” Trustee Magazine, May 12, 2014
(3) “U.S. Not for Profit Health Care Median Ratio’s,” Standard and Poor’s Rating Services, August 14, 2014
The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.
© 2014 Navigant Consulting, Inc.