Board policies, conduct at issue as Hackensack CEO resigns

A successful and highly regarded hospital CEO has resigned amidst a “federal corruption trial that raised questions about the hospital and his leadership,” according to the June 4 issue of the Hackensack Chronicle. John Ferguson, president and CEO of Hackensack University Medical Center (HUMC) in New Jersey for 23 years, drew national recognition for the hospital’s quality and financial performance.

However, in April former State Sen. Joseph Coniglio was found guilty on six federal corruption charges stemming from his employment as a $5,000-a-month consultant for the hospital. Coniglio was convicted for using his political influence to steer millions of dollars in state grants toward HUMC while employed by the hospital. At the trial, several hospital officials testified, under grant of immunity, that they were pressured to hire Coniglio by “notable members of the hospital’s boards.” Mr. Ferguson has not been charged with any wrongdoing.

However, said the Chronicle, the HUMC board has retained two New York City law firms to review the hospital’s governance policies. After Coniglio’s conviction, The Record published an article that explored the political links of various board members and their business connections to HUMC.

This sad story, still unfolding, should be a reminder to boards that governance ethics, particularly conflicts of interests, are in the spotlight. The old rules that tolerated some back-scratching no longer apply. Boards need to have, and more important, enforce rigorous conflict of interest policies. An audit committee composed of only independent directors, with no material conflicts, should review every disclosed conflict and take appropriate steps to see that the board’s fiduciary duty of loyalty is upheld.

(For more on addressing conflicts of interest, go to this story in Great Boards.)

Boards: More Transparency About Community Benefit is Coming

“Much is given by hospitals, more is asked,” read the headline in the May 31 Boston Globe. And that pretty much sums it up.

Not-for-profit hospitals provide enormous sums in charity care and other community benefits, with less and less ability to pass costs on to private payers. Yet, the Globe asserts, the tax exemptions that not-for-profits get call on them to do even more.

“Nonprofits (are) reaping more in tax breaks than they report in charity work. Some say that must change,” the Globe asserts. The assertion is arguable depending on how community benefit is defined, but the implication is clear: hospitals need to do a better job telling their story to local media and political leaders.

Boards take note: Hospitals are losing the public relations battle, and that can only result in losing political battles down the road.

Washington is listening. Sen. Charles Grassley of Iowa believes federal regulations may be needed to require not for profit hospitals to do more charity work than their profit-making peers. “I want the IRS to go back and establish a difference so we can have the expectation that if you’re a nonprofit and you get these [tax] benefits, you ought to serve the public adequately,” Grassley told the Globe. The hospital industry led by AHA, is fighting back, according to the Wall Street Journal blog.

The new Form 990 from the Internal Revenue Service will finally provide an apples to apples (if still imperfect) comparison among institutions of community benefit broadly defined, not just charity care. Bad debt and Medicare shortfalls are shown but not counted, but still, the new Form 990 is a start toward more objective comparisons. And the Globe story won’t be the last to put local hospitals in the spotlight.

Until now, boards have paid scant attention to the Form 990. They’ve assumed their hospitals do good works and offer appropriate financial assistance to the poor and near-poor, but most boards not have looked at real data to back up their assumptions. That must change.

Boards need to know what their Form 990 says about their community benefit and financial assistance policies, assess whether they’re doing enough and allocating resources effectively, and then aggressively prod management to get their story out. They also can support advocacy efforts to head off hasty legislation that could penalize charitable hospitals based on arbitrary charity care formulas.

The fall issue of the Great Boards newsletter will cover the new Form 990 in depth, including other expanded sections on board conflicts of interest and executive compensation. In the meantime, check these past issues (Fall 2006 and Spring 2008) .