NEW ISSUE OF GREAT BOARDS: SHOULD PHYSICIANS SERVE ON HOSPITAL BOARDS?

The new issue of Great Boards — available now at http://www.greatboards.org/— takes on the thorny matter of physician membership on hospital boards. This special, expanded issue begins by declaring that changing times demand new approaches:

“As hospitals develop more closely aligned economic relationships with some or all members of the staff, the fiduciary duties of the governing board and the traditional,representational approach to selecting physician board members are coming into irreconcilable conflict. It is time to revisit the underlying principles and mechanisms for physician membership on hospital and health system boards.”

The article describes describes common limitations of traditional “medical staff representation” on the board. Underscoring that changing how physicians are selected for the board is a sensitive topic, the article suggests a collaborative process for engaging physician leaders in the development of new approach that follows one of two alternative models, an “Enhanced Traditional Model” and the “Integrated, Accountable Care Model.”

To read and download the full issue now, go to the Great Boards website at http://greatboards,org/


Ten New Year’s Resolutions for Boards

A former health system board chair from New York wrote this to me on his holiday card: “Best wishes for 2011: Looks like this will be the year of governance.”

He may be right.

The past year has brought the most sweeping change in the healthcare payment system since the enactment of Medicare and Medicaid, including the long sought goal of near-universal insurance coverage.  Yet, instead of a precise road map  to the future, healthcare leaders will need a GPS to chart their future amidst the uncertainties ahead, including the fate of health care reform in the courts and in Congress; what happens when the Medicare physician payment fix expires; how hospital-physician integration arrangements pan out; and whether the economy recovers.

Here are ten New Year’s resolutions to make 2011 a successful one for governance:

  1. Recruit someone who’ll add a new dimension to the board. Use a competency-based succession planning process to identify someone who’ll add a new, needed competency, fresh perspective and critical thinking to the board. Be willing to look in new places such as among minorities and women leaders, outside the local community, and in the ranks of accomplished healthcare industry leaders, physicians and nurse leaders from non-competing organizations. (Read how Presbyterian Healthcare Services in Albuquerque, NM transformed its board in a terrific article by Mary Wicker in the November issue of Trustee.)
  2. Name the directors who are your board’s future chairpersons. If  the board or its Governance Committee can’t name two or three (of about 15) current directors who have skills, temperament, time and inclination to rise to the top spot during their tenure, then board chair succession planning should vault to this year’s board development priorities. While you’re at it, be sure every major board committee has a vice chair who can take over if the chair is absent and has the skills to chair the committee in the future.
  3. Lose some weight. Cut the size of the board packet by 20 percent by ditching reports of questionable value and by making sure that the dashboard and decision support information contain key information needed for boards to understand the issues, spot red and yellow flags, and act appropriately. If you’re not using a board portal, investigate and adopt one this year. Consider giving every director a customized IPad or other tablet or laptop to access the portal and do board business more efficiently. And while you’re streamlining, if the board has more than 18 or 20 members, or is a health system with lots of subsidiaries who don’t have much meaningful work to do, form a task force to redesign governance to be sleeker, more nimble and more effective.
  4. Trim management presentations. Directors commonly complain that executives talk too long, recite facts that directors could have read in advance, and consequently allow too little time for board discussions. Adopt a 20-80 guideline: a management presentation should not occupy more than 20 percent of the time an agenda item requiring action is expected to take. So if 30 minutes is allocated for approving the annual budget, the CFO should plan on no more than six minutes for introductory remarks to set the context. Senior executives: think of  at least one policy- or strategy-level question you would pose to the board on which you genuinely want input or feedback.
  5. Abolish your committees. Yes, all of them. Then decide which ones you really need, and write new charters and annual goals for them.  Consider rotating committee chairs and members every few years to get fresh thinking into committee work.
  6. Really evaluate your CEO. Not in a perfunctory way to merely determine his or her bonus, but using a thoughtful, candid and mutually supporting process that engages directors in a discussion of the CEO’s past performance and future goals.  Without a dynamic feedback process, the board and CEO risk drifting apart on organizational priorities.
  7. Hold executive sessions. Board meetings typically include a lot of executives and invited guests. A board needs to take time for candid “directors only” discussions of matters unlikely to be raised in more public settings. Consider holding executive sessi0ns including the CEO at every board meeting, plus at least one executive session  a year without the CEO to discus his or her evaluation.
  8. Approve a written top management succession plan.  Hiring a great CEO is the board’s number one responsibility, and 14% to 18% of hospital CEO jobs turnover every year — yet fewer than one in four hospitals and health systems has a current, written CEO succession plan, according to The Governance Institute. Don’t be caught unprepared. Engage the CEO in a succession planning process of what would happen in case of an unexpected vacancy at the top: Who would assume the reins immediately? Who would perform their job in the interim? Is a permanent successor on the senior leadership team? If not, which search firm would we use? Organizational anxiety rises when a CEO unexpectedly leaves. The board should be ready to assert timely, definitive leadership.
  9. Use provocative education to challenge the board’s thinking about the future. With healthcare reform looming, 2011 is a good time to revisit not only the near-term (3-4 year) strategic plan, but also the long-term (10-20 year) strategic vision for the organization and its physicians. For example, one of the toughest problems in extending health care to millions more Americans is the shortage of primary physicians. Hospitals need innovative strategies to address this, and boards should be evaluating whether their plans are sufficient. They could read a very good article by Geri Aston on best practices to “recruit, reward and retain” primary care physicians in the November issue of Trustee.  And they could expand their thinking by reading and discussing David Lawrence’s article in Physician Executive. The former CEO of Kaiser argues that there are plenty of physicians but their talents are poorly deployed.  “Health care delivery needs to be reconfigured,” Lawrence writes, citing a Health Affairs report, from a “physician-centric hierarchical model” to a constellation of multidisciplinary “care platforms” — divisions of medical services united by common work and work-flow, such as, for example, chronic stable disease care, acute life-threatening illness care, prevention and health screening, palliative care, rehabilitation, pregnancy and childbirth …rather than being diced up according to organ systems or particular medical specialty.”  These steps will free physicians to “focus on critical work where ambiguity is greatest, and where diagnostic and therapeutic judgments require their unique preparation and skills. More predictable work can be shifted to non physicians.” You can use these articles and others to preface the board’s strategic discussion of primary care in its community.
  10. Hold your board to a higher standard.  Here are two benchmarks that could provide a more challenging framework to spice up the board’s usual self evaluation discussion.  In articles in the Wall Street Journal and Harvard Business Review, corporate director Robert Pozen argues that that corporate boards should be smaller, have directors who are experts in the company’s industry, and expect directors to spend two days a months on board work including visiting company sites.  Meanwhile, in a new report from Moody’s Investors Services (for subscribers only), “Governance and Management of Not-for-Profit Healthcare Organizations: A Key Driver of Ratings,” the ratings agency restates its belief that “effective governance and strong management are both necessary for the continued viability and competitive positioning of not-for-profit hospitals as they make critical capital decisions, restructure operations for healthcare reform and compete for patients, physicians and other skilled professionals.” The report identifies five broad factors and 30 practices it looks for when assessing governance and management. Among them:
    • Board and senior management team leadership capability in stable and stressful times
    • Oversight and disclosure processes to reduce risk and enhance operational effectiveness
    • Execution of long- and short-term strategy to reduce resource use
    • Commitment to self assessment and benchmarking
    • Effective management of governance relations.

Perhaps a few of these resolutions will be applicable to recharge your board for the New Year.  If not, create some resolutions of your own to make 2011 “the year of governance.”

Governing Board’s Role in Mergers and Alliances: New Issue of Great Boards

Healthcare reform is expected to drive a new round of mergers, acquisitions, and strategic alliances among hospitals and other providers.

As a white paper last summer from The Governance Institute noted, “Since the recent passage of healthcare reform, nonprofits have demonstrated much more interest in achieving scale. Also, a number of free-standing hospitals and small hospital systems are questioning whether they can thrive post-healthcare reform, without becoming part of a large system.”

A consolidation strategy goes to the core of a governing body’s fiduciary duty to preserve the organization’s long-term viability to sustain its mission. Directors should ask whether consolidation will strengthen the organization’s finances, operations, market position, growth potential, and core values, and thus support its mission. Or conversely, will consolidation dilute resources and damage stakeholder relationships?

The new issue of Great Boards is designed to orient directors to the key governance issues involved with mergers and strategic alliances. It includes the steps boards should take to prepare for a consolidation strategy; the seven key questions at the heart of almost every deal; and the right timing for engaging a small task force and the full board.  Read and download it now at http://greatboards.org/.

Annual Executive Compensation Survey Is Out

Hospital CEO compensation is moderating, as a result of a tough economy, increased transparency and closer public scrutiny, according to the annual survey published by Modern Healthcare and Sullivan, Cotter and Associates. Median total compensation of CEOs of health systems rose just 2.6% in 2010, and 0.2% last year — way down from 9.7% in 2008.

But that hardly means boards can breath easy thinking regulators will be satiated.

To the contrary, attorneys general in New Hampshire and Massachusetts are looking at CEO pay. The revised IRS Form 990 (see Sullivan Cotter’s summary) will provide new fuel for tax examiners to assess not-for-profit hospitals’ compliance with tax exemption requirements.

Many observers believe that as the health care reform law kicks in and hospitals receive millions of dollars in revenues from previously uninsured patients, regulators will scrutinize and even try to cap hospital CEO pay. Don’t believe it could happen? Think about federal bailouts of financial institutions and subsequent targeting of executive pay.

The lesson for boards: Be sure you’re doing a thorough, objective job overseeing executive compensation and community benefit. Past issues of the Great Boards newsletter include articles on best practices to oversee executive compensation and community benefit, respectively, plus a summary of changes in the IRS Form 990. If your board hasn’t checked its policies and practices in these areas lately, or asked your general counsel or compensation advisor for an independent assessment, now would be a good time.

BP’S LAPSES OFFER LESSONS FOR HOSPITAL GOVERNANCE

Culture didn’t match BP’s commitments

This week’s Wall Street Journal contains a chilling account of how oil giant BP PLC pursued profits and efficiency while giving lip service to the safety of its drilling operations. Hospitals and health systems can take away some lessons for their board oversight practices.

BP had an accident prone history when Tony Hayward took over as CEO in May 2007. According to the Journal, Mr. Hayward repeatedly said “he was slaying two dragons at once: safety lapses that led to major accidents, including a deadly 2005 Texas refinery explosion; and bloated costs that left BP lagging rivals Royal Dutch Shell PLC and Exxon Mobil Corp.”

Hayward said he would focus “like a laser” on safety and simultaneously improve BP’s operations. In October 2007, he created a management system designed to enforce safety standards consistently across the organization. Yet, the Journal’s in-depth examination of BP “shows a record that doesn’t always match Mr. Hayward’s reports of safety improvements.”

The article quotes Jordan Barab, deputy assistant secretary at the Occupational Safety and Health Administration: “They claim to be very much focused on safety, I think sincerely. But somehow their sincerity and their programs don’t always get translated well into the refinery floor.”

BP’s own documents and outside evaluations documented concerns that BPs culture put safety second. An internal BP presentation noted that in 10 “high potential” incidents at BP facilities in the Gulf in 2007, a common theme was “a failure to follow BP’s own procedures and an unwillingness to stop work when something was wrong.”

“Where was the board?”

That question, not addressed by the Journal, will clearly be asked in the days and months to come, as it always is following a seemingly avoidable corporate failure. It’s too early to know whether directors had access to information that could have alerted them to safety problems and if so whether they acted appropriately. However, a number of aspects of BPs governance are eerily reminiscent of the Enron board before that company self-destructed.

On paper, BP appears to have great governance. The board includes nonexecutive directors with august backgrounds. It has adopted governance principles, and it posts extensive information about governance activities on its website. The board has a committee on safety, ethics and environment assurance with a non-executive chairman. It holds executive sessions without any staff present.

Yet, in practice, the evidence to date suggests the BP board failed in its obligations to shareholders. The chairman of the board’s safety committee (who only was appointed to the board in February) is an accountant by training who worked in the pharmaceutical field. None of the non-executive directors appear to have a background in industrial safety, although one is a petroleum geologist.

According to BPs website, the board’s safety committee spent considerable time with an independent expert and so should have been aware of concerns about the company’s culture. BP’s own report on the committee’s work says the expert noted many safety improvements, but “it was also recognized that the journey requires investment not only in engineering but in sustaining cultural change and this will take many years to complete.” In addition, the committee’s oversight seems to focus on refinery operations. There’s no indication on BP’s website that the committee spent much time looking at the safety or disaster plans for drilling operations.

Lessons for hospital governance

It’s too soon to render a verdict on the performance of the BP board. Future investigations will determine whether BP’s directors vigorously questioned management and expressed a healthy skepticism over whether top management was truly supporting a pro-safety culture.

However, BPs travails suggest important lessons for governance of hospitals and healthcare delivery systems. Three in particular stand out:

1. A board quality committee needs a true expert in medical quality and patient safety. Just being a dedicated community member or accomplished business executive or even a physician is not sufficient. Quality assurance and safety management are discrete professions and areas of expertise. When directors lack sufficient knowledge in a subject area, they can become overly dependent on management and may be reluctant to push back hard enough.

2. A board quality and safety committee must have information on the organization’s safety culture, not just quality indicators. Culture determines whether written rules are followed or ignored. It appears that BP workers who had serious concerns about safety were reluctant to stop risky operations. In a hospital’s operating room, would nurses stop a surgeon who failed to complete pre-surgical checklist? Would physicians step forward to discipline a marginally performing colleague? To know, hospital directors need quantitative information on the organization’s safety culture, such as survey and benchmark reports provided by AHRQ. They also need feedback from the front lines, gleaned for example by accompanying senior management on patient safety rounds.

3. Directors must have the will to challenge management and clinicians when necessary. While expertise and transparent information are necessary for effective governance, they are not sufficient. Directors have to be willing to speak out when they believe that there is insufficient attention to quality and safety priorities. Effective governance means the board does not accept what it is told without question.

The incentives of healthcare reform will make it even more imperative that hospital and health system boards act as guardians of the public’s interest in safe and high-quality clinical care. The Patient Protection and Affordable Care Act is driving hospitals and health systems to reduce costs and improve efficiency to an unprecedented degree. These initiatives are necessary and appropriate but may increase risk.

No hospital CEO or chief medical officer knowingly takes action that will harm a patient. Then again, it’s unlikely any BP executive thought his actions would lead to the explosion of the Deepwater Horizon, leaving oil spewing into the Gulf of Mexico.

The job of the board is the same no matter how committed and competent its executives are. Effective governance requires diligent and independent oversight and the courage to hold management accountable.

Barry S. Bader, Publisher, Great Boards

President, Bader & Associates

Good Governance Practices for Hospitals — from Great Boards

Is the Board Increasing the Organization’s Risk of Criminal and Civil Penalties?

That’s the provocative title of the Health Care Compliance Association’s Audit & Compliance Committee Conference, scheduled for May 20–21, 2010 in New York City.

According to HCCA, “in the current enhanced enforcement environment, a board member’s responsibilities don’t end with due care.  If a compliance failure occurs, the organization’s penalties could be substantially higher if the board can’t demonstrate that it is knowledgeable about the content and operation of the compliance and ethics program.”

Conference topics include:

  • The fundamentals of healthcare accounting and compliance
  • Key healthcare compliance risk areas
  • Tax exemption challenges
  • Building an effective relationship with internal audits
  • Compliance risk assessments
  • Crisis management

For information, go the Great Boards website or to http://www.auditcompliancecommittee.org/ or call 888-580-8373.

You can also find summary of new compliance requirements for tax-exempt hospitals, prepared by the law firm of Hogan & Hartson, on the firm’s website.

Spring Issue of Great Boards is Available

The spring issue of the Great Boards newsletter is available on the Great Boards website.  Here’s a summary:

The Board’s Role in Compensation Oversight for Employed Physicians

In August, 2009, Covenant Medical Center of Waterloo, Iowa, agreed to pay $4.5 million to settle allegations of healthcare fraud arising from its financial relationships with five employed physicians.  The Covenant case has drawn increasing attention to how hospitals should determine appropriate compensation for employed physicians, and how hospital boards should oversee physician compensation.  We consulted an expert, Dan Grauman, president & CEO of DGA Partners of Philadelphia.  DGA’s consultants help healthcare organizations and their legal counsel to document and determine fair market value of physician compensation, and to structure equitable compensation for employed physicians.

“Boards should consider forming Physician Compensation Committees,” says Grauman. “They need to develop a physician compensation policy, including specific guidelines on the process of determining appropriate compensation for each and every physician.  The committee should also set policies pertaining to the actual physician compensation models, in terms of mechanisms used to compute compensation. Once the board committee has developed guidelines and standards, they should be reviewed annually for consistency with fair market value.  If certain physicians appear to be paid more than fair market value, the committee should ask whether there are reasons that explain these anomalies, or else require plans to correct the situation.”

Applying Sarbanes Oxley to the Board’s Quality Oversight Role

Could applying key elements of Sarbanes-Oxley to hospital boards’ responsibility for oversight of clinical quality improve the board’s effectiveness? The idea has merit, argues David B. Nash, MD, MD, Dean, Jefferson School of Population Health and an expert on quality who has chaired a large health system’s board quality committee.

In this commentary, Barry Bader draws on Nash’s suggestion and offers eight SOX-styled practices that could enhance board oversight of quality.  Food for thought.

Focusing Boards on the Right Quality Measures

Hospital and health system boards are being overwhelmed by a multitude of quality indicators.  Some liken the situation to the biblical Tower of Babel.

Great Boards editor Elaine Zablocki interviews leaders about how they are rethinking the most important quality measures for boards to review.  Among the major themes she’s hearing are these:

  1. Boards are replacing narrow measures with indexes and “big dots,” such as severity-adjusted system-wide mortality, designed to capture a great deal of information in a single number.
  2. Measures are more specifically linked to the strategic plan. The largest health systems are defining system-wide areas of quality focus, while also encouraging regions and hospitals to develop independent plans and metrics for specific improvements within those areas.
  3. Increased emphasis is being placed on reducing preventable injuries and deaths.
  4. Boards are asking for quality measures to be displayed in more powerful dashboard formats that combine increased information with a simpler graphic format.

Download the new issue of Great Boards now.