A recently released study of hospitals and health systems found differences in the way for-profit and not-for-profit and government institutions handle governance issues.
The study, co-authored by the American Hospital Association and the Ernst & Young accounting firm, polled more than 2,000 hospital board chairs and chief executive officers nationwide. It showed that issues ranging from how trustees are selected to what is expected of management can differ substantially depending on the institution's mission. The study also outlined goals for boards of directors hoping to achieve "visionary" governance.
Some governance experts say the 64-page study could chart a future path for boards, but others say it illustrates some of the more vexing political problems in governing a hospital or health system.
James Rice, president of the La Jolla, Calif.-based Governance Institute, said, "The biggest contribution made by the study was that boards are going to be held more accountable, and they need to work on becoming more focused."
While the study did not compare current and past performances, it did note that boards should study a broader range of issues to optimize performance and react more quickly. It added that materials and educational courses offered to board members should be more concise.
Investor-owned hospitals and systems appear to be leaders in scrutinizing data, the study found. For example, more for-profit boards review patient satisfaction, mortality/morbidity, unscheduled admissions and employee attitude surveys than their government and not-for-profit counterparts do.
But hospitals and health systems that studied organizational performance tended to give the greatest weight to numbers, such as overall operating statistics, budget performance, financial statements and capital planning. They also evaluated CEO performance, primarily based on an institution's financial performance, followed by strategic vision and physician relations.
But only 49% of local hospital boards set compensation for their CEO, and only 42% were responsible for making appointments. Much of the decisionmaking had been ceded to the parent board of the overall health system.
Although local boards may not have great control over their CEO, a large majority of CEOs were allowed to negotiate managed-care contracts, with 65% retaining such power -- a finding that surprised the study's authors.
But the Governance Institute's Rice observed that this finding is consistent with the fact that contracts tend to be regionalized. "Everyone is pretty much sanguine that healthcare is a regional, if not local, phenomenon," he said.
The selection of trustees also differs between for-profit, government and not-for-profit institutions. While all three emphasized the importance of matching trustees' and hospitals' values and choosing trustees who represent the community, not-for-profits' top priorities were financial acumen and enough time for the job.
"These findings may reflect the view by not-for-profit organizations that competing . . . requires decisionmakers with the financial and business acumen to equal that of their investor-owned counterparts," the study said. It added that the not-for-profits' greater emphasis on having enough time suggests the need to streamline decisionmaking.
More than half the for-profits considered public relations important, compared with only 35% of not-for-profits. This suggests the former "may have a keener sense of the importance of positive public relations and strong advertising campaigns on stock prices and competitive advantage."
Among for-profits and not-for-profits, the least important skills in trustee selection were knowledge of the insurance industry, legal skills and information technology, even though the former and latter are critical healthcare issues. Government hospitals gave a low ranking to the knowledge of clinical practices, which the study said may reflect the way medical staff incentives are designed at such facilities.
Gary Roberts, assistant professor at Kennesaw State University in Marietta, Ga., and director of information for its corporate governance center, said selecting trustees based on general rather than specific skills is sound.
"I'd much rather have (on a board) a generalist who understands business strategy and can give advice across that spectrum because the board itself is going to hire executives who are accountable for specifics," he said.
But Rice said boards will have to bone up in some of these areas, particularly information technology. He predicted that board composition will begin changing soon to include trustees with more specific skills.
Indeed, 30% of board chairs polled said it is very important to essential that their organizational structure be improved, compared with only 17% of CEOs.
The study suggested 15 "leading practices" to improve a board's performance, among them communicating more effectively, holding management accountable for its actions, gauging systemwide performance based on specific standards, creating expertise profiles to use in selecting trustees, identifying trustees' training needs and developing an annual training budget, and evaluating trustees annually.