An increasing number of hospitals are allowing multiple "insiders," or hospital employees-typically senior managers or physicians with administrative duties-to sit on their boards. This has led some healthcare observers to wonder whether hospital governance is getting too insular.
The finding is from the latest hospital governance survey conducted by the Governance Institute of La Jolla, Calif. MODERN HEALTHCARE obtained a copy of the survey results last week; they are expected to be released publicly this week. The results are based on a survey of 156 not-for-profit hospitals done in 1998.
Some 29% of the respondents said they have two or more insiders on their governing boards. That's up significantly from 1996, when only 15% of the surveyed hospitals reported two or more insiders on their boards.
Fifty-five hospitals participated in both the 1996 and 1998 surveys, the institute said. The survey is conducted every other year.
Despite the jump in insiders, hospital boards continue to be dominated by community volunteers, who held an average of 72% of the seats last year (See chart). Insiders held an average of 7% of board seats.
Still, the rise in the number of hospitals with multiple insiders on their boards is worth noting, said Bryan Weiner, an assistant professor in the department of health systems management at Tulane University in New Orleans. Weiner conducted the survey for the Governance Institute.
"My sense is there's a need for greater linkage between strategy and operations, and the board is being used as a structural link between governance and management," he said.
Jerry Peters, a healthcare lawyer with Latham & Watkins in San Francisco, suggested that some hospitals have a less deliberate reason for putting more insiders on their boards: Fewer members of the community will volunteer.
"There's simply too much demand on their time," he said.
In 1996, the Internal Revenue Service made it easier for not-for-profit hospitals to add insiders to their boards by declaring that up to 49% of board seats could be filled by insiders and physicians. Previously, 20% was the accepted limit (Oct. 7, 1996, p. 32).
The revision was meant to let hospitals include more key people in decisionmaking while letting community members retain majority control.
In theory, community-controlled boards prevent not-for-profit hospitals from spending their money on private, rather than public, interests; a board controlled by too many insiders could more easily do otherwise.
Weiner and other observers said the IRS policy revision is a significant factor in the trend toward additional insiders. "It's predictable and right in line with what I would expect," said Chicago-based governance consultant James Orlikoff.
IRS officials declined to comment on the Governance Institute's findings.
The downside to loading a board with insiders is varied.
"Too many management staff on the board tends to give too much of an insider's view," Orlikoff said. "It can also be disconcerting to the (chief executive officer), whose staff may be privy to sensitive information, such as his compensation package."
Governance Institute Chairman Charles Ewell noted that most hospital boards have safeguards against insularity, which are rarely imposed on the boards of for-profit businesses.
For example, only 12% of the hospitals responding to the survey have their CEOs serve as board president, chairman or vice chairman.
"In the (general) for-profit corporate world, CEOs are the board chairmen nearly 80% of the time," Ewell said.