The Governance Institute has expanded its biennial hospital survey of health system boards to include a ranking of the nation's 20 top hospital systems based on governance practices.
Officials with the La Jolla, Calif.-based organization say the effort coincides with an increased movement toward evaluating corporate governance in general.
"We've seen a growing interest across the country among hospital board leaders and chief executive officers to strengthen the formality in board development and also strengthen board participation and education," says James Rice, president of the Governance Institute.
Rice says the same interest is occurring in other corporate sectors. Indeed, the impetus to rank hospital systems came from media coverage of governance rankings in other sectors.
The criteria. The top-ranked systems were culled from the Governance Institute's general survey, which was mailed to 274 hospital systems across the country. Seventy-seven systems responded.
For the best governance practice rankings, the participants were winnowed to 35 candidates, which were then surveyed further. The 32 that responded to the follow-up survey were ranked on 10 best-governance practices. The practices are based on guidelines from consultants and the California Public Employees' Retirement System.
In the following section, some of the criteria are compared with the findings from the 77 participants in the general Governance Institute survey.
The 10 best practices are:
* The system's chief executive officer should be the only employee who is a board member, and the CEO should not be board chair. Some 29% of survey respondents said their CEO held the chair or vice chair title on their board, and 33% had two or more system employees serving as board members.
* Board seats should not be reserved for representatives of subsidiaries or specific groups. Forty-three percent of respondents said they reserved seats; 50% of those said they reserved 20% or more of their seats for specific groups.
* The board should have 15 or fewer overall members and six or fewer committees. Sixty-one percent of respondents had boards that contained up to 15 members; 22% had 16 to 20 members; 4% had 21 to 25 members; and 13% had 26 or more members.
* Explicit conflict-of-interest policies should be in place.
* Most of the board's time should be focused on policy and strategic issues.
* The board should periodically review its size and structure to guarantee it is configured for optimum effectiveness. Some 54% of the respondents said they had conducted comprehensive governance assessments, and of those 63% fundamentally restructured their governance processes. However, just 30% of respondents reported a decline in board size in the past two years, and 34% reported an increase.
* The organization should be committed to board education and development. Some 80% of respondents said their directors spent 20 hours or less per year on formal educational activities related to their role. The average was 16 hours.
* CEO performance criteria should be established, and compensation should be linked to the executive's evaluation.
* Board members should be subject to term limits. About 68% of respondents limited the number of consecutive terms an individual could serve, typically to three three-year terms.
* Performance criteria should be established for both the board as a whole and its individual directors.
The systems received one point if they met each criterion and an additional point if they met each criterion in the follow-up survey, for a maximum of 20 points total. The average score was 13.6. The top 20 governance boards had scores ranging from 14 to 18, with an average of just under 15 (See chart).
From antithesis to paragon. The highest-scoring system was Sioux Falls, S.D.-based Avera Health, which operates 20 hospitals in Iowa, Minnesota, Nebraska and South Dakota. Avera received 18 points-two more than any other system. The system runs many hospitals sponsored by Presentation Sisters of Aberdeen (S.D.) and Benedictine Sisters of Sacred Heart Monastery, based in Yankton, S.D.
According to Avera CEO John Porter, his system was considered the antithesis of good governance as recently as the mid-1990s. A board of five members, all of whom were insiders, governed the Presentation hospitals and focused on management rather than strategy.
But when the Presentation and Benedictine orders decided to affiliate their hospitals four years ago (the Avera name was adopted in 1998), a consultant helped them prepare for joint governance. Porter is now the only insider on a 15-member board, and the focus has shifted to strategic issues.
"We're very satisfied with the changes that have been made. We've come a long way in a short time, and we're continuing to finely hone the governance process," Porter says.
In the early 1990s, five-hospital Memorial Health Systems in Long Beach, Calif., may have had an even more awkward structure: 100 community trustees were governing the system. That structure was eliminated in 1993 in favor of a 15-member board. Memorial, ranked 12th in the survey, now has a 13-member board (two seats are vacant) and recruits for specific expertise, such as finance. The board also re-evaluates its governance mission every two years.
"What we had (before 1993) was great, but it's not appropriate for 2000," says Tom Collins, Memorial's CEO. Several hospital acquisitions in the past 10 years have changed Memorial from a local hospital operator to a regional system with annual revenues of $1 billion and $250 million in bond debt.
"The environment has changed so fast that we needed to change with it," Collins says.
Systemwide governance. Before the 1992 merger of Scripps Health and the Scripps Clinic and Research Foundation, an individual board governed each facility in six-hospital Scripps Health in San Diego. The system, ranked 10th in the survey, is now governed by a 14-member board, with seats for two insiders.
"Whoever decided that a single board should govern the system made a brilliant move," says Stan Pappelbaum, M.D., Scripps Health's CEO. "The board spends most of its time on policy and strategy. If it had been the way it was before, it would be paralysis."
Although the Governance Institute rankings indicate excellence in governance practices, they don't necessarily reflect a system's quality of care, finances, management practices or market position. But adherence to the practice guidelines is supposed to strengthen the performance of an organization. According to CalPERS, companies that have good governance guidelines generate an average of $150 million more per year in returns for shareholders.