As for-profit healthcare looks to heal the wounds from the latest debacles known as HealthSouth and Tenet, the first casualties to be triaged must be financial accountability and governance. There are some signs this is occurring.
Richard Scrushy and Jeffrey Barbakow, who presided over the carnage, are out, the former facing a world of legal hurt and the latter presumably counting his millions, which include a huge severance package rewarding him for his stewardship of an ethics-free regime.
These men led the show, but they had some willing accomplices who allowed things to get out of hand. The governing boards, auditors, stock analysts and investors all were very happy to see huge returns and not very interested in wondering how companies dependent on fixed returns from Medicare and private payers were able to sustain such explosive growth. As one top government official told me, "If you see consistent 15% returns in healthcare, something's not right."
Tenet Healthcare Corp., at least, seems ready to embrace change. It already has decided to add outside members to its board, renounce its policy on outlier payments and adopt a new pricing strategy. Its president, Trevor Fetter, a possible Barbakow successor, has been hitting all the right notes. Importantly, in an interview with our reporter, Vince Galloro (June 2, p. 32), he said, "I suppose the thing that I see again and again and again is that the most dangerous attribute for any company is hubris. Virtually every story that you can find of a fallen company has at its heart some excessive amount of self-confidence. It's incredibly important for companies-and this is something that we're doing at Tenet today-(to be) questioning assumptions."
New rules resulting from the Sarbanes-Oxley Act, a federal law designed to overhaul corporate accounting procedures, are helping along the process of questioning assumptions. Under the rules, publicly traded companies are required to carefully document management's knowledge of internal accounting processes and any problems that could impede accurate reporting. There also are new limits on consulting work done by auditors and requirements for greater communication between independent auditors and internal audit committees.
According to our recent story, even not-for-profits are looking to voluntarily adopt Sarbanes-Oxley (June 2, p. 6). This shouldn't be surprising, given that one of healthcare's biggest scandals-the demise of Allegheny Health, Education and Research Foundation-was a not-for-profit affair. But it is heartening to see organizations responding to what should be universally known as a major crisis of public confidence in corporate institutions.
I was also quite taken with comments made by Karma Bass, the spokeswoman for the Governance Institute. She told Galloro (June 2, p. 4) that hospital trustees she has spoken with are trying harder to set the right strategic direction for their hospital or system and keeping closer tabs on what the CEO is up to.
Trustees are "looking for leading indicators instead of lagging indicators of performance," she said. "They're looking for the indicators that turn yellow or red before the bad thing happens, not after." They are tracking things such as patient-satisfaction surveys, physician contentment, even clinical quality indicators to see how the system is really running.
We could ask whether boards should have been doing those things all along, but that would be quibbling. It's better to say these are positive signs. What should come next is basing decisions on executive hiring, levels of compensation and severance packages on the above-mentioned factors, not short-term financial results.
What do you think?
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