When Skylight Healthcare Systems, a provider of interactive patient-bedside technologies, announced an exclusive partnership earlier this month with the Paquin Group, a consultant and provider of healthcare retail services, it posed at least the appearance of a conflict for Health Alliance of Cincinnati's top executive.
Kenneth Hanover, president and chief executive officer of six-hospital Health Alliance, serves on the board of directors of privately held Skylight. And although neither Health Alliance nor its hospitals have a relationship with Skylight, Health Alliance did consult with Celebration, Fla.-based Paquin on retail opportunities at its still-to-be-built Westchester Medical Center, due to open in January 2009, said Mary Beth Puryear, a Health Alliance spokeswoman. "They have submitted a proposal," she said.
David Schofield, Skylight president, CEO, and chairman, said Hanover has been on the board of the 7-year-old San Diego company for about three years, but no Health Alliance hospitals conduct any business with the company. As a Skylight board member, "He has to maintain objectivity," Schofield said. "If one of his hospital CEOs approached (us), I don't think he would stop it from the hospital's perspective ... but Ken is not going to bring us in. It's just not something he is going to do."
Hanover also played no role in Skylight's new relationship with Paquin, which involves no equity and is strictly strategic, according to Schofield. The two privately held companies are exploring "how we can work together to bring the most value to hospitals to take advantage of retail opportunities," Schofield said. The partnership developed after Paquin asked Skylight to make a presentation at a conference it held last spring, said Tony Paquin, the Paquin Group's CEO.
Skylight's six board members also include Schofield, three investors representing venture capital firms and John Grotting, chairman and CEO of Alliance Medical Corp., a medical-device reprocessor. Schofield said the company does not disclose board compensation, but it "could be a combination" of stock options and cash.
Puryear also declined to disclose Hanover's compensation, saying, "It's not relevant." As part of Health Alliance's broad conflict-of- interest policy, possible conflicts that arise from Hanover's position on Skylight's board are reviewed each year by the governance affairs committee of the system's board of directors. "Any compensation he might receive is in compliance with our policies," she said. However, since the relationship with Paquin and Skylight is so new, the committee has not had time to review it. "If there is any conflict, then he would do what is appropriate," Puryear said.
Board appointments at outside companies frequently pose possible conflicts of interest for hospital executives, but they "are not necessarily fatal conflicts," said Mark Pastin, president of the Council of Ethical Organizations, a not-for-profit association with 80 hospital members in its Health Ethics Trust division. Conflicts can usually be resolved when board committees composed of outside directors oversee the executive's conduct as a member of another company's board, and set boundaries on participation.
Compensation also is an issue that should be important to the committee overseeing the CEO's outside board activities, according to Pastin. "Stock options make it more complicated. They are probably worth nothing now, but they could be worth tens of millions if there is an IPO in the future and it gives the CEO incentive to encourage an IPO," Pastin said.