Hospital boards still dont get it.
Under attack in recent years for ham-handed billing policies, opaque financial reporting, and sloppy conflict-of-interest procedures, hospitals have responded, yet too many hospital governing bodies still seem to be oblivious to the crucial role they play in these hot button issues.
That is one highlight of the Governance Institutes newly published biennial survey of not-for-profit and government-sponsored hospitals and healthcare systems. While boards overall seem to be spending a slightly higher percentage of their time on strategic and quality discussions, it still is not where it should be. What is even more disappointing, according to the report, is that far too many boards have missed the opportunity to safeguard their own work and that of their organization by addressing such issues as conflicts of interest, board member performance standards and chief executive officer succession planning.
While progress has been made, I still think that many boards and CEOs havent yet got the message and taken seriously the need to focus on the issues of institutional integrity, said Edward Kazemek, chairman and CEO of Accord, a Chicago-based governance consulting firm and one of four advisers who contributed to the report.
Under conflicts of interest, many boards have failed to address guidelines that would automatically expel a board member for conflicts of interest, and define board member independence. Although hospitals will boast that they have taken the step to establish the independence of a majority of their board members, most66%have missed a step by failing to adopt a definition of an independent director. (The potential for conflict of interest when a not-for-profit hospital CEO also sits on a for-profit healthcare companys board of directors was highlighted after a state attorney general launched an investigation into renal-care provider DaVita. See story, p. 12.)
Frankly, its a little alarming, Kazemek said. The Catch-22 is that while we know from previous surveys and even this survey, the data show they are in fact finding independent directors, only 34% has a measurable concrete definition. It tells you they dont know what it means to be truly independent because they havent established a policy for what an independent director looks like.
Kazemek said he also was a little nonplussed that more then 30% of the survey respondents said that contrary to recommended practices, they do not take steps to ensure that the Form 990s they file with the Internal Revenue Service as tax-exempt organizations meet IRS standards. If you look further, we know from interviewing CEOs and board members that many boards dont even see the 990s, he said, noting that in the new 990s coming out next year, boards will have to check off a box indicating that they have reviewed the filing. It used to surprise me that only half (of the boards) even knew what a 990 was, Kazemek said.
Another disappointment for Kazemek was that only 29% of the boards surveyed established a written policy indicating how they would deal with physician competition and conflicts of interest. If physician competition threatens a mission of a hospital, he explained, it is incumbent on the board to defend it. The board has the duty of obedience, he said. To me that is not effective governance. Its a systemwide, nationwide phenomenon.
Barry Bader, president of Potomac, Md.-based Bader & Associates and also an adviser on the survey, plays good cop to Kazemeks bad cop. To be sure, there is plenty of room for improvement, especially surrounding the conflict-of-interest issues Kazemek underscores, but that doesnt negate the great strides that have been made, Bader said. You see boards taking their fiduciary responsibilities much more seriously. At the risk of being flippant, a decade ago, a lot of boards couldnt spell fiduciary.
That said, its clear that boards have lots of room for improvement. Some of the toughest nuts to crack are redesigning board meetings to be able to spend more time on future-oriented and policy issues, grappling with standards of conflict of interest and director independence and the practice of evaluating the performance of individual board members, Bader said. To me the story in this survey is not that performance is declining, its that standards are rising.