Were still scratching our heads over this one. In what industry other than healthcare would it be acceptable for the chief executive officer of one company to serve on the board of a new company competing in the same industry? But thats exactly the situation with Legacy Hospital Partners, the new for-profit hospital chain launched last month by several former executives of Triad Hospitals (Jan. 21, p. 6).
Legacys board has 14 members, many of whom are well-known double dippers who serve as paid directors on numerous healthcare boards: Uwe Reinhardt, Nancy-Ann DeParle and Gary Mecklenburg.
Reinhardt recently chaired a special commission in New Jersey that looked at the causes of its frail hospital system (Jan. 28, p. 8). One of the problems, according to the final report was issues related to hospital boards governance. In a case of inescapable irony, the report said: Conflicts of interest can threaten the integrity of the governance process. Hospital boards should have strong and explicit conflict of interest policies.
DeParle, a former Triad director like Reinhardt, is a commissioner of the Medicare Payment Advisory Commission, which advises Congress on Medicare payment issues. And Mecklenburg it appears rarely has met a board he wouldnt serve on, even when he was president and CEO of Northwestern Memorial HealthCare in Chicago. Hes the current chairman of the board of directors of Regency Hospital Co., the long-term acute-care hospital chain.
What we didnt expect to see on Legacys board are sitting not-for-profit hospital system CEOs. It has two: David Bernd, CEO of Sentara Healthcare based in Norfolk, Va.; and Douglas Hawthorne, president and CEO of Texas Health Resources in Arlington. In an interview with Modern Healthcare reporter Melanie Evans, Bernd said he doubted there is any potential conflict of interest in running Sentara and serving Legacy. Through a spokesman, Hawthorne told Evans much the same (Jan. 21, p. 7).
At the risk of sounding simplistic, let us point out the potential conflicts: Lets say Bernd learns of a good community hospital on the edge of Sentaras service area thats in need of capital. Does he seek to merge the hospital into Sentara? Or, does he pick up the hotline to Denny Shelton, Legacys nonexecutive chairman, and tell him hes got a lead for Legacy? And if the call results in a deal with Legacy and strengthens the community hospital, did that put Sentara at a competitive disadvantage?
Or lets say one of Texas Health Resources 13 hospitals is struggling and dragging down the systems overall financial performance. Does Hawthorne continue to pump system capital into the hospital? Or, does he recommend that his system consider a joint venture arrangement with Legacy to save the hospital without risking Texas Health Resources capital but benefiting him personally as a Legacy director? Who knows?