Despite a long-standing tradition of docs on hospital boards, it is fast becoming the single most hot-button issue in governance circles.
In a study released last month analyzing the causes of a healthcare economic crisis in that state, the New Jersey Commission on Rationalizing Health Care Resources noted that the hospital-physician relationship is unique to other sectors of the economy in that one party uses the resources of another but bears no direct financial responsibility. This peculiar relationship produces many opportunities for the interests of physicians and hospitals to be misaligned.
As a result, the conflicts of interests posed by physicians on boards are many. Hospital and physician financial interests are frequently at odds, most obviously under the Medicare payment system which, simplistically, penalizes hospitals that spend too much time with patients but rewards doctors who do. There is also the question of the clear lack of independence of physician board members who are employed or affiliated with a hospital at a time when the Internal Revenue Service is insisting that a majority of a not-for-profits board be independent. In addition, board members comprising the audit and compensation committees of boards should be completely independent, which would likely rule out most physician board members.
Finally and perhaps most blatantly, business conflicts arise as physician entrepreneurs increasingly come into direct competition with hospitals by building competing hospitals or ambulatory facilities. Hospitals complain vociferously that physician-owned facilities cherry-pick profitable service lines from hospitals such as diagnostic imaging, orthopedics and cardiac surgery. These facilities, often owned in large part by physicians, do not generally operate under the same regulatory constraints as hospitals, putting hospitals, as the New Jersey commission notes, at a competitive disadvantage. The governance question then becomes how can a physician run or have a financial interest in a competing business such as an imaging center yet serve on a hospital board?
At the San Diego-based Governance Institutes annual Chairperson & CEO Conference in Henderson, Nev., last fall, two separate roundtables titled Identifying, Addressing and Resolving Board Conflict-of-Interest Issues each quickly focused on the matter of physicians serving on the boards of not-for-profit hospitals. What was abundantly clear in each case after two hours of lively discussion was that hospitals are all over the map in terms of their policies concerning physicians in governance roles.
Doctors are a mainstay on the vast majority of not-for-profit hospital and health system boards, but they are coming under scrutiny from a lot of corners, including the IRS, Congress, state attorneys general and the news media, note experts at the Governance Institute in their newsletter this month.
That is not to say that physicians should not be on hospital boardsthey should bebut with a growing interest in transparency and conflict-of-interest issues in the not-for-profit sector, there are a lot of potential booby traps in identifying physicians that can ably serve in that capacity, the experts say.
Linda Brady, M.D., a psychiatrist and president and chief executive officer of 864-bed Kingsbrook Jewish Medical Center in Brooklyn has been struggling with this issue as her board revamps its bylaws and examines its board policies. Although she technically gave up practicing psychiatry when she took the helm in 1999, as a practical matter, she is practicing all the time, she says with tongue-in-cheek.
Although Kingsbrook was founded by Jews of Eastern European extraction 82 years ago, the neighborhood has seen an influx of emigrants from the Caribbean, including Jamaica and Haiti. As the first gentile, woman and physician CEO at Kingsbrook, Brady was originally backed up by a board of directors that with the exception of one woman was entirely white, male and Jewish, she says. One of the issues then was how to reach out. My whole career has been about inclusiveness, building diverse programs and serving a diverse community, she says. So when I took the reins as president, to have credibility in the community, (I knew) that the board needed to be diversified.
Brady inherited a policy by which the elected officers of the hospitals medical staff were ex officio voting members of the board. As CEO, Brady also is an ex officio voting member of the board, giving physicians a total representation of four out of 18 board members although Bradys dual role as a physician is happenstance, she says.
Kingsbrook is not alone. In a survey of not-for-profit hospitals conducted by the Governance Institute last fall, less than half46%of the responding hospitals said that the chiefs of staff at their hospitals did not serve on the board, says Pamela Knecht, vice president of governance consultancy Accord Limited. Of the remaining, 43% of the hospitals said that the chiefs of staff are voting, ex officio board members and 11% said they are nonvoting ex officio board members. I think the message there is that 46% stated that their chief of staff is not on the board at all; I think that makes sense, Knecht says. Its OK to invite the chief of staff to attend board meetings, but I think it can be difficult to have a chief of staff be a voting board member because they often believe they are elected to serve the physicians, and then there is an inherent conflict with that role and their fiduciary responsibility as a board member.
Having elected medical staff officers on the board creates a delicate situation, Brady agrees. On the one hand Brady says she believes its very important to have the voice of physicians on the board as they bring a specific and different viewpoint. On the other hand, I think there is an inherent and potential conflict when physicians are on the board because as ex officio elected representatives, the medical staff is electing them because they want them to represent them and yet when that physician goes into the board room, he is (legally) responsible to act in the best interest of the institution. So I think its a difficult role for them to navigate.
The Kingsbrook board likewise is examining other industry trends regarding physicians on boards; for example, doctors who are employed by or affiliated with the hospital in question. Brady recalls that at the Governance Institutes fall conference roundtable discussionwhere she was one of three panelistssomeone in the audience volunteered that short of having the medical staff elect someone to the board at their particular organization, the board asks the medical staff for recommendations and then interviews them and decides based in large part on potential conflicts of interest. We are not at that point, but we are looking at trends in the industry and how best to seek (physician) input and make sure the medical staff is represented and the physicians voice is represented, but also being mindful of these other inherent tensions and potential conflicts, Brady says. Their voice is very important, but it is a delicate line they have to walk.
The IRS has weighed in on the issue of boards with voting ex officio directors or even physicians who are on staff or affiliated with a hospital, limiting the number of insiders to 49% of the board membership for tax-exempt organizations, Knecht says. Related to that, the IRS requires board members on the compensation committee to be independent, disqualifying medical staff, who are considered insiders.
That said, Knecht says, Absolutely (hospitals should have physicians on boards), we just need to be more careful about it than we have been in the past. That means making sure youve clearly defined what independent is, that you understand the definition of an insider, and that you have created disabling guidelines. The definitions, she adds, are best employed beforehand to decide whether a physician should even be serving on a board. For example, a common disabling guidelinea rule that automatically disqualifies a director from the boardwould strictly prohibit board members from having a competing financial interest, such as ownership in a nearby specialty hospital or imaging center. However, in some small communities, it could be difficult to find physicians completely clean of such conflicts, she notes.
A disservice to physicians who serve on boards is that we dont always explain ahead of time what the fiduciary duties arewhat they really mean, Knecht adds. She says she cant count the number of times she has been in situations where the fiduciary duties of board members are explained and physicians come up afterwards panicked when they fully understand the standard they are going to be held to, and usually it is the chief of staff.
My personal opinion is if we did a better job of explaining what it really means to serve on a board, some physicians would opt out of board service right at the beginning because they would understand that they are too conflicted, Knecht says.
Knecht acknowledges that hospitals and health systems are all over the map on this issue, but many more organizations are trying hard to do the right thingasking questions, doing board retreats and trying to form policies regarding physician engagement and leadership roles.
Kingsbrook is asking questions. One thing Brady says she would like to explore is how to find physicians to serve on the board who can provide a clinical and physician viewpoint and not have any conflict in relation to the medical center. That might not be the tall order it sounds like even in New York. Kingsbrook could find physician candidates who practice in Manhattan or retired physicians, she notes. I think its a matter of looking at the skills on the board and what do we need, Brady says. I think quality is an area for many years that boards have paid less attention to and there is more and more of a push for boards to be mindful of quality. ... There is this emphasis with public report cards for boards to be educated and have a skill set clinically and it shouldnt just be limited to those with an affiliation.