Slumping stock prices and the quickening pace of change in how providers get paid are testing boards of directors at publicly traded healthcare firms in ways they haven't seen in a generation.
“The healthcare field is going through a transformation,” said Lawrence Prybil, Norton professor in healthcare leadership at the University of Kentucky College of Public Health. “The skills of board members that might have been adequate five or six years ago may not be adequate today.”
Over the past few months, top executives at industry giants TeamHealth, Tenet Healthcare Corp. and HCA Holdings have had to respond to dissatisfied shareholders, often led by activist investors who take large stakes and use their voting power to force changes in corporate governance. Dissident shareholders' major complaint is how those companies have responded to payment reforms, especially at Medicare and Medicaid, which have been underway for the past six years. They want boards that can help adapt more rapidly to the changes.
Old-school hospital and system boards were dominated by finance and merger professionals, said Dr. David Nash, a governance expert who is dean of the Jefferson College of Population Health in Philadelphia. Now, for a board to be capable of helping executives steer a new course means it needs directors who are conversant in how to build accountable care organizations and integrated physician and delivery networks, as well as how to secure community cooperation. “They (need) people bringing tools to help implement health reform,” he said.
That describes to a tee a potential director such as Nancy Schlichting, the retiring CEO of the Detroit-based Henry Ford Health System. She was recruited by hedge fund Jana Partners for an activist effort for seats on the board of hospitalist staffing giant TeamHealth.
Saying that TeamHealth's senior management and 10-member board has made strategic missteps hurting TeamHealth's stock price, Jana nominated Schlichting last month to the company's board. They also recommended former CVS Caremark Chairman Edwin Crawford and a Jana executive.
Schlichting has become familiar with Jana during her more than nine-year tenure on the board of Walgreens Boots Alliance and its predecessor drugstore company. Jana was the 10th-largest shareholder in Walgreens with more than 12 million shares as of Dec. 31, according to Morningstar.