Dr. Lynn Massingale, executive chairman of TeamHealth, and his board of directors had to make some tough strategic calls over the past nine months.
Twice last autumn they rejected merger advances from rival AmSurg to create a giant in physician-staffing services at hospitals and post-acute-care facilities. AmSurg ended up agreeing to merge with Envision Healthcare in June in a $10 billion deal.
Then in February of this year, New York hedge fund Jana Partners bought an 8% stake in publicly traded TeamHealth and demanded three board seats. The activist investors at Jana claimed they wanted to set the company on the right course to improved shareholder value.
Rather than fight a messy proxy battle, the then nine-member board acceded to Jana's demands and added to the board former Caremark boss Edwin “Mac” Crawford and Jana partner Scott Ostfeld. And Nancy Schlichting will join the board in January after retiring as Henry Ford Health System CEO. “We were not in the midst of a board search,” Massingale acknowledged last month when Jana made its overtures.
Welcome to the new era of healthcare governance in the for-profit sector, said David Nash, founding dean and professor at the Jefferson College of Population Health at Thomas Jefferson University in Philadelphia.
Healthcare firms in the for-profit and not-for-profit sectors face tremendous organizational and leadership challenges as they respond to the tectonic changes roiling the industry. Payers are demanding providers move toward value-based reimbursement and away from fee-for-service. That shift creates a need for board members with broad knowledge of the information technology, big data and population health initiatives their firms should pursue to keep pace, Nash said.
Boards at investor-owned healthcare companies face the added challenge of navigating this transformation with powerful investors and institutional investment services looking over their shoulders. “Our industry is in the bull's-eye of change,” Nash said.
The question is how well-equipped are the boards of publicly traded healthcare firms. The answer varies firm by firm.
Every board needs to be constantly asking itself: Do we have the right skill sets at the table that can assist and challenge management while representing the interests of employees and the communities they serve, said Larry Prybil, an author on governance issues and a professor at the University of Kentucky.
Getting there demands frequent training and often an influx of new blood—members with experiences and talents attuned to the changing healthcare landscape, Prybil said.