Would it be ethical if a healthcare CEO took time during an official meeting or phone call with an elected official or executive of another organization to promote or discuss issues related to his or her separate private business?
“That would be a breach, or potential breach, of the fiduciary duty of loyalty,” said Douglas Chia, executive director of the Conference Board's Governance Center.
Yet that is exactly what President-elect Donald Trump allegedly did in post-election conversations with a British political leader, the president of Argentina, and Trump Organization business partners from India. Healthcare governance experts fear that Trump's behavior could send a signal to leaders in healthcare and other industries that it's OK to mix their official activities with private economic interests.
“If this is the tone set at the top for the national government, it might make leaders of healthcare assets think they can be more lax,” said James Orlikoff, president of Orlikoff and Associates, a Chicago-based healthcare consulting firm specializing in governance issues. “It would be going down a slippery slope, and that would be devastating.”
In a Nov. 23 interview with the New York Times, Trump admitted raising a private business issue concerning his golf course in Scotland with Nigel Farage, the head of the U.K. Independence Party. He argued he had no obligation to establish boundaries between his role as president and his business interests. In addition, Trump has announced that three of his children will continue operating the Trump Organization's businesses around the world while he makes presidential decisions that could affect its interests in countries such as Russia, Turkey, the Philippines, and the United Arab Emirates.
“The president can't have a conflict of interest,” he told the Times.
The same cannot be said for top executives and board members of not-for-profit and for-profit healthcare companies, who face serious legal sanctions and potential loss of their jobs if they engage in conflicted behaviors, including conflicts that are far less obvious than Trump's.
In July, the University of California Board of Regents tightened its conflict policies after the San Francisco Chronicle reported that UCSF Medical Center CEO Mark Laret was serving on the boards of two companies that have sold millions of dollars worth of products to his hospitals and have paid him millions in compensation. Laret, who argued that his board service made him a better hospital leader and brought financial benefits to his health system, had gotten approval for his board work from his UCSF boss and was not accused of any misconduct.
But the regents changed the rules to require senior executives who want to serve on corporate boards to first explain how the university system would benefit from the work. They said their intention was to address conflicts “actual and perceived.”
Conflicts and potential conflicts involving healthcare leaders have drawn greater scrutiny over the past few years from the news media, researchers, and government agencies, including the Internal Revenue Service. Beyond that, hospital systems have faced big judgments and settlements arising from alleged conflicts in how they paid physicians and other providers who referred patients to their facilities. Such cases include Tenet Healthcare's announced $514 million settlement of kickback allegations in Georgia and South Carolina last month and the North Broward Hospital District's $69.5 million settlement of kickback allegations last year.
In August, the Wall Street Journal reported that 46% of more than 2,300 not-for-profit hospitals in 2014 had at least one board member or officer who had private business ties with the hospital.
And a 2014 JAMA article reported that 19 of 47 pharmaceutical companies studied had at least one board member who held a leadership position at an academic medical center in 2012; a total of 41 AMC leaders held drug company board positions paying an average of more than $300,000 a year. That raised questions about whether these medical center leaders were acting in the best interests of their organizations and patients or of the drug companies. Polls show that the public is greatly concerned about rising prescription drug costs and whether healthcare leaders and policymakers are doing all they can to make drugs affordable.
The Physician Payment Sunshine Act, a part of the Affordable Care Act, requires public disclosure of healthcare manufacturers' payments to physicians. But Trump and congressional Republican leaders have vowed to repeal the ACA, which would wipe out those transparency rules and make it harder to find out about potential conflicts of interest among healthcare leaders.
The boards of healthcare organizations have to decide how scrupulous they want to be in avoiding real and perceived conflicts, Orlikoff said. In his view, there are four levels of compliance.
At the lowest rung, boards can simply tell CEOs they must avoid explicit violations of IRS rules or state law. One step up, they can prohibit behavior that's legal but doesn't pass the smell test. The next rung is they can outlaw conduct that's legal and that withstands media scrutiny but is still arguable. At the highest level, they can order squeaky-clean, best-governance practices that leave no doubt about the leaders' ethics.
Given that there's little or no law or legal precedent governing the behavior of the President of the United States in this area, it's up to Trump—and congressional Republican leaders—to decide what conflict-of-interest standard he will meet, if any.
In healthcare as in presidential standards, Orlikoff said he's surprised by the number of boards of big health systems that have not established clear rules for their executives about paid service on outside boards and other potential conflict situations. “If there's one good thing to come out of (Trump's conflicts), it's that it will precipitate more conversations among boards,” he said hopefully.
Chia agreed. “It's going to sensitize people to these types of conflicts,” he said, predicting that Trump could serve as a reverse role model. “I can't see corporations or anybody trying to say, 'Those rules that apply to the president, we want them to apply to us.' ”
(This story was updated on Nov. 28, 2016.)