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THT's Governance Thought Leadership Series

2019 Hospital Board Governance Trends

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For nearly a decade, the U.S. health care industry has been undergoing a transformation driven by the passage of federal legislation, a renewed focus on care quality and patient safety, new entrants to the market, advances in technology and more. In response to the changes many hospitals are merging, affiliating or developing new partnerships to better position themselves within the newly formed landscape. Along with changes to organizational structure, the responsibilities and structure of hospital boards are also shifting. More is expected of boards and accountability has increased. As hospitals have expanded into systems and networks, the resulting organizations must clearly define how the various boards of partnering entities will operate. As a result, governance structures and responsibilities are being redefined to eliminate redundancy and promote efficiency and responsiveness.

While survey results don’t indicate that respondents are experiencing or anticipating changes in governance structure or responsibilities, it is vital that trustees be aware of the governance changes that are happening nationally. Trustees cannot afford to be surprised when change confronts them. They need to anticipate the potential for change, consider how they might respond, discuss potential consequences and chart a course for ensuring the organization’s viability.

What’s Behind Governance Change

The shift from a volume-driven payment system to a value-driven one based on quality, outcomes and cost-management has prompted greater coordination and integration of care between providers. To expand their range of services and improve their ability to coordinate care, many hospitals have acquired physician practices, hospice organizations and other providers. Larger organizations have merged or acquired other organizations to increase their size and achieve the economies of scale that will allow them to benefit from big data, invest in information technology infrastructure and assume risk under new reimbursement models. Smaller independent hospitals have partnered with larger hospitals or health systems to avoid closure and/or expand their ability to offer essential services to their communities. Many partnerships between organizations began at local and regional levels but have now advanced in size to become transactions that result in multistate organizations.

In 2018, 3,231 community hospitals in the United States were in a system, an increase from 3,198 in 2017. The number of community hospitals in a network also increased, from 1,677 in 2017 to 1,689 in 2018. (*The American Hospital Association defines a system as a multihospital or diversified single hospital system. A network is defined as a group of hospitals, physicians, other providers, insurers and/or community agencies working together to coordinate services.)

According to Kaufman Hall, “Texas is the most active state thus far in 2018, with five announced transactions, including two announced transactions in the third quarter. In 2017, Texas ranked third overall in terms of merger and acquisition activity with eight deals.” 3 A pending merger between LifePoint Health and RCCH health care Partners is among the largest deals, involving 84 non-urban hospitals across 30 states. The merger includes seven hospitals in Texas. The acquisition of Iasis health care in 2017 made Steward Health one of the largest operators of private hospitals in the U.S. Its 36 hospitals include six hospitals in Texas and one in Arkansas. 4 More recently announced, is the planned merger between Texas’ Memorial Hermann Health System and Baylor Scott and White Health.

What Are the Governance Implications?

As the number and complexity of systems have grown, the challenge of effectively governing multiple subsidiaries has grown with them. Agendas become unwieldy, issues and decisions are more complex, and oversight and resources can be stretched thin. Further, the interests or decisions of subsidiary boards may not align with the direction or vision of the system. 7 While not all hospitals have been impacted by this shift, CEOs and board chairs participating in a governance survey in New York state agreed that hospital/system alignment will continue. Seventy percent of the CEOs and 64 percent of the board chairs believe that the role of stand-alone boards will shift from decision-making to advisory as systems seek to overcome challenges and improve governance effectiveness.

In order to fulfill the board’s fiduciary duty of care, boards need to periodically examine whether their current governance structure and processes allow them to carry out their responsibilities efficiently and effectively. At the core of this concern is the impact rapid change and increasing complexity can have on governance. Boards need to ask themselves whether they can continue to make well-informed decisions, maintain adequate oversight and raise board members’ engagement to keep pace with transformation. There is a legal expectation that boards review their governance size and structure to ensure they adequately support the board’s ability to carry out its work. This expectation holds true whether the hospital remains independent, but especially if the organization expands its size, network or affiliations. 5 Despite this imperative, the American Hospital Association’s 2014 National Health Care Governance Survey Report found a low rate of board engagement in examining emerging governance models and considering how they might apply to their organization.

In his white paper “Healthcare Governance Amidst Systemic Industry Change: What the Law Expects,” Michael W. Peregrine identifies four areas in which transformation might affect the board’s governance structures and practices, advising that boards should regularly examine these areas and assess whether the board needs to make changes as a result.

  • Board calendars and agendas, which are likely to be impacted by an increasing number of transformation-based issues.
  • Levels of authority and control power retained by system parent boards over subsidiaries and joint venture investments.
  • Management/board communication and reporting relationships, which can be compromised by the intensity and complexity of health care transformation.
  • Committee structures and charters, whose adequacy may be strained by the challenges of transformation.

The Advisory Board’s Role as a Strategic Asset

The issue of decision-making authority at the local level is one that trustees of stand-alone hospitals commonly wrestle with when contemplating a merger, acquisition or partnership. However, most boards are willing to give up some autonomy to ensure their organization’s survival. 6 The challenge in shifting a board’s role to an advisory one, is making sure that local boards are recognized and valued as strategic assets. Members of local boards are most often recognized leaders of the community. They are typically the individuals most familiar with the hospital, community and its health care needs.

Governance Perspectives from Three Texas and Arkansas Executives

Three Texas and Arkansas hospital executives were interviewed in conjunction with the survey to provide their valuable “boots on the ground” perspective on a couple of key issues identified in the survey results. Jeanne Bamburg, FACHE, CEO, Bayshore Medical Center (HCA), Ron Petersen, President and CEO, Baxter Regional Medical Center, and Jayne Pope, RN, FACHE, CEO, Hill Country Memorial Hospital offered the following thoughts on current governance trends.

The Greatest Governance Challenges Confronting Boards

When asked what they consider to be the biggest governance challenges boards will face in the next three years, Bamburg, Petersen and Pope all identified adapting to a rapidly changing health care environment at the top of their lists. As Pope observed, board members have “signed up” for a hospital board, but health care in general is becoming less about inpatient care and more about outpatient care and the delivery of care outside the four walls of the hospital. Petersen noted that board members will need to shift their focus, as metrics and strategies that used to be important are no longer as relevant or effective in an environment in which everyone is focused on keeping patients out of the hospital. He also called attention to the challenges of understanding and advancing the role of technology in health care.

As the environment changes and hospitals strive to keep pace, board members can fill a critical role and serve as key assets to their CEOs. Bamburg observed that even exceptionally skilled CEOs are challenged to find time to step back from day-to-day operations to think creatively. Together with the CEO, she noted that board members can contribute fresh perspectives that help leadership think differently about the future. But, they can’t help unless the CEO shows them their value and makes sure they understand the issues.

The Impacts of health care Transformation on the Board’s Work

When asked about the impact of health care transformation on the board and its work, Petersen pointed to the growing complexity of governance and its processes, including the increasing amount of preparation and meeting time required of board members. To maximize the board’s efficiency and effectiveness, Pope cited her board’s use of a consent agenda and trust in the work of its committees for allowing it to focus on the most important issues. Attention is also paid to structuring the board’s meeting agenda so there is a healthy balance between a focus on the financials and quality outcomes and patient experience.

Preparing for Any Eventuality

Like many independent hospitals, Petersen and the board of Baxter Regional Medical Center are fully intent on remaining independent. However, they are also well aware that today’s environment is characterized by financial pressures and hospital and health system consolidation. Petersen observed that remaining independent will mean recognizing the point where the hospital may be poised to overstep the line between serving as a community asset and becoming a community drain. Working with a local accounting firm, the board has developed a financial strength index that it continually monitors. The index includes metrics that compare Baxter’s current and past performance as well as comparing its performance with the marketplace. Financial “trigger points” are included to prompt board discussions for continued long-term medical center viability and service to the community.

Recruiting and Engaging Board Members

Many of the members participating in the survey indicated they must recruit aggressively or have difficulty recruiting new board members. This is particularly true for rural communities, which offer smaller pools of candidates. Many of the associations’ members use a skills matrix to identify the professional knowledge and experience the board needs to recruit for. Pope’s board at Hill Country Memorial Hospital also conducts a self-evaluation in which each board member assesses or rates her or his personal strength in fulfilling identified skills; and everyone is screened for their alignment with the hospital’s values. A diversity matrix (age, gender, race/ethnicity) is then layered over the needed skills. Petersen observed that it is easier to attract older community members with the desire and time to give back, than it is to draw in younger, successful and experienced individuals. Adding to recruitment challenges are the homogeneity of many small communities as well as concern for conflicts of interest with businesses in small communities.

Bamburg puts action behind her belief that it’s the CEO’s responsibility to use board members’ potential, get them involved and keep them engaged. At the beginning of the year, she gives her board members a checklist of multiple ways they can be involved. Examples include attending the morning huddle, senior executive rounds, suiting up and observing the operating room, attending a department meeting, and/or participating in employee recognitions. This past December three of her board members rounded with her on Christmas morning.

While her board has examined and identified its core competencies for today, Pope questions what competencies they will need in the future, and who the board should be recruiting now to be ready to meet those needs. Like many boards, her trustees have been there for the community. They will need to think differently to move their organizations from legacy providers to nimble entrepreneurial organizations ready to meet the demands of the future.

QUESTIONS FOR BOARD DISCUSSIONS

  1. How are changes in the health care environment impacting the board’s work and its capacity to fulfill its duty of care?
  2. Has the board examined its governance structure and processes within the past two to three years? What steps should the board take to maximize its efficiency and strategic focus?
  3. Are board members well-informed and engaged in the board’s work? What steps can or should the CEO and/or board chair take to strengthen board member understanding and engagement?
  4. What skills, experience or attributes should the board be recruiting for to be prepared for a different future?
  5. Understanding a commitment to remain independent, has the board identified indicators designed to ensure the hospital’s long-term independence and trigger points for revisiting that decision?
  6. Has the board discussed the trends in emerging governance structures and responsibilities, and how they might apply to their governance structure?

This resource was made available with thanks to Via Healthcare Consulting. Cindy Fineran and Erica Osborne developed this resource with assistance from Vone Yee. Via Healthcare Consulting offers a wide range of governance consulting services to meet the needs of hospitals, health systems and state hospital associations. Experienced, energetic and innovative, Via consultants focus on developing solutions to meet client’s needs – finding better ways to do things differently. For more information or to contact Via Healthcare Consulting, visit www.viahealthcareconsulting.com.


Interested in providing content for THT’s Governance Thought Leadership Series? Contact Jessica Hoefling at jhoefling@tha.org.

Opinions expressed in this publication do not necessarily reflect official policy of THT.