August 28, 2012
This Health Law News article is Part II in a series discussing the new governance study, "Governance in Large Nonprofit Health Systems: Current Profile and Emerging Patterns." Part 1 - Executive Summary was published in Hall Render's Health Law News on August 8, 2012. The remaining articles in this series will cover governance benchmarks, key findings and the potential significance of hospital and health system boards, exceptional governance features of the participating systems and key recommendations.
Public and Private Scrutiny of Hospital and Health System Governance
In Hall Render's August 8, 2012 Health Law News article, Rex Killian, President of Killian & Associates ("K&A") and Of Counsel to Hall Render, provided an Executive Summary of a major study that had just been completed by Lawrence Prybil and his research team, including Killian, of the board structures, processes and culture of the boards of large, nonprofit health systems in the United States. Hall Render was a sponsor of the study. The full Report is available here.
Hospital and Health System CEOs and board members might be asking themselves, "Why do we need to examine our governance practices? What is the purpose? Why is there so much scrutiny on hospital and health system boards today? We are doing just fine the way we have always conducted the board meetings and recruited board members, so why change?" The study was designed to answer these questions and provide CEOs and boards with information that can assist them in assessing and enhancing board effectiveness.
The facts are that the public and private scrutiny of health care governance has been intensifying for the past several years - led in large part by the Internal Revenue Service, the Independent Sector, Bond Rating Agencies, Health Reform advocates and several Blue Ribbon Panels and research studies. While the focus on the nonprofit health care sector has not yet reached the level that it did in the public sector following the 1990s corporate scandals that led to the 2002 enactment of Sarbanes Oxley legislation, the health care sector is no longer far behind. While several governmental and private agencies have weighed in on what they believe to be the core features of effective governance, scant research has been available on the governance features of boards of large health systems.
If you are a CEO or on a board of a hospital or health system that is not a member of a large health system, you might be asking how this relates to your board. As you already know, the nonprofit health care sector continues to rapidly consolidate. As the Report notes, the number of multi-unit health systems (governmental and private) increased from 311 in 2000 to 427 in 2010 - an increase of 37% in a decade. During the same period, the proportion of nongovernmental hospitals affiliated with nonprofit systems increased from 53% in 2000 to 65% in 2010. Collectively, the 14 systems in the study include 460 (or roughly 25%) of the 1,876 nongovernmental hospitals affiliated with private, nonprofit systems. Because of the factors driving increased consolidation, most, if not all, hospitals either have considered or will consider affiliation options with larger health systems. Thus, understanding the governance practices of large health systems, as potential future partners, is imperative.
Given these dynamics of "growing interest in the responsibilities and performance of governing boards in all sectors, advances in formulating benchmarks of effective governance, and limited research-based knowledge about governance in large nonprofit health systems" [Report, p. 2], the purpose of the study was to examine board structures, processes and cultures and compare them to a set of contemporary and scoreable benchmarks of effective governance in order to:
Increase knowledge and understanding of governance in large health systems;
Identify areas where the governance of a health system and its hospitals could be improved [See Section IV of Report];
Provide hospital and health system CEOs and boards with practical information that could assist these leaders in assessing and enhancing board effectiveness and efficiency [See Section III of Report]; and
Identify and describe some examples of "exceptional governance features" that have been adopted by the participating systems [Appendix B of Report].
In light of these objectives, the Report's findings and recommendations should be of interest and help to the boards of all hospitals and health systems. In upcoming articles, K&A and Hall Render will discuss (a) governance benchmarks that were developed to evaluate the participating boards and how they could be used for an effective hospital or health system board evaluation, (b) key findings of the study and their potential significance to hospital and health system boards, (c) some of the "exceptional" board features of the participating systems and (d) ways your board might pursue the adoption and implementation of the key recommendations.
If you have questions regarding the study, please contact:
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