In the Boardroom

Building A Bolder Board–– and Learning To Like It

By Terese Hudson Thrall

In today’s complex and closely scrutizined health care environment, trustees must bring expertise and independenceto their roles. That’s good for hospitals and for CEOs.

The extreme pressure that not-for-profit hospitals are under requires a new playbook for their boards—they need to be involved in strategic issues and they need to lend their expertise in ways that will improve operations.

“Boards are more engaged,” says governance consultant Barry Bader. “The unforgiving payment and competitive environment have increased the risk of business decisions, and external scrutiny has underscored the importance of board oversight.”

James E. Orlikoff, a governance consultant and hospital trustee, says the mandate is clear. “Not a week goes by that there’s not a front- page story about a board doing something wrong or being challenged,” he says. “People who would have stared at you blankly if you wanted to talk about good governance five years ago can now talk to you about fiduciary duty and board oversight of CEO compensation.”

While hospital board chairs around the country say their trustees—who often also serve on or report to corporate boards—are aware of the heightened scrutiny by Congress and by state attorneys general, the primary motivation for changing how they operate is simply to improve the organization.

That was the case at Presbyterian Healthcare Services, an eight-hospital system in Albuquerque, N.M., ham- pered by a cumbersome, 24-member board. In 2001, the board was cut to 11, keeping only seven of the original members. Trustees also got new marching orders: Take personal ownership of board issues. “We wanted to embrace the Baldrige National Quality Program criteria and we couldn’t do that with old-style governance,” explains board chair Larry Stroup. The old board often heard management reports, but didn’t get into discussing the real business of the hospital system. “No one had individual ownership of the issues,” he says. “Now every member has ownership of certain aspects of what is going on; it’s their board and their system. The board really debates the issues and holds management accountable for results.”

In one recent example, trustees successfully pressed management to be bolder in the construction of a new hospital northwest of Albuquerque, a fast-growing and underserved section of its market. The board encouraged management to spend more money and work in a shorter timeframe, and pledged its help with getting the capital to do it. That same advice from the 24-member board would not have carried the same credibility with management, says Stroup. “These are A-level players with a high level of knowledge and expertise.”

President and CEO Jim Hinton says the new board is better able to embrace the strategic focus of the organization. Currently, that means pursuing the Malcolm Baldrige award, working to improve patient safety and maintaining an AA bond rating. Hinton points out that the AA rating was achieved in the first place partly because the smaller, more involved board was better equipped to comment on management’s specific plans for financial excellence. “They are able to have the kind of tough dialogue about what we are doing, how we are doing it and how we are balancing the mission of the organization with financial accountability,” Hinton says.

Trustees at Virginia Mason Medical Center, Seattle, exhibited a similar purposefulness by leading the development of a five-year strategic plan. A board committee spent nine months gathering data, meeting every two or three weeks. At regular board meetings, half the agenda was devoted to the plan. After the goal of the strategic plan was established—Virginia Mason would become a quality leader—strategies to achieve it were developed. “In the past, we would have been waiting for management to bring us a plan and we would OK it,” says Tom Van Dawark, board chair.

The board and management agreed on executing collaborative leadership. “There’s a clear understanding the board role is policy decisions and management’s role is primarily focused on implementation,” Van Dawark says.

Nationally, board chairs and CEOs report a new emphasis on educating trustees, particularly around quality. After getting up to speed on quality trends and methods for improving it, the board at Middlesex Hospital in Middletown, Conn., spearheaded changes to the the hospital’s quality committee. The physician who had chaired the committee for years was replaced and two board members with expertise in industrial quality were added to it. The four-member committee now meets more frequently, and action items are resolved or action plans are developed by the next meeting.

“They felt empowered by the education they had gotten,” says Middlesex President and CEO Robert Kiely, “and through their subtle, yet persistent advocacy, the overall structure of the quality committee was changed.”

The difference is profound

What it all adds up to, governance experts say, is a fundamental shift in what trustees do and how they do it. Specifically, boards need to spend less time on monitoring the institution and more on leading it.

“Hospitals used to be like utilities; you couldn’t go out of business,” Orlikoff says. “But the fundamental business model is changing, and trustees, instead of simply reacting to management information, have to be an active participant in defining how health care is provided and paid for in their communities. That’s a different role.”

To assume that role, boards must change the way they operate, taking more control over their agendas, how they spend their time and what information they require.

Stroup argues that boards need to narrow their focus and decide what issues matter most. Presbyterian Healthcare Services compiles 18 board-level indicators that tell members about the system’s performance; Stroup thinks there should be no more than five. “If the board has a small number of indicators, it has a better chance at being a facilitator of change,” he says.

He cautions trustees to concentrate on truly strategic matters rather than monitoring management-level details. Some trustees are so entranced by the details that CEOs are reluctant to stop providing them.

One example: A CEO may present trustees with days in accounts receivable data. “But then you are likely to ask, ‘Why did that number go up or down? Did you hire a new manager in the business office?’ ” Stroup says. Instead, the board should be asking if the system has the right chief financial officer or whether it should change service lines, he says. “You don’t ask the big questions looking at management data,” he says.

Virginia Mason trustees refuse to devote large portions of their meetings to reviewing past performance. “We made a commitment that 75 percent of our discussion time would be spent on the future of the organization,” Van Dawark says. Statistics and financials are presented in a performance dashboard. If board members have questions, they can deal with it in three to five minutes, then move on to other matters.

To make sure that they aren’t veering away from the strategic focus, Virginia Mason trustees fill out a mini-evaluation of their own performance after every board meeting.

Confronting these new governance challenges may require hospitals to reconsider how board members are selected. In some cases, seeking the right expertise may lead hospitals to choose trustees who live outside the market area.

“There is some logic to having members from the community, but we think hospitals have interpreted that way too rigidly,” says Don Wegmiller, a consultant who chaired a blue ribbon panel at the Health Research & Educational Trust, Chicago, for the past year. The panel in February will release a report on effective board practices.

More important than having each trustee represent the community, Wegmiller says, is that they be good stewards and keep the hospital operating so the community can use it.

Clearly, today’s—and tomorrow’s—trustees have their work cut out for them.

“The complexities of the issues are astounding,” Orlikoff says. “Hospitals are facing the age wave and massive financial crunches. At the same time, they are being held to a higher standard of accountability than ever before. Trustees will be ready for the challenge if they are not blind-sided. If you engage them with real issues, you get committed, active trustees, and they won’t be surprised by the coming changes.”

This article 1st appeared in the January 2007 issue of HHN Magazine.

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