The risks for hospital boards are increasing. The issues are more complex and the stakes are higher than ever before. In four key areas, hospital boards must be vigilant about their oversight responsibilities:
1. Physician relationships and practice patterns: Hospitals increasingly are accountable for physician behavior as a result of the stiffening of Stark anti-kickback rules, widening provisions of the False Claims Act, exposure resulting from the Physician Sunshine Act and Medicare Physician Database, provisions in the Affordable Care Act that heighten scrutiny for physician business dealings and the trend toward physician employment.
2. Partnerships and affiliations: Every hospital regardless of size is attempting to reduce its operating costs and evaluating its future. These efforts invariably involve consideration of formal relationships with other hospitals and formal relationships with private insurers, outsourcing partners, technology suppliers and others. Hospital boards must know the details of each deal, how debt covenants and operations are impacted, and where there’s financial or reputational risk if the marriage hits the rocks. Data on which agreements are based, including best practices and performance forecasts, and the underlying analytics and assumptions on which they’re based, must be understood by boards.
3. Performance risk: Historically, bread and butter operational functions like purchasing, business office operations and clinical documentation have been a key focus for hospital compliance efforts and rightly so. They’re complicated and costly, and where ethical or legal lines are crossed, whistleblowers are increasingly watchful. Adding complexity, the shifting of incentives from fee for service to value-based payments, is ripe for performance risk. Shared savings programs and voluntary participation in accountable care and bundled payment programs likely will become mandatory. Partial or full capitation is likely, and many systems will sponsor health plans to finance their population health management programs. All involve considerable financial and reputational risk that hospitals and their affiliated medical groups will bear.
4. Reputation risks: A hospital’s brand and reputation matters. It correlates to higher utilization of services, recruitment and retention of key physicians, business partners and clinicians, and opportunities for growth. But how a reputation is measured and its accessibility to outside parties including lenders and the community is increasingly more sophisticated. Achieving recognition on credible report cards, like those offered by U.S. News & World Report, Truven, Leapfrog Group and others is an important start, because their methodologies are credible. But access to data about a hospital’s clinical, operational and financial performance is expanding exponentially through social media and proprietary vendors. A hospital’s reputation is key to its sustainability and mission. What has been built through years of hard work can be destroyed by a single breach of trust or data that show suboptimal results.
In the 2014 Spencer Stuart Board Index, a snapshot of company governance, a notable finding was that 34 percent of public company boards have formal evaluations of their individual members, up from 17 percent from five years earlier. Attention to diversity of board composition and limits on tenure are notable trends among S&P 500 Index company boards, according to analyses by MCSI Inc. and MyLogIQ. Might these considerations apply to nonprofit, academic medical centers and public hospital boards? Clearly, yes.
What does this mean?
It means that hospital board educational efforts must be expanded, Annual retreats must be augmented by regular sessions focused on key operational functions so boards are confident in opining to the day-to-day operational issues and challenges. And vigilance about macro trends, supported by credible data and forecasts, must be ongoing and central to the functioning of the board.
It means that hospital boards must vest more accountability in key committees, including quality, audit, compensation, governance, strategic planning and others. This requires additional time and energy of board members, and additional administrative support by hospital staff. The work of the hospital board cannot be done effectively without thoughtful delegation to effective committee structures.
It means that recruiting independent directors with industry expertise is important. It means that board effectiveness must be judged objectively and independently. The industry is changing at warp speed. It’s vital that the board be attentive to the changing climate and fullfill its responsibilities fully.
And, it means that the chief compliance officer’s role in the hospital is critical to the board’s management of its risks.
In my 40-year career in health care, I have served on nonprofit hospital and publicly traded health care company boards. It’s an honor to serve, but also a significant commitment due to the time required to be prepared and the risks associated with the role.
The risks for hospital boards are increasing. It’s a privilege to serve on a hospital board, but also a huge responsibility that should not be taken lightly. The stakes are high!
Paul H. Keckley, Ph.D., is managing director, Navigant Center for Healthcare Research and Policy Analysis.