Faced with the challenges of delivering greater health care value, today's integrated hospitals and health systems must focus on truly achieving the benefits of scale.
The strategic rationale is sound. Scale permits health care systems to:
- Achieve operating efficiencies, such as high-quality, standardized, systemwide shared services instead of multiple human resources, information technology, revenue cycle and other administrative functions.
- Care for a broader and more geographically diverse patient population.
- Prepare for the assumption of risk under population health management.
To accomplish this transformation successfully, systems need to create an operating model and operating processes that focus on efficiency, effectiveness and exceptional service, and reduce administrative and clinical process variation across the health care system. Finding the right governance model is a huge challenge that requires change at the board and C-suite levels.
In most industries that have grown through mergers and acquisitions, the addition of a business unit prompts changes in the structure and membership of the board. However, in the case of health care, system-level boards have often simply incorporated members from each of the local hospital boards while also keeping legacy local board structures in place without distinctly different roles and responsibilities.
This has created a “representational” model for many boards, characterized by a large number of members, many of whom initially feel compelled to represent the interests of their respective local institutions. Eventually, trustees learn to think on behalf of the greater entity, but it takes time; in some organizations, it has taken nearly a decade to move from a representational board to a true system board.
That’s just not feasible anymore. Today’s systems must have the leadership and board structure to deal with the rapidly changing health care, legislative and regulatory environments.
The good news is that systems can create and foster an optimal governance structure in a number of ways.
Out of many, one
It’s an understatement to say that the challenges of combining and integrating disparate hospitals into a single system are significant.
The operational issues — integration of nonclinical departments into providers of shared services, standardization of processes, focusing clinical departments on quality and patient satisfaction — require expert navigation and change-management efforts.
There are proven methodologies and pathways to accomplish this transition, which is made somewhat easier because its value is readily apparent: The standardization of processes leads to lower costs, higher reliability, better service and greater satisfaction.
But another set of challenges arises when the transition from local operating units to “systemness” begins. Each local hospital brings its own CEO and, in some cases, a chief operating officer, a chief financial officer and vice presidents of human resources, information technology and so forth. Most of these functions are subsumed by the system’s shared services, and the autonomy that used to be held by the local CEO is now diminished. The role of the local hospital leader is now shifted to that of a president — more of a hospital operating executive or business unit manager.
Local boards also face a shift in responsibilities. The board and the system must delineate the roles of the system board and local boards, the delegation of authority, and how that delegation might change over time. Managing budgets, allocating capital allocation and approving major investments are examples of functions that should be centralized. There are Joint Commission requirements that quality and credentialing be retained at the local board level, although the functional responsibility for these requirements can be delegated to a system team.
Determining the pace of this change and developing a specific change-management path is a key management issue for system leaders.
When integration is successful, the local hospital and local medical campuses become increasingly focused on delivering high-value clinical care. Much of the work that is nonclinical in nature can be done somewhere else. Thus, the local campus becomes all about the clinical business.
This model allows for a high degree of efficiency in the use of assets and people, creating a great deal of value.
All too often in the process of creating systemness, there is an organizational desire to soft-pedal the changes that will affect the local hospital boards and leadership positions. Experience teaches that the board should focus on transparency and be clear and explicit about:
- The specific responsibilities of the system board and local boards.
- The characteristics of executive leadership responsibilities at both the system and local levels.
- How these functions and roles fit with best practices and contemporary board selection with respect to talent, diversity and other aspects of true board guidance.
This approach legitimizes a conversation that may alter formal responsibilities of those executives and board members.
Experience also shows that there should be a clear set of decision rights for both the system board and the subsidiary boards. In general, the system board is where the fiduciary responsibilities should lie. There should not be a duplication of authority over fiduciary responsibilities and financial decision-making. The system, from time to time and at its own discretion, may delegate authority for financial decisions (it may depend on the amount spent), but ultimately the system board is responsible for financial matters.
There should be a clear distinction between the role of the board of trustees as the fiduciary and governing board, and the role and responsibilities of a foundation and fundraising. If those are not already handled by a foundation board, they should be moved to one. There are clear scopes of responsibility that should be defined in certain board structures. They should not be rolled up into one, nor should they be duplicated.
The most important obligation of the system board is to set the tone at the top. The system board needs to explicitly show that it is implementing a rigorous review of its own functions and that it is moving toward recruiting members with the skills and capabilities necessary to meet the current and future needs of the organization. And if it doesn't, the board is signaling that it doesn't expect similar self-assessment from others in the organization.
- Does the new board have members who understand the financial implications of the shifting payer environment so they can aid in the transition away from fee for service to value-based compensation?
- Should there be a board seat for representatives of key community employers who can speak to the kinds of population health goals they care about?
- How will the voices of nonacute care partners be considered in the board’s decision-making process?
These stakeholders — skilled nursing facilities, home health providers, urgent care centers, telehealth partners and others — may be key to lowering the costs of integrated and higher-quality care.
— Jeff Jones is a managing director at Huron Consulting Group.
5 Considerations When Merging
There are distinct advantages, especially today, to making a purposeful move to system thinking. It is a transition that needs to be accelerated in an intentional way.
We have found that there are five primary considerations to creating and implementing a board structured to support systemness:
- Recognize that this is not a small issue; it is better to address it directly and up front.
- Realize that an organization and board that have been organized to focus on transactions may now be moving to a transformational mode — about changing the business model. The leadership approaches for these two modes are different, and you must know which your organization is pursuing.
- The system board must undertake intentional efforts to provide clarity and definition around roles and responsibilities, including powers of the respective boards and their members.
- A strategy must be developed to manage talent at both the executive leadership and board levels to align with and support the goals of the system.
- The board must set an example for leadership and line staff to follow.
Too often, in the imperative to bring about the operational benefits of scale, health care systems neglect the important work that needs to happen to build a well-defined and high-performing governance structure to guide and oversee the duties and responsibilities of the system board of trustees, the local boards and executive leadership of the organization.
A well-planned, intentional effort to clearly define the board's duties and responsibilities, and careful definition of the skills and capabilities needed at each level, will provide numerous benefits to the system.