TRUSTEES AND GOVERNING BOARDS

HEALTH CARE TRENDS         Top

Hospital/health system governance has changed greatly in the last decade. The changes have occurred in response to local and national trends in health care.

Health care continues to reform and evolve. The reform movement requires a sharpening of old skills and acquisition of new ones. It is complex and confusing as hospitals and health care systems struggle to define their changing roles in the transition of health care financing and delivery systems. Some trends include:

• The changing role of the hospital from an inpatient sick care facility to an outpatient/inpatient community health care delivery system
• Continued closures, mergers and consolidations
• Changes in medical practice

A recent issue of Hospital and Health Networks identified a number of mega-health care trends. These are:

• Upward cost pressures intensify. Health care costs are again rising above the general inflation rate and represent approximately 13.6% of the Gross National Product (GNP). A recent HCFA study predicts that health care costs are expected to reach 16. 2% of the GNP or 2.2 trillion dollars by the year 2008.
• The number of people overall with health insurance continues to climb, although there is also an increase in the uninsured fraction of the population.
• Managed care growth is projected to expand at a slower rate.
• Public satisfaction with health care system remains low. The primary issues are access, cost, quality of care and managed care.
• Consumers emerge as ever-stronger drivers of care delivery. Web surfing is giving individuals the information they need to become active partners in health care decision making. In addition in 1998, alternative health care visits exceeded those to primary care physicians.
• Issues of quality are still more talk than action. Employers continue to be most concerned about the cost of care, with quality taking a back seat as premiums rise. Although reports on quality exist few employers use them. Meanwhile, as employers push for cost control, disease management and preventive care efforts are increasing.
• Medical advances complicate decision making.
• Information technology presents opportunities--and major costs. To leverage your investments, aim to increase the computer access of doctors, nurses, and other clinical pros who often don’t have access to the technology within hospitals. Faster, stronger computer systems are lending support for database-driven disease management, telemedicine, and call centers.
• Health care will become more prominent on the political agenda.

All of these trends indicate the need for practicing sound hospital governance.

Today’s hospital/health system governing board members are being asked not only to represent the community they serve but also to understand and deal with the problems of the total health care system.

WASHINGTON HOSPITALS         Top

There are 106 hospitals in Washington state (see appendix). Types of Washington hospitals include: general medical-surgical, children’s general, psychiatric, alcohol and chemical dependency and rehabilitation facilities.

Ninety three percent of hospitals in the state are not-for-profit. About half of Washington’s hospitals are classified as rural under one definition or another.

Multihospital systems are typically corporate entities which own, lease or sponsor two or more hospitals. Washington has twenty such systems accounting for 41 percent of all hospitals.

Hospitals ownership options include: federal, state, private/investor owned, private/non-profit and public hospital district. The vast majority of hospitals are operated as not-for-profit corporations, with a handful owned and operated by private corporations on a for-profit basis. Approximately 40 % of acute care hospitals in Washington state are public hospital districts.

Washington hospitals are licensed. The Washington State Department of Health sets rules for minimum requirements for performance standards, quality, staffing, hospital services, safety, sanitation and fire prevention.

A hospital/health system licensed in Washington is a legal entity. A hospital’s authority comes from Washington law and the hospital’s articles of incorporation, constitution and bylaws.

THE GOVERNING BOARD         Top

The hospital/health system is governed by a Board of Trustees or Commissioners. A trustee is elected or appointed to direct the policy and funds of a hospital. The board’s role is to assure that the organization’s resources are directed in ways that protect and advance the interests of the shareholders and stakeholders.

The Governing Board is an organized group of elected or appointed people with the authority to control and direct a hospital. It is legally responsible for everything that happens in the hospital. The Board is responsible for establishing policy, maintaining quality patient care and providing for institutional management and planning. It does not manage the hospital or deliver patient care. Boards are the owner’s agent, while management is the agent of the board (Pointer, Orlikoff, 1999). The Governing Board delegates management to the chief executive officer (CEO) and patient care to the medical staff.

The hospital Governing Board:

• Formulates policy
• Directs the hospital administrator to carry out the policy
• Monitors how the policy is carried out and its outcomes

Board members must understand:

• The distinctions among Board business, management business and medical staff business
• The roles and business of the Board
• How the Board’s responsibilities are affected by the changes occurring in the health care delivery system
• Their individual obligations

The Governing Board and its committees should have written work plans for the year. The Board should conduct a performance evaluation of itself and of the CEO. The Board should expect to receive information, reports and recommendations that are relevant to the Board’s responsibilities and that will assist it in performing its roles. For appointed boards, an effective ongoing Board recruitment process and written criteria for selecting trustees should be in place.

The Governing Board has the ability to shape the best possible future for the hospital/health system. What a hospital/health system becomes will depend largely on the values its trustees hold and the leadership they provide on behalf of the owners and stakeholders of their organization.

TRUSTEE SELECTION AND RECRUITMENT         Top

A Governing Board should be made up of people with a variety of skills and expertise, community connections, occupations, ages and backgrounds. Board members need to have the time, commitment, interest and the ability to work together.

Suggested general qualifications:

• Willingness to serve
• Ability to meet projected time commitment (including board orientation and continuing education)
• Capacity for attention to the organization
• ability to participate in group decision making and support board decision (step out of own self interest)
• Objectivity
• Intelligence
• Communication skills
• Integrity and absence of serious conflicts of interest
• Ideology and values consistent with those of the hospital

According to the American Hospital Association and Ernst and Young, these were the top selection criteria for hospital board membership in 1997 (Pointer, Orlikoff, 1999)

• Values consistent with hospital
• Community leadership
• Financial and business acumen
• Strategic planning and visioning
• Time availability
• Political Influence

The size of a hospital’s Board can play an important role in its ability to function well. A Board may become unwieldy if too large. A Board with fewer than 20 members functions more efficiently, although there is no ideal number of Board members.

For appointed boards:

Trustees should have stated terms for serving. This ensures that the Board is able to invigorate itself with fresh ideas from new members. At the same time, a valued and capable person may be returned to the Board.

Some hospitals/health systems may use a nominating committee. The nominating committee is responsible for maintaining an ongoing selection process. It must develop an effective process to ensure that selection of all Board members is based on written criteria.

Prior to identifying prospective Board members, a profile and evaluation of the existing Board should be completed. A board profile can be developed by including criteria and ratings (high-medium-low) for each existing board member. Criteria should include: governance experience, industry and market knowledge, clinical expertise, financial knowledge, management experience, experience with acquisitions and mergers, community and political contacts. Factual information such as occupation, age, sex, ethnicity, and residence should also be included.

This will identify the current skills and abilities of present Board members. The hospital’s strategic plan should be examined to identify the skills and abilities needed to enable the Board to meet the hospital’s future needs. Selection criteria should be developed for new Board members. Board member candidates should be continually recruited. Candidates may be identified by the Board, administration, medical staff and community members. Prospective Board members must understand their role and responsibilities and the time involved.

FUNCTIONS OF A HOSPITAL HEALTH SYSTEM GOVERNING BOARD         Top

Board roles and responsibilities can be categorized as follows. The chart below shows the inter-relationship between roles and responsibilities:

Reprinted with permission from Pointer, Dennis D. and James E. Orlikoff, Board Work: Governing Health Care Organizations,. Copyright 1999 Pointer and Orlikoff. Published by Jossey-Bass Inc., Publishers, 350 Sansome Street, San Francisco, CA, 94104 (800) 956-7739

RESPONSIBILITIES

Ends

• Defining and safeguarding the hospital’s mission
• Setting goals and objectives
• Promoting positive relationships with local, state and federal governments, the community and funding sources
• Ensuring that the hospital meets the community’s needs
• Serving as an advocate for the hospital

Executive Management Performance

• Selecting and supporting the CEO
• Defining the CEO’s duties and responsibilities and evaluating performance
• Delegating authority to the administrator

Quality

• Appointing and maintaining an organized, qualified medical staff
• Assuring that quality of care is provided
• Ensuring that the hospital complies with and meets regulatory, legal and accreditation standards and requirements
• Maintaining a professional standard of care

Finances

• Ensuring, promoting and improving the hospital’s short-and long-term financial viability
• Assuring the hospital’s welfare

Self Management

• Taking responsibility for Board organization, effective governance and acting in the hospital’s best interests

ROLES

Policy Formulation

Policies clarify and articulate board expectations and are the foundation of effective Governance. Policies are statements of intent that provide a mechanism by which boards direct and constrain management and medical staff while also delegating decision making authority and tasks. For an in-depth review of board policy making see John Carver’s book, Boards that Make a Difference: A New Design for Leadership in Non-profit and Public Organizations (see resources).

Decision Making

Policy formulation is the best way to influence decisions without actually making them. Boards should make as few decisions as possible and resist the temptation to approve decisions that are within the purview of administration and management. High impact and risky decisions should be made by the board. Prior committee review and recommendations to the board as a whole are important aspects of effective decision making (Pointer, Orlikoff, 1999).

Oversight

The oversight process involves selecting indicators, determining standards, monitoring results, making comparisons and taking appropriate action. A relevant governance information system is key to effective oversight (Pointer, Orlikoff, 1999).

INDIVIDUAL TRUSTEE RESPONSIBILITIES AND ROLES         Top

Governing board members must understand their roles and responsibilities. These include:

• Being committed to the Governing Board, the hospital and the community the hospital serves
• Avoiding conflicts of interest
• Observing high standards of integrity
• Maintaining the confidentiality of Board meetings
• Preparing for each Board meeting by studying the agenda and supporting information
• Attending the entire Board meeting(s)
• Participating in Board meetings with their opinions
• Carrying out committee and Board assignments
• Publicly supporting Board actions even if they do not agree with the decision
• Having some knowledge about hospital and health care systems
• Attending continuing education programs

THE FIDUCIARY ROLE         Top

A Governing Board member has a fiduciary (trust) relationship with the hospital. The word trustee represents that relationship.

A trustee’s fiduciary duties to the hospital are:

• Obedience
• Care
• Loyalty

Obedience-requires a Governing Board member to:

• Obey the law
• Make sure the hospital obeys the law
• Carry out the hospital’s mission and bylaws

Care - requires a Governing Board member to be careful and prudent in managing the hospital’s affairs.

Loyalty - requires a Governing Board member always to put the hospital’s interests ahead of personal interests or the interests of business, associates, friends and relatives.

A Governing Board member should use care and skill in managing hospital affairs and always act in good faith with complete loyalty to the hospital.

The Governing Board’s fiduciary responsibility is to protect the hospital’s financial status. In order to fulfill the fiduciary obligation, Governing Boards have a number of tasks which they undertake:

• Approving the budget and providing for day-to-day cash needs
• Ensuring the proper investment of the assets
• Ensuring sufficient capital to deal with any future problems related to the hospital’s financial stability
• Determining fiscal policy relating to insurance coverage, discount policies and third-party reimbursement
• Being alert to and creating philanthropic opportunities for the hospital
• Determining policy on provision of needed community services

LEGAL PROTECTION FOR TRUSTEES         Top

The potential for corporate and personal liability can cause concern for trustees. They have protection when their duties are exercised according to the duty of care standard. That duty requires that a trustee perform responsibilities in good faith, in a manner reasonably believed to be in the best interest of the hospital and with the care that a prudent person would reasonably be expected to exercise in a like position and under similar circumstances.

Under the "best judgment" rule, when a trustee makes a poor decision but has no self-interest in the transaction and a sound basis for believing that the judgment is in the best interest of the hospital, the duty of care standard has not been violated. In order to meet this standard, however, trustees must have made reasonable inquiry, demonstrated a deliberative process and made an informed decision. Even in those instances in which a trustee has not exercised the functions of the duty of care standard, the trustee may not be held liable unless the breach of duty was the cause of the damage suffered by the hospital.

Additionally, a trustee needs to exercise such reasonable care and skill as a person of ordinary prudence would employ in dealing with personal property. This standard is known as the "prudent man" standard.

Governing Board members can be protected from liability by:

• Responsible governance
• Indemnification
• Directors’ and officers’ liability insurance
• General hospital liability insurance

Responsible Governance

The first line of defense for Board members is responsible governance. Board members who are knowledgeable about their legal responsibilities and mindful of their duties to the hospital are protected from liability in most cases. Responsible governance practices can help Board members defend themselves; they cannot stop a lawsuit from being filed.

Indemnification

A hospital may choose to indemnify its own Board members in the event of legal action using its own resources to pay for costs associated with some liability suits. This practice, essentially self-insurance, presumes that the organization has the necessary resources to make the payments.

When a Board member of a for-profit hospital is involved in a legal action, because he or she is a Board member, the hospital must indemnify the Board member against reasonable expenses arising from successfully defending the legal action.

Directors’ and Officers’ Liability Insurance

Directors’ and Officers’ (D&O) liability insurance is the type of policy tailored to cover suits involving Board actions taken in good faith. It is designed for the purpose of protecting Board members by paying defense costs, settlements and judgments in some suits that challenge decisions they have made. Some Directors’ and Officers’ liability insurance also covers the hospital.

General and Other Liability Insurance

Virtually all hospitals carry general liability insurance, as well as one or more specialized policies covering auto, property, malpractice, fiduciary and other areas. Some of these polices cover Board members in certain circumstances, even though the intent of these policies is to cover the hospital.

MISSION         Top

The mission statement of a hospital is the foundation upon which it rests. It states the reason for which the hospital exists, and should answer the basic question: What is our purpose? The what, where and how of services delivered by the institution can be part of the mission. Some institutions choose to create a mission statement that is brief with the idea that a succinct and easy to remember statement will best guide all employees within the organization. Others may opt for a more extensive statement. A hospital’s mission can be both a value and a vision statement, and is the first step in the development of its goals and objectives. Components that may be included in a mission statement include:

• Organizational philosophy - the code of behavior that guides the operations of the hospital
• Hospital location - area of service, geographic location
• Description of services
• Type of hospital - rural, teaching, public
• Commitment of the hospital to a specific purpose or goals
• Role of the hospital in its local health care environment
• Role of research and education in the hospital
• Commitment to staffing or personnel
• Charitable community benefits role

A nonprofit hospital is required to develop a mission statement that identifies the hospital’s commitment to serving the health needs of the community.

The mission statement should distinguish your hospital from other hospitals.

BYLAWS         Top

The Governing Board is required to adopt bylaws outlining its legal accountability and responsibility for the patients the hospital serves. The bylaws must include the following:

• The role and purpose of the hospital
• The duties and responsibilities of the Governing Board
• The process of appointing members of the Governing Board, including the criteria for membership
• The Governing Board’s organizational structure
• Selection of officers and their responsibilities
• Meeting procedures and composition and responsibilities of Board committees, including minutes that reflect all business conducted, including findings, conclusions and recommendations
• The relationship of the Governing Board to any higher authority, the administration, the medical staff and the mechanism by which the Board holds each of them accountable
• The requirements for the establishment of an organized medical staff and the mechanism for formal approval of the organization, bylaws, rules and regulations of the medical staff
• The requirements for the establishment of any auxiliary organization, if the Board chooses
• The procedure for the adoption, review and revision of the bylaws

ORGANIZATIONAL CHART         Top

An organizational chart graphically represents how the chief executive officer (CEO) has organized the hospital/health system. It shows departments, function, positions and reporting relationships. The Governing Board is in the position of responsibility for the hospital. Board members must have a good knowledge of how the hospital has been organized to carry out its mission.

BOARD ORGANIZATION AND OPERATIONS         Top

Board structure should fit the needs of the hospital’s corporate structure. Board and committee chairpersons perform key roles in managing the operations of the Board. Serving in these positions requires extra time, preparation and leadership skills. There should be plans for leadership succession.

Standing committees should exist for the areas on which the Board spends the most time. These can include finance, planning, fundraising and credentialing. Committees should have a written purpose plus goals and work plans. A trustee’s interest and expertise should be considered when making committee appointments. Committee members should be rotated on a scheduled basis.

The work of the Governing Board takes place at Board and committee meetings. Creating productive, interesting meetings requires thought and planning. Meetings should be at convenient times and in convenient locations. There should be adequate notification of Board meetings. A Board meeting calendar should be developed for each year. An agenda with supporting materials should be sent in advance of each meeting.

GOVERNANCE INFORMATION SYSTEM         Top

Essential to effective Board functioning is receiving the appropriate level of information and in the right format. In the Trustee Guide to Strategic Planning and Information by Jamie Orlikoff and Mary Totten, helpful guidelines for assuring an optimal governance information system are highlighted:

• Governance information should facilitate a future emphasis (market and governmental trends) and not follow behind it, relying only on past performance information.
• The Board’s priority goals and objectives and organizational strategies should determine what information is presented to the Board.
• Indicators along with thresholds for financial, quality and executive performance, for example, should be selected annually by the Board and reported on routinely. Time should not be spent on review unless an indicator is trending near or outside expected parameters.
• Reports should be brief and in graphical format, whenever possible.
• An executive summary should be included with any lengthy reports.
• Meeting minutes should not be used as a primary method of information sharing.
• An annual calendar should be developed for reporting routine or required information.
• An organization’s information reporting system needs readily facilitate Board level planning and decision making and should be included as part of the Board’s self evaluation.

TRUSTEE ORIENTATION AND CONTINUING EDUCATION         Top

Board education is an ongoing process beginning with orientation for new trustees and continuing education opportunities for the entire Board. The objective of Board education is to increase trustees’ knowledge and understanding of (1) the hospital’s programs and services, future opportunities and direction and financial issues; (2) the many changes which are occurring in health care and how they affect the hospital; (3) the Board’s role and responsibilities. Having and using a Board manual (this and a hospital specific manual), participating on committees, reading articles and attending Board retreats and trustee conferences are forms of trustee education.

CHECKLIST FOR GOVERNING BOARD EXCELLENCE         Top

According to Chait, et al, in The Effective Board of Trustees, effective Boards emphasize the following:

• Mission and values
• Trustee education and self evaluation
• Board loyalty and cohesiveness
• A broad view of complex issues (without seeking perfection)
• Respect and communication with key individuals and groups
• Strategic planning and priority setting

BOARD SELF EVALUATION         Top

The reasons for conducting a Board evaluation are: to determine what the Board does and how effective it is; to evaluate the skills, knowledge and level of participation of trustees; to determine the areas which need improvement and to meet the JCAHO requirement for Board self-evaluation. Board evaluation should be a way for trustees to build trust, create a team, improve communication and achieve goals.

A Board evaluation results in the identification of the strengths and weaknesses of the Board, and what needs to be changed and how. The Board self-evaluation process includes answering a number of questions related to duties, mission, organization, planning, meetings, filling vacancies and the Board’s authority.

An effective Board evaluation process should:

• Be a regular Board function
• Encourage the participation of all Board members
• Consider the CEO’s and medical staff’s perspectives
• Assess community reaction to Board action such as newspaper stories and citizen feedback
• Review the chronology of actions as reflected in the Governing Board and committee minutes
• Monitor needed changes

The Board’s self-evaluation can take many different forms. The following is one example. The evaluation gives a trustee better insight into how the Board is structured, what procedures are followed and how well the Board works.

EXAMPLE OF BOARD SELF-EVALUATION         Top

The following example is intended as a guide and should be adapted to the needs of an individual Board of Trustees or Commissioners.

How satisfied are you that:       1=StronglyAgree 4=Strongly Disagree NS=Not Sure

Section 1: mission stewardship

Section 2: Board Structure and organization

Section 3: long-range planning

Section 4: Quality assurance/credentialing

Section 5: Finance

Section 6: Community relations

Section 7: Board education and development

Section 8: Board function

Section 9: Board relations

Additional Comments:

REFERENCES         Top

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"Board Self-Evaluation Process," Leadership 1993, pp. L-13 - L-16.

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