By now, every health care leader understands that the Affordable Care Act is catalyzing a complete transformation of the field, including reimbursement arrangements, business models and mechanisms for delivering care. This means that we can no longer look in the rearview mirror to inform future decisions. In light of the changing health care paradigm, governing boards of hospitals and health systems are being held to a higher standard as they carry out their overall responsibility to oversee strategic objectives and maintain financial and mission integrity.

Mounting pressure

The stakes for boards are increasingly high, and making the wrong call or being inadequately informed can jeopardize a hospital’s viability.

The issues are also growing in complexity: how to position for population health management; how to move toward a value-based payment model while not jeopardizing existing revenue streams; how to determine which investments in technology are needed to improve data analysis and access for the long term. And these are only a few of the things board members must grapple with to ensure sustainability for their organization.

Other critical issues include:

  • Organizational performance: Effective governance requires directors to take the long view of value, viability and continuation of the business enterprise. Board members are expected to be knowledgeable about a wide range of strategic and operational issues in order to make informed decisions.
  • Finance: Financial literacy in the boardroom is a requirement, given changing reimbursement formulas, complex contractual arrangements with a host of new ventures, and the transition to value-based models of care. It is trustees' duty to understand the information being presented them and ensure that new relationships and strategic arrangements are in the best interest of the organization and communities they serve.
  • Reputational risk: Transparency of information about quality, safety and the patient experience — along with the proliferation of social media and online news — significantly increases the risk of reputational harm. This adds pressure on board members to understand the connections between what goes on within the four walls of the organization and the external perception of the organization’s brand, which connects directly to revenue, recruitment and long-term sustainability.

What’s a board to do?

Most boards are offered occasional education and training. In a post-ACA world, however, this is often insufficient in light of the rapid evolution of the new health care paradigm and regulations.

Some best-governance practices to consider are:

Have the right competencies and leadership in the room. Let’s remember that good governance relies upon having the right people and the best leadership working together to provide oversight and strategic guidance to the organization. While rules, policies and procedures are essential, at the end of the day, good governance means recruiting for a broad set of competencies and a diversity of opinion, relationships, age, gender and expertise.

Traditional boards have largely been composed of a relatively homogeneous group of people, something that can foster groupthink and poor decision-making. Great governance is possible when there is not just an acceptance but also active encouragement of diverse points of view by people who represent a broad experience base. In today's health care climate, there should be expertise in, at minimum, the economics of the organization, technology, quality, environmental safety, human capital or organizational development, social media, and hospital administration.

Create the right social climate. What sets exemplary boards apart is how they interact inside and outside the boardroom and whether board members can speak freely despite holding contrary opinions. Board members who are engaged, diligent in their homework and committed to adding value will most assuredly make a positive contribution to discussions and decisions and mitigate risk along the way. It is an accepted fact that some of the worst board disasters have occurred when respectful dissent and challenges to the status quo were not supported. When the politics of the boardroom take over and good governance is set aside for personal agendas, the entity almost always suffers.

Develop and utilize effective governance policies. In simple terms, effective policies are statements of broad principles and an indication of the organization’s position on important issues. It is in the organization’s best interests to have a sound policy foundation, which provides the parameters for good governance and risk mitigation.

In the absence of clear and current policies, an organization becomes vulnerable to civil and even criminal litigation. To ensure the highest ethical climate and quality decision-making, boards should anticipate emerging issues and develop policy statements to serve as guides. At minimum, there should be policies that address conflicts of interest, confidentiality, compliance, codes of conduct, corporate citizenship and ethics.

Measure governance effectiveness. How often have you observed boards that rarely or never engage in an objective process to evaluate their strengths, deficiencies and opportunities to improve? Boards insist on such assessments for the CEO and executive leadership. Since the board sets the tone for the organization, it, too, should formally evaluate how it conducts business and what should be done to improve practices and capabilities.

Follow a public-company compliance model. Nonprofit-hospital boards have an opportunity to hold themselves to the same standards required of public companies. While this is not a guarantee of great governance, it can elevate rigor, transparency of reporting and compliance requirements, all of which are key to excellence in the boardroom.

Health care is a different field from what it was even a few years ago, and it will continue to transform in ways we cannot fathom today. Boards are facing unprecedented fiduciary challenges and risks. The dynamics, values and practices that are played out in the boardroom have a direct impact on the financial health, quality of care and viability of an organization. It is for this reason that trustees must understand their enhanced roles and responsibilities, determine what good governance means for the health care system, and do all that is possible to develop competencies and practices that reflect excellence in the boardroom.

Carol J. Geffner, Ph.D. (cgeffner@newpointhealth.com), is president of Newpoint Healthcare Advisors and professor of governance, management and policy at the University of Southern California’s Sol Price School of Public Policy. She also is director of the executive master of leadership program at USC.