Division of Labor
By Shari Mycek
System and Hospital Board Roles Remain a Conundrum
The decade of “merger mania” and accelerated system formation in the 1990s had a profound effect on hospital boards—governance structures were reconfigured, layers of board authority were added, and some health care systems were reporting upwards of 15 to 20 separate boards.
Now that the dust has settled ten years later, many health care systems are trying to streamline their governance structure. But the division of labor between system and hospital boards continues to present problems.
Who does what? Should member hospital boards serve as advisory bodies only, with all of the important decisions coming from the system board? Or should hospital boards share fiduciary responsibility, along with authority, over specific functions such as medical staff issues, community relations, quality improvement and patient satisfaction?
“In a sense, post-merger governance is like a good wine that gets better with age,” says governance consultant Barry Bader, president of Bader and Associates in Potomac, Md. “Health system trustees and health care executives are learning from experience about the best ways to restructure their boards of trustees and engage in board work.”
In a nutshell, “One size doesn’t fit all,” he says. “Governance structure must be intentionally designed to fit a system’s strategic intent, the location of its facilities, and its state of evolution as a system. Local boards have to build trust with each other before they’re ready to relinquish full autonomy to a system, and that takes some time,” Bader explains. “But at some point, power must shift from local to corporate if a system is going to gain the advantages of size and scale it needs. The external environment won’t tolerate underperforming systems that can’t cut wasteful duplication of services, implement best practices for quality and safety and run at peak performance.”
Tighter Integration
In a Governance Institute white paper that Bader co-authored with Edward Kazemek, chairman and CEO of ACCORD Ltd., Chicago, Bader wrote that many systems are moving from loosely-knit governance configurations to more tightly integrated and centralized governance and management structures in order to get economies of size and scale, and to help make tough decisions on how to integrate administrative and clinical services.
“The key questions to ask are, ‘Does our structure help or hinder us in achieving the full benefits of our coming together as a system?’ and ‘Do subsidiary boards impede progress, or do they add value because they’re closer to the customer, understand local markets, strengthen fund raising and community relations, and have a personal stake in quality?’” Bader says. “Shared governance models are the hardest to implement, but in some circumstances, they add the most value because they combine the advantages of systemwide financial and strategic integration with the benefit of talented, locally-committed directors focused on quality and community advocacy work.”
Texas Matrix
Luanne Armstrong, vice president of governance for Texas Health Resources (THR), a 13-facility system serving the Dallas-Fort Worth area, knows firsthand what Bader is talking about. For more than a decade she’s been living, breathing, defining and redefining the role of her hospital boards.
Employed with Presbyterian Hospital, Dallas, in 1996, Armstrong has been with THR since its inception in 1997 when Presbyterian (five hospitals and one retirement home), Methodist Healthcare System, Houston (eight hospitals—two of which have since been sold), and stand-alone Arlington (Texas) Memorial Hospital came together under the unified THR banner.
Like any new-forming system, there were kinks and questions over who would do what, how boards would and should be structured, and which boards would hold ultimate decision-making power.
To “clarify”—a word she uses frequently and with great passion—Armstrong created an unusual document, called the “Authority Matrix.” It spells out decision-making responsibilities for not just the system’s parent and hospital boards, but for the entire THR organization.
“The idea was mostly for clarity and authority between the boards,” Armstrong says. “But the matrix defines the roles and responsibilities from the parent board down to the lowest-level employee. Basically, it ensures that Enron won’t happen here.”
A sample THR “Approval, Authorization and Responsibility Matrix” offers insight into how the concept works. In the section, “Governance Reserved Powers and Approvals” for example, the letter “R” signifies which board bears responsibility for tasks like approving the system’s mission and values, or approving the sale, closure or transfer of a hospital. The letter “A” designates an advisory role for boards.
Overall consensus—from board members down the employee ladder—is that the matrix is an exceptional document, Armstrong says.
“It includes 12 pages with three pages of footnotes and really and truly clarifies authority for everyone in the organization. It covers everything you can think of and constantly changes as it evolves and as the health care environment changes,” she explains.
For example, on the management side, it became clear that a number of managers were ordering supplies within THR—at one point as many as 20 different types of four-by-fours [bandages] were being purchased from nearly as many vendors. The matrix helped to clarify authority and limited the number of managers ordering supplies, thus achieving cost savings.
The matrix is explicit about board authority, especially in the case of very large contracts—i.e., in the $20 million to $30 million range. Approval of such large contracts falls within the purview of the system board.
The matrix also stipulates that all joint ventures (Texas has the largest number of health care joint ventures in the country since there is no certificate-of-need process), regardless of dollar value, must be approved by the THR system board, and that the system board—not individual hospital boards—will determine to whom the system gives its business.
Deciding Who Does What
“The very first step—before any workload can be subdivided—is to define system versus hospital board responsibilities,” emphasizes Dennis Pointer, consultant and Austin Ross-Virginia Mason chair of health care services for the University of Washington in Seattle.
“It’s a big bucket, but the red meat of governance—that is, what boards have to do functionally and legally—boils down to three key areas: executive performance, quality and finance,” Pointer explains. “Only when board responsibilities have been defined, can you begin to look at what roles can be centralized and which need to remain decentralized. The functions of centralization/decentralization need to be considered very carefully as they have a huge effect on governance.”
Pointer takes a firm stand against using generalities when talking about health care. His mantra is: “There’s no one right answer, no one [right] model. If anybody says you can generalize, don’t listen.”
However, he does maintain that executive performance and fiduciary responsibility are often best consolidated at the system level.
“Strategic direction—where the organization is headed; the appointment and assessment of subsidiary hospital CEOs; and financial decisions [are often best resolved] at the system level,” Pointer says. “You don’t want individual hospitals spinning out of control, each doing [its] own separate thing. There has to be a really strong case to decentralize these areas.”
Quality, however, is a different story. There is much to be said for decentralizing quality improvement actions provided an overall unity and a master template remain, he says.
“Again, you don’t want every hospital doing its own thing on credentialing, and there need to be common parameters regarding quality indicators, patient satisfaction, medical staff satisfaction, employee satisfaction,” Pointer says. “But decisions concerning quality can certainly be made by individual hospitals, particularly if all of the hospitals within the system are geographically dispersed and in multiple markets. If they’re not geographically dispersed but share one common market, then there can be a choice about keeping the role centralized.”
Providence Health Care System, for example, operates in five states: Washington, Alaska, California, Montana and Oregon. “There’s no way a system of this geographic spread can consolidate credentialing. There’s just no way it will work,” Pointer says. “A small hospital system, however, with a couple of hospitals, could certainly work well by centralizing. Again, there’s no one right answer, no one model.”
Even with system-oriented tasks like executive performance, there’s still a significant role for individual boards, according to Pointer.
While system boards hold sway over subsidiary hospital boards in the hiring, firing and compensation of CEOs, individual boards “do and should have input on that process,” he says. “They are definitely listened to. They are not just window dressing.”
Expanding Trustee Advisory Roles
In New Jersey, Atlantic Health System—which comprises Morristown Memorial Hospital, Overlook Hospital, Goryeb Children’s Hospital, Gagnon Heart Hospital, the Carol G. Simon Cancer Center and Atlantic Neuroscience Institute—has maintained local advisory boards since affiliating over 10 years ago. After the merger, each affiliated hospital board selected three members, in addition to its medical staff president, to represent it at the system level.
The remaining trustees took on an advisory role at their respective hospitals—identifying and monitoring community health care needs and serving as liaisons between the community and the system board.
But according to William Longfield, Atlantic Health System’s board chair, that model is now defunct. As of this past January, advisory board members have taken on greater roles and responsibilities in regard to quality and capital budget expenditures. Members now assess what’s needed and make specific recommendations to the system board.
“Our impetus [for delegating these responsibilities to advisory board members] was that we felt a great sense of responsibility to our patients and communities,” Longfield says. “Atlantic Health serves many communities. And we were going down a track where it was becoming increasingly difficult to attract good talent to the boards.”
He continues, “A company CEO’s time is important and he or she is not going to get involved if it means attending meetings, sitting there and having someone tell you what’s going on and then politely saying, ‘No thank you, we don’t want your input.’” Advisory members now feel they have more purpose.
“Yes, our local advisory boards are responsible for community health,” Longfield says. “But that wasn’t enough. So we [the system board] looked at our responsibilities and what we could share with our advisory boards. Quality is extremely important. So is the capital budget—really thinking through what hospitals should be spending money on. And so we empowered the boards with new responsibilities. As a result, I believe we will attract better trustees who ultimately will serve as feed to the Atlantic Health System board. Local board members need to feel they’re contributing to the system. You’re not going to attract the talent you want if they feel they have nothing to do, and their input doesn’t matter.”
Bader couldn’t agree more.
“A lot of hospital board members in health systems are confused or downright unhappy with what they perceive as a diminished role,” Bader says. “Trustees are asking, ‘Why are we here? We have little or no authority, and the parent board makes most of the important decisions.’ The failure to address local board dissatisfaction can be costly. The ranks of local boards include smart, respected and influential leaders who can be enormously helpful. If local trustees feel their time and talents aren’t well used, they will lose enthusiasm, resign or worse—grow antagonistic toward the system.”
Shari Mycek is a writer based in Belle Meade, N.J.
This article 1st appeared in the April 2008 issue of Trustee Magazine.
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