Cover Story
The Conundrum of Public Boards
By Jan Greene
Balancing Good Governance with Unique Challenges
Being a public hospital trustee is kind of like being Ginger Rogers. She performed all the dance moves that Fred Astaire did, only backward and in high heels. Similarly, public hospital trustees do all the things other trustees do, except they carry the responsibility of their community’s health care safety net and do their work in the public eye.
Given those extra factors, it takes a thick skin and a solid grounding in health care finance to survive as the public face of the local hospital. Just ask Richard Dennis. Back in 2000, when the Balanced Budget Act’s Medicare cuts were putting unprecedented pressure on hospitals, the board of Palo Pinto General Hospital in Mineral Wells, Texas, asked local citizens for a tax increase to keep the public hospital open. The idea was so upsetting to some in the community that they started a recall effort to oust the board of directors. “It was a public uprising,” Dennis remembers. “They got organized and got enough signatures to force a recall vote.” With help from a new hospital CEO who encouraged an aggressive response, hospital leaders, including the board, went out and spoke at every Lion’s Club meeting and town hall they could organize to explain the financial difficulties of running a small public hospital.
“We went out there and took our lumps and got yelled at, and then we told our story,” says Dennis, a nine-year member of the board. “We had to explain that being a nonprofit doesn’t mean you can lose money. We explained how we are reimbursed, what our charity care and bad debt take away from us. And how important it was to the community for us to stay here.” The hospital’s counter-campaign was a success, and the tax increase went into effect. That doesn’t mean the hospital’s problems were completely solved—it still struggles with typical public hospital troubles, such as inadequate reimbursement and a significant charity care commitment.
As the U.S. health care system’s problems become more entrenched—a growing population of uninsured, budget cuts for Medicare and Medicaid, a seemingly unending shortage of nurses and technicians—public hospitals feel the biggest brunt of it. As a group, public hospitals are consistently less profitable than the average American hospital—in 2002, members of the National Association of Public Hospitals and Health Systems had a negative margin of -0.3 percent, compared with an average margin of 4.5 percent for all hospitals nationwide.
With little relief in sight, many public hospitals are considering drastic restructuring options. A big urban medical center may seek a merger or switch to private nonprofit status. A small rural could look to hire outside management or sell out to a chain. Boards of trustees are the ones ultimately responsible for weighing the pros and cons of these fundamental changes.
Despite a stable financial situation, a well-respected administration and cohesive board, trustees at Palo Pinto have considered hiring outside management, in the face of an uncertain future. “We’ve talked about how we can survive the long haul,” Dennis says. “You know the best time to do something like that is when you are doing well. But we continue to feel we can do a much better job than an outside entity that might not have the community’s best interest as top priority.”
Restructuring is just one of the unique challenges that public hospital trustees deal with, along with charity care and bad debt, working the political process and strategizing in public.
Public Financing and the Safety Net
Public hospitals are most often the safety net in their community, obligated to take all comers and, as a result, saddled with a higher level of bad debt and charity care than the average hospital. “In many places, it’s ultimately the public hospital that ends up [as] the largest provider of indigent care in the community,” explains Kevin Reed, general counsel to the Texas Association of Rural and Community Hospitals. “Many are fighting to be more than that. They want to be centers of health care for the entire community, not just for the indigent population.” That may mean finding a unique service or niche—getting involved in teaching or finding a way to create a joint venture with physicians. However, these efforts may be constrained by their public status and an inability to get involved with for-profit ventures.
The smallest public hospitals, such as 25-bed Hawarden (Iowa) Community Hospital, have switched to critical access hospital status to stay afloat. Others use any local asset they can—Holy Cross Hospital in Taos, N.M., for instance, balances its bad debt with better-paying orthopedic procedures provided to tourists who visit the local ski slopes.
Another strategy for public hospitals to maximize their payer mix is to lobby government officials who control a significant piece of the hospital’s budget through programs such as Medicaid, disproportionate share funding, intergovernmental transfers and local taxes. This is an often overlooked but important responsibility of the public hospital trustee.
At the Cambridge Health Alliance in Massachusetts, trustee and former chair Rick de Filippi is used to being on close terms with members of Congress and state legislators. “You better really know the staff person for the state senate president,” de Filippi advises, explaining that you need such individuals to alert hospital leadership and trustees to initiatives coming down the pike that will have an impact on their hospital.
While a public hospital may carry the primary responsibility to be the community’s safety net provider, it still operates in the same competitive industry as all other hospitals and is expected to function as they do in the community, even if other hospitals have less obligation to provide charity care—or none, as in the case of a for-profit hospital.
“It’s absolutely a two-sided coin,” Reed says. “You don’t want to abandon your public mission and that’s a critically important piece, but you don’t want that to define who you are completely. It’s also important financially to the community that you be competitive. Generally, you’ll find [that] the more successful public hospitals have been able to straddle that mission side with a really broad patient mix.” For a public board, that can mean a constant struggle, particularly among members coming from different ends of the private/public spectrum.
“We’ve had a traditional conflict on our board with people from public service agencies and people from the business segment,” de Filippi says. “We’ve done a pretty good job in resolving conflicts and getting each to think like the other.”
Deliberating in Public
One of the challenges inherent in sitting on a public board is that anyone can come to your meetings and listen in. That can be intimidating, but boards can ease the situation by establishing an atmosphere of trust among the members. “We feel comfortable with each other and that’s probably a big factor in being able to have open discussions,” Dennis says of Palo Pinto’s board. “You don’t feel that if you say something that’s not right, you’re going to get embarrassed in the meeting by having one of your fellow board members jump on you.”
For districts that restructure their legal status, such as becoming a nonprofit corporation through state legislation, there’s an opportunity to rewrite the governing rules to allow discussion of strategy in executive session, giving the board more flexibility and less worry that competitors will hear sensitive discussions. Decisions on strategy must still be made in public, though.
Building a board that has a range of expertise and includes people with backgrounds in finance, business and information technology is always a great boon to a public hospital board, which has to navigate a highly competitive, ever-changing business. Unfortunately, few boards are set up to make that happen automatically. “Particularly where you have appointed and elected representatives, you have people who are put on the board of a multimillion dollar business [that] they have little or no understanding of and they’re expected to manage that business,” Reed says. “That’s a pretty amazing thing that they do.”
Some hospitals, such as Holy Cross, have dedicated positions on the board for specific constituencies or regions. Others make an effort to recruit members, either by appointment or through a public election, who have the skills the board needs. Reed says he has found that the most important types of directors to have are those with backgrounds in finance, experience in managing large organizations, and information technology expertise.
Given the inherently political nature of public hospital appointments and elections, it’s always possible to get a board member who comes in with an agenda that may end up being divisive to the group. If that happens to a board, the best advice is to either draw that person in, or, if that’s not possible and the person is holding up progress on important business, to make him or her ineffective. “It’s incumbent upon the board and the board chair, in particular, to establish what the boardroom culture is,” says John Combes, M.D., president and chief operating officer of the American Hospital Association-affiliated Center for Healthcare Governance, Chicago. “There needs to be an environment [in which] it is safe to express opinions. If a person tries to dominate the proceedings, [the board] has to work as a group to enfold that person into board culture and if not … isolate the person out of the culture.”
As with any board, getting educated about the business of health care is vital to being an effective trustee. With an understanding of the complexities of Medicaid and other public funding so key to public hospitals, it’s even more important that a new public hospital trustee get a good initial grounding in those issues and insist on ongoing education about what’s happening with Medicaid, Medicare, disproportionate share payments, any local taxes going to the hospital district and board strategy for managing it all. Beyond that, the same rules of governance apply to a public hospital as to any board—focus on strategy and represent the community’s best interests.
That’s what the board of Hawarden Community Hospital attempts to do. There are five board members overseeing a small hospital that is licensed for 25 beds in a town of 2,800. Trustee Glea Hamik, a part-time radiology tech at the hospital, has to make a particular effort to keep her two roles separate and avoid focusing on operations despite the time she spends working there.
“I’ve always been careful not to micromanage the hospital, not to dwell on the administrator’s and management team’s job,” Hamik says. “I just think being a trustee is, by definition, having the concerns of your community first and looking out for the long-term welfare of the hospital. Our group really tries hard to ask ourselves that question: ‘Does this fulfill our mission?’”
Jan Greene is a writer based in Alameda, Calif.
This article 1st appeared in the July 2007 issue of Trustee Magazine.
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