Wanted: Trustees with Critical Thinking Skills
By Eileen Drage OReilly
In an era that carries an increased onus of accountability and responsibility for hospital and health system trustees, most of whom tend to be volunteers with other professional responsibilities, the question arises: Do hospital boards need to target candidates with particular expertise in law, finance, auditing or other areas? Does a trustee’s corporate background matter more today than it did before?
Some experts feel strongly that there must be at least one lawyer, one financial expert and one medical professional on the board; others feel that, first and foremost, board members need to be the best critical thinkers and leaders in their community, regardless of their background.
The Whole Package
Larry Walker, president of The Walker Company, Lake Oswego, Ore., says boards need both “qualitative” trustees—those with critical thinking skills—and “quantitative” trustees—those with specific skills, such as financial auditing. “They [need to be] willing to ask the ‘why’ questions—why or why aren’t we [taking a particular action],” he says.
“We need … people willing to take the time [to] represent the hospital well in the community. If you can attract people [who are thoughtful] you can teach them about health care,” Walker says. “You can’t teach people to be critical thinkers.”
Steven Perkins, chair of the Sanford Hospital Luverne (Minn.) Community Advisory Board, agrees. “Board members need to have the ability to look at things they might not be aware of, think them through and ask the tough questions,” he says. His own varied experience—as a city administrator, city mayor and CEO of a meat processing plant—shows a willingness to confront new challenges. He maintains that a trustee’s academic, professional or management background is not as important as his or her interest and willingness to “dig in and give it everything you’ve got.”
However, governance consultant Errol L. Biggs, director of the Center for Health Administration and the director of the graduate program in Health Administration at the University of Colorado, Denver, advises that hospital governance is such a complex area that health care trustees should have had board experience elsewhere first. In addition, Biggs believes that board candidates must be good team players and be able to demonstrate that they have made a difference to their community.
Biggs adds that the chairs of a board’s audit and finance committees should be “financially literate” in order to help their organization comply with regulations imposed under the Sarbanes-Oxley Act. Although the act now regulates primarily for-profit entities, certain provisions apply to nonprofit organizations too, and many boards have implemented changes in the spirit of following the new accounting rules.
While there is some disagreement among experts about whether or not a board needs a certain number of legal or financial experts, all agree that the “right” trustees should each bring his or her unique set of experiences, knowledge and dedication to bolster the hospital’s governance needs and community outreach.
Lawrence Bass, board chair emeritus of Sparrow Health System in Lansing, Mich., says Sparrow’s governance committee nominates different individuals based on their skill sets. “If … the board needs someone with a labor background, insurance background or finance background, that is who we look for,” he explains.
Bass says his business background as owner of Friedland Industries helps him with health care governance. Owning a scrap metal processing firm has given him experience in insurance, labor, banking, finance, legal and other issues that have been important in handling hospital board issues.
“You look for different skill sets and people who are community-minded and active because we are a nonprofit,” he says. “We follow best practices models, so we try to have [trustees] from every walk of life, with an eye toward diversity as well.” Then he adds: “Of course, you also have to look at conflict of interest, and there are a lot of [different concerns for boards] than there were 20 to 30 years ago.”
Joanell M. Dyrstad, former chair of Fairview Red Wing Health Services in Minneapolis, says she has found that it’s important for boards “to have a wide range of expertise in areas of significance to the hospital,” such as banking, business and law.
Dyrstad, a former city mayor and the former Lieutenant Governor of Minnesota, says that her expertise in politics also has been beneficial to the hospital.
Not Your Father’s Board
Even though hospital trustees from all types and sizes of hospitals are often top business or political leaders in their communities with a strong drive to improve their organizations, gone are the days when board members could meet regularly to simply check whether their hospital was meeting its mission to provide good care to their community.
Under the new demands of physician and hospital pay-for-performance and quality, safety and governance regulations under the Sarbanes-Oxley Act, as well as documentation of community benefits required for the IRS Form 990, trustees have had to evolve from being knowledgeable about health care to being semi-experts on governance, quality, safety and finance.
Boards are also coping with changes in the reimbursement system; the shortage of certain professionals, such as nurses and pharmacists; changes in the the physician-hospital relationship as physicians, seeking higher income and more control over patient care, form their own clinics that invariably take patients away from the hospital; and organizations such as the Leapfrog Group and Hospital Compare that are expanding their rating systems based on patient care outcomes. These changes will require that a significant portion of the board’s time be spent learning how to monitor their hospital’s patient safety and quality of care.
“It is obvious that the [health care] knowledge a board needs … has changed dramatically,” says Patricia West, trustee of Florida Hospital-Ormond Memorial, Ormond Beach, Fla. “One of the differences from 10 years ago is the level of participation and the level of personal time [needed] to obtain direct knowledge—that’s increased throughout the years, without a doubt.”
One technique that trustees can adopt to deal with the vast amount of knowledge they need, West says, is to focus on one area of expertise. For instance, she focused on becoming very knowledgeable about patient safety and now chairs her hospital’s patient safety and clinical outcomes committee.
Bass says that as the industry continues to evolve, the board’s accountability and responsibilities will increase. “In the future, it may be more and more difficult to find people who are willing to educate themselves to keep up with the changing times,” he says. “It is a huge time commitment that seems to have grown and grown. The questions is, can we attract qualified people, not pay them, and have them invest the time to do a good job?” He believes the answer is yes. “We do it for the love of the organization and the betterment of the community at large,” he says.
The Physician Conundrum
Many trustees also believe the board needs physicians. Stephen C. Smart, D.D.S., and board chair of the Medical Center of South Arkansas in El Dorado, says his organization believes the board should have strong representation from the medical community, as well as legal and banking experts, and from the oil industry, El Dorado’s economic driver.
“There always seems to be a change happening [that the board must confront],” Smart says. “The attorneys on our board have been invaluable in helping us negotiate change and deal with contracts; our bankers are invaluable with understanding financials; and our doctors are invaluable and provide us with help with the medical staff and understanding quality issues.”
Walker says that while doctors should be included on the board, it must be careful to comply with all laws and regulations governing members’ independence.
The IRS defines a board member of a not-for-profit organization as “independent” only if he or she meets four criteria at all times: is not compensated as an officer or other employee of the organization or of a related organization; does not receive total compensation or other payments exceeding $10,000 for the year from the organization or from related organizations as an independent contractor; does not otherwise receive, directly or indirectly, material financial benefits from the organization or from a related organization; and does not have a family member who has received compensation or other material financial benefits from the organization or from a related organization.
However, Walker explains, “It is my understanding that even if a physician is not considered to be independent, based on the IRS’ definition, that fact alone does not preclude the physician from serving on the board. He or she would simply not be considered ‘independent’ … and special effort would need to be made to ensure that conflicts of interest are clearly disclosed, and that the non-independent physician trustee would not take part in governance discussions … when a clear conflict exists.”
Walker advises that boards create and follow a strong conflict-of-interest policy as well as a solid process for identifying conflicts and dealing with them in a transparent manner.
By contrast, Biggs believes about 20 percent of the board should comprise physicians, but that the physicians should not have any contract with the hospital because that would lead to a conflict of interest. “I don’t think a physician who works in the hospital should be on the board,” he says. Instead, he suggests some boards might consider going outside their immediate community to find physicians who work elsewhere.
While the relationship between the hospital and its physicians isn’t technically an issue the board usually addresses, Biggs says, “Physicians are taking so much business out of hospitals right now, and boards are concerned about that. They want physicians to trust the administration,” but Medicare and Medicaid have cut a significant portion of their revenue.
Smart, who is an oral surgeon, agrees: “Physicians are competing with hospitals now. Part of it is that income levels for medical staff are not keeping up with [physicians’] expectations, and some feel that if they are going to be paid less, they are going to work less.” This reaction has caused physicians to cut back on the level of their willingness to serve on voluntary committees or to work in the hospital’s emergency department, he says.
“I sympathize greatly,” Smart says, “but I also have very strong loyalty to the hospital. The hospital needs to look for ways to reward physicians … and from a trustee perspective, I assume that is going to be an issue going forward.”
Thinking Ahead
Most governance experts and trustees agree that boards must think strategically about their future needs and look for new members who can meet those needs before they arise.
“As you think about building your board long-term, look at your strategic [goals],” Walker advises. “Look at the challenges your hospital will likely face. Look at [the trustees] you will be losing and what will be happening at that time when [they] will be leaving.” He says that before a trustee leaves his or her position, the board should have already selected some individuals who might serve as good replacements.
Biggs agrees that hospital governance committees need to assess the board’s strengths and weaknesses and determine key skills the board may need in the future.
Walker, who says he has helped boards develop long-term strategies on future needs for board members, says that “trustee succession planning is the process of identifying what the future environment will be like, what future governance needs will be, how will they be different from today, and [how boards can prepare candidates] in advance [for a future seat] on the board.”
Dyrstad agrees with Walker and Biggs on the need for boards to be strategic in selecting future members based upon forthcoming issues. For instance, she says, “experience in quality initiatives in another industry would be extremely helpful at this … time.” She recommends that boards develop a list of candidates for future board membership.
Hospital boards, and especially those from not-for-profit, organizations, need to represent those organizations throughout their communities.
While it may be impossible to find qualified people to be a perfect reflection of the hospital community, “it’s important, when looking at a nonprofit entity, to have some reflection of the community,” Perkins says.“Our stakeholders, as a nonprofit hospital, are communities and we have to ask the tough question: ‘Are we doing the best we can to improve access [to health care] to the community?’”
Eileen Drage O’Reilly is a freelance writer based in Silver Spring, Md.
This article 1st appeared in the September 2008 issue of Trustee Magazine.
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