Rural hospitals, the primary providers of health care to some of America’s most vulnerable communities, are striving to maintain their missions amid a dizzying array of complex challenges.
Those challenges include the move to value-based reimbursement; declining populations and hospital census; aging infrastructure; and difficulties in recruiting medical staff to serve in small towns. Fifty-seven rural hospitals have closed throughout the United States in the past five years, according to the North Carolina Rural Health Research Program.
“For rural hospitals, the biggest challenge to their continued viability is tightening reimbursement and their inability to necessarily bring down costs because of the services they have to maintain,” says John R. Combes, M.D., chief medical officer and senior vice president of the American Hospital Association and president of the Center for Healthcare Governance, an AHA affiliate organization. As a result, Combes says, “There is a concern about the continued access and availability of services to people in rural communities.”
Todd Reding, board chair of Grinnell (Iowa) Regional Medical Center, says reimbursement issues are especially daunting to rural “tweener” hospitals — those that are too large to qualify for Critical Access Hospital status and too small to absorb the financial risk associated with prospective payment system programs. “We’re a ‘tweener’ hospital, so our reimbursement from the federal government is significantly lower than [that of] our peers around the state,” Reding says. “That makes our financial situation even more challenging.”
These circumstances force rural hospitals to make difficult decisions about which services to maintain, which services to drop, and whether to affiliate with a larger health system.
Hospital executives make recommendations, but the final decisions on such questions fall to the boards of America’s rural hospitals. With so many challenges to navigate and so much information to absorb, the responsibilities facing these trustees have ballooned in their level of complexity.
“I don’t think there is a more difficult or challenging volunteer job right now than being on the board of a hospital,” says Tom Bell, president and CEO of the Kansas Hospital Association. The responsibilities weighing on rural trustees are magnified by the nature of the close-knit communities they live in, Bell says. “When you’re the trustee of a small rural hospital, you are much more likely on a Saturday morning or in the evening at a football game to run into a constituent of the hospital, who may have some praise or some concern about something going on at the hospital.”
Nevertheless, rural hospital trustees must be increasingly sophisticated in their understanding of the hospital’s current and forecast financial and operating conditions, and which options are available to improve the hospital’s probability of success, says John Leifer, a Kansas City, Mo.-based health care consultant and author. “Boards are often deferential to leadership,” he says. “I don’t believe boards can afford to be deferential to senior leadership. They need to be respectful, but they also need to be actively engaged and challenging the recommendations of executive leadership.”
Trustees must be knowledgeable
Amid all the changes buffeting rural hospitals, experts say it is more important than ever for trustees to have a thorough understanding of their hospital, field dynamics and policy issues. They must have a good handle on what the migration from a fee-for-service to pay-for-performance reimbursement model means. They must keep up on changes in technology and be fluent in issues like population health, the Medicaid situation in their states, the consolidation of the insurance industry and soaring drug prices. And even if they themselves are not data experts, they must learn what financial and quality data their hospital needs to collect and how it can be used to improve performance in both patient care and the bottom line.
It starts with recruiting the right people to serve on the board, a process fraught with its own set of challenges. Bell says the potential trustees available to rural hospitals may not have expertise in health care. “If you’re looking at going on a hospital board, you don’t need to know everything about hospital finances. But certainly it helps a little if you just understand some of the acronyms that are out there.”
Todd Linden, president and CEO of Grinnell Regional Medical Center, says hospitals traditionally looked to community leaders to serve as trustees. “Often that includes lawyers or CEOs of companies or chief financial officers. Having business or legal backgrounds has been pretty typical of board members for many years.”
But today, Linden adds, “you have to think more about whether there are folks with quality and process improvement and safety experience backgrounds. We’re always thinking about clinical expertise, whether that’s physicians or RNs. For example, we have a dean of a health sciences college on our board who happens to be a physician’s assistant by training.”
Tim Putnam, president and CEO of Margaret Mary Health, a CAH in Batesville, Ind., says his hospital recently recruited a board member with expertise in Lean Six Sigma waste-cutting strategies. But rural hospitals also can find effective trustees among more traditional rural constituencies, Putnam says. “In small communities, farmers are great. Because one thing farmers know is how to adapt to odd government payment programs. I’ve learned a lot from farmers I’ve worked with on the board.”
Margaret Mary Health has bolstered the effectiveness of its trustees through a board governance committee. Committee members “are committed to making sure board of trustee members have what they need to do their job and do it well. What information do they need? What education?”
Education is key
Whatever qualifications they bring to the board, today’s rural hospital trustees face a steep learning curve, Linden says. Trustees must “study the whole changing landscape of health care, which may require more frequent attendance at conferences and meetings intended to prepare trustees for dealing with these issues.”
Linden says GRMC utilizes board education materials available from the Center for Healthcare Governance of the AHA. The Center’s website, www.americangovernance.com, offers resources such as “competency-based board member selection tools.”
“The issue is not just indicating that it would be lovely to have board members attend a conference every other year or sit in on a webinar, but really having a process for establishing exactly what the educational needs are for a board, and laying out a framework for them to be able to attain that,” Linden says.
GRMC requires that trustees obtain certification from the Iowa Hospital Association. The IHA has designed a governance education certification program to help hospitals use governance best practices and promote the coordination of care and the best use of resources in these areas:
- Understanding and embracing the need for governance accountability.
- Governing according to a standard of excellence.
- Willingness to formally certify adherence to governance best practices.
- Commitment to coordination of resources in communities.
- Embracing community accountability and transparency.
- Structuring community benefit and outreach programs to meet identified community needs.
- Utilizing data from the IHA to identify and address areas of need, especially regarding the uninsured and underinsured.
- Utilizing performance data to identify opportunities for improvement and monitoring progress to improve quality and safety.
- Integrating local health efforts with state programs.
Bell says the Kansas Hospital Association also provides hospital trustee education.
Leifer says educational programs for rural hospital trustees should be contextualized. “These people don’t have time for broad-based education that’s theoretical. It absolutely has to be within the context of the ongoing viability and survival of their hospital.”
Affiliation vs. independence
One of the most crucial decisions facing rural trustees today is whether their hospitals should remain independent or affiliate with a larger health system. “They must be objective when assessing opportunities for merger, acquisition or affiliation rather than being guided by distrust of other providers or concern over abdicating their responsibility to the community,” Leifer says.
Putnam says whether to affiliate is the most common question that small, independent community hospitals must deal with — and it’s a tough one. “When you make the decision to affiliate with a larger system, you’ve given up your hospital’s mission. That mission goes away, and it’s replaced by whatever the system’s mission is. That could be better and that could be worse, but it’s definitely different. So, independent community hospitals struggle with that.”
Affiliating with a larger system frequently results in a different role for the trustees of the smaller hospital. That role may vary, depending on how tight the affiliation is. “I would say, as a general principle, that local community boards are important, particularly around the issues of quality, safety, physician credentialing and assessing and advocating for the community need,” says the AHA’s Combes. “They’re going to be the closest people to that community.”
GRMC is an independent hospital but has an affiliation agreement with Mercy Health Network, based in West Des Moines, Iowa. “It’s given the board access to a number of resources that it would not have had otherwise,” Reding says. “For example, a representative from the Mercy organization attends our board meetings and is able to report on trends and best practices they see among other Mercy-related organizations. We’re able to turn to Mercy for recruitment assistance and participation in group-buying organizations.”
CEO Linden says GRMC is currently evaluating its agreement with Mercy Health Network “and looking to see if a tighter relationship may be of value to us as we move forward. It could be a management contract with the Mercy Health Network. It also could involve a complete ownership arrangement.”
Beartooth Billings Clinic, a 10-bed CAH in Red Lodge, Mont., is affiliated with Billings Clinic. “We are still autonomous,” says Linda Harris, a Beartooth trustee. “We’re a 12-member board. Three of those members are appointed by Billings Clinic, and the other nine members are community members.”
Harris says the local board “is responsible for everything that happens within our facility. We set and maintain our budget. We have our quality standards and all of our same committees.”
Nicholas Wolter, M.D., CEO of Billings Clinic, says the two entities are “pretty tightly integrated. Billings Clinic employs the physicians. We employ the physician CEO and the chief administrative officer. But, as Linda said, the board remains independent except for a few reserve powers.”
The current relationship between the two Montana entities was finalized in 2010 — the year Beartooth Billings Clinic opened a new medical facility — following about 10 years of discussion. “We were very aware as a board that the status quo of our operating as a silo and trying to be viable on our own was not going to be an option that would continue to provide health care to our community,” Harris explains. “We didn’t have the financial depth. And with an average daily census of two to three patients, any change in reimbursement or market share has a huge effect on us.”
Julius A. Karash is a contributing writer to Trustee.
For Rural Boards, an Imperative to Change
Integrated governance, megaboards and 'coopetition' are among the options to consider. Here are 7 concrete steps to move forward.
One of the cherished qualities of rural health care boards is that trustees have a deep and vested interest in doing right by their organizations. They tend to be civic-minded, pillars of the community, influencers, thinkers and local philanthropists. They are people who know the institution on whose board they serve — often a stand-alone hospital or regional system — and know the leaders of that hospital or system by first name and sometimes even as neighbors.
The close-knit, community-oriented type of board has been good for rural health care. Change is afoot across the industry, of course. Initiatives that, for example, promote population health and a continuum-of-care model of delivery are complicating matters for rural boards that have maintained a traditional acute care, fee-for-service mindset. The immediate and long-term challenges run the gamut from finance, technology and human resources to infrastructure [regarding the latter, see “Outpatient Care Inspires New Building Design,” Trustee, September 2015].
The transformation of rural organizations often involves affiliating and partnering with regional and even national entities, and this trend figures to continue as technology and financial models also evolve [see “Rural and Independent Hospitals: Going It Alone or Teaming Up?,” H&HN Daily, Feb. 5, 2015].
Executives with whom we speak at rural facilities understand the imperative to change, as do their boards. There is an inevitable lag, however, in trustees’ ability to adapt and anticipate their organizations’ future needs. This includes not just the boards of traditional critical access and stand-alone community hospitals, but also smaller and regional systems that are often the sole providers in their areas.
In rural health care, it is usually executives rather than the board who drive an organization’s march into the future. New ideas are being circulated, however, to make rural hospital and health system governance more nimble and proactive — more attuned to board best practices across the industry. A concept proposed by the University of Iowa’s Rural Policy Research Institute, for instance, is the adoption of integrated-governance models, including the creation of megaboards that would foster collaborative, regional expertise and the sharing of practices in lieu of organization consolidation [see “Advancing the Transition to a High Performance Rural Health System,” RUPRI Health Panel, Nov. 19, 2014].
“Integrated governance is the most critical and necessary condition for a successful and sustained transition to a high-performance, rural health system,” the Iowa researchers write. “The new entity — which could be in the form of a consortium, an alliance, a coalition or a foundation — must have strong, knowledgeable leaders representing stakeholder and community constituents, yet the entity must also have leaders who are willing to work toward a new, shared vision of system development, even if it means a departure from legacy interests.”
Burning governance issues
Integrated governance is an exciting concept that will continue to develop. In the meantime, rural boards are focusing on immediate concerns. The trustees at Hancock Regional Hospital in Greenfield, Ind., have many burning issues, most of which are related to finance and growth: reducing cost per unit of service, developing population health operational and analytic capabilities, and developing payment mechanisms to transition from volume to value. Reducing expenses is “absolutely top of mind,” says board chair Jim Miller, working more closely than ever with President and CEO Steven Long. “The board is retaining its past focus on quality of care, financial performance and operational excellence while adding oversight for the areas of Medicare gap, population health and payer contracting.”
Hancock, through the necessities of its recent affiliations, is heading in the direction of more integrated governance. It has formed an accountable care organization with three other suburban hospitals in central Indiana, with each hospital’s board chair serving on the ACO board. In addition, Hancock is one of 11 hospital owners of central Indiana’s Suburban Health Organization, whose boards occasionally interact.
For Sanford Health in North and South Dakota, the No. 1 priority is tracking and adopting new reimbursement models for critical access hospitals. Another priority is physician recruitment. “New [physician] recruits are not picking rural America,” says Vice President Randy Anderson, who serves as liaison on numerous network boards.
Is Sanford changing its board with the times? Certainly, Anderson notes. It is working more closely with its executives on operational and strategic matters, though there is always a fine line as to how engaged a board should be. “Getting clarity on roles and responsibilities is a must,” he says. It has not yet pursued any formal integrated governance with other organizations, though the reality of “coopetition” in today’s health care world cannot be ignored, he adds.
The board of T.J. Samson Hospital of Glasgow, Ky., is placing a greater focus on marketing as it seeks to expand its service area and patient volume. The board, too, must expand its reach, says Michael Bryant, a trustee. “It is important to cast a wider net in securing new board members,” he says.
Serving less populated communities can be a double-edged sword for rural boards, says Daniel Schuette, board chair of St. Charles Health System of Bend, Ore., and member of the American Hospital Association’s Committee on Governance. There is less competition with other providers but, in turn, less impetus for boards to be aggressive and progressive. St. Charles has made a conscious effort to communicate and collaborate more with other boards, particularly as it has begun recruiting trustees outside its service area.
There are simple, concrete steps that rural health care boards can take to reimagine their composition and roles, and to prepare to adapt with the times.
- Conduct regular board succession management. Succession planning for CEOs and other leaders is something most boards and their executive committees are quite comfortable with (though perhaps do not do proactively enough; a survey Witt/Kieffer conducted suggested that roughly 40 percent of health care CEOs nearing retirement had conducted formal succession planning with their boards). Boards also must address their own directors’ succession to ensure the intermittent influx of new members and fresh ideas. We recommend that, at roughly two-year intervals, every board conduct a self-assessment and/or gap analysis to identify experiences, skills and knowledge needed to address future needs. The board then can consider whether those needs or gaps can be addressed by developing current members or via new-member recruitment.
The president of one rural hospital notes that his organization had added advisory members to its group of locally elected trustees. In addition to adding a “wider array of experience and diversity” to the board, it allows for better succession planning as long-term trustees conclude their service.
- Take a skills- and competency-oriented approach to board composition. This includes skills audits and analyses of the board’s current composition and capabilities. A competency grid that is updated regularly is a fundamental tool for every board [see “Sample Board Competency Grid”].
- Emphasize managed turnover. This includes the negotiation of proper term limits, if necessary, to ensure healthy turnover. Board chairs should serve no longer than a few years, and member terms should not run longer than three or four years, with options for additional terms. It is common for boards to recruit trustees today with an eye toward their serving just one or two terms. Onboarding plans should be devised for new members, with measurable metrics and milestones, and reviewed by a nominating committee approximately every four months.
- Rightsize. Simply put, is the board too large or small? It’s a question that each board must ask every few years, or whenever significant change happens. Development or revision of a competency grid can support these discussions.
- Recruit “out-of-community” members. While local community members are the lifeblood of most rural boards, it makes sense to look outside one’s traditional sphere if it means acquiring skills or competencies that are sorely needed. Not all providers have access within their service areas to qualified experts in, for example, information security, capitation or risk management [for more insights on the topic, see “Recruiting the Right Mix,” Trustee, June 2013].
St. Charles Health System recently recruited two physician members from outside its service area, since its own physicians, as employees, may not reside on the board. “It has improved our governance considerably,” says Schuette. The outside members have brought insights from their own systems, and have spurred conversations that might not otherwise have taken place, he says. It is also a step toward greater board communication with other systems’ executives and trustees. Looking further afield for board members can put a strain on budgeting and scheduling, but is worth it if it means getting expertise otherwise lacking.
- Consider compensation. More boards are now compensating members for their time. 2011 Governance Institute data noted that 15 percent of nonprofit health care boards were paying their members (up from 10 percent in 2009). These are primarily larger system boards, of course, but compensating trustees in rural settings could be money well spent [for additional background, see “The Board Compensation Debate,” Trustee, May 2014; also see “Compensation for Nonprofit Health Care Board Members: The Right Path or a Minefield?” Inquiry, Spring 2012].
- Realign your relationship with the CEO. To encourage more timely and strategic coordination between the board and CEO, it may help to alter traditional dynamics between the two parties. This would mean more regular engagement and collaborative decision-making around such topics as strategy, mission and vision, risk management and performance metrics. Boards must maintain an objective distance from their CEO, and yet the risk is high if they are not on the same page about the organization’s future.
That boards need to change is simply a matter of fact — in rural health as in most industries today. This will require shifts in their approach to membership, composition and the conditions by which they operate. These changes will pay off as long as rural boards maintain the same passion and relationship with their communities that they have always had.
Beth Nelson (firstname.lastname@example.org) is a consultant in the health care practice of Witt/Kieffer, Oak Brook, Ill. Jim Gauss (email@example.com) is a senior partner in the firm’s health care and board services practices.
8 Front-burner Questions
Every board encounters its own specific challenges, but we believe all rural boards should make sure they are asking themselves the right questions to address these challenges. This checklist includes questions that boards of rural hospitals should have on their front burners for 2016:
- What strategies have we designed around patient experience and clinical transformation?
- Are we sufficiently included in key local and regional health plan initiatives?
- What are the financial underpinnings of our current funding?
- Do we have the clout to help shape a public policy agenda?
- Do we have support for our technology needs (clinical and other) of the future?
- Can we recruit and retain the management talent that we want (including clinical leadership)?
- Can we recruit and retain physicians, nurses and other caregivers?
- Are we able to attract the board members we need for the future?
The last three questions are related specifically to recruiting and talent management. Answering tough questions related to personnel and leadership will be critical if rural organizations are to effect the changes they envision. In other words, creative partnerships and financing models, megaboards, telehealth initiatives and other pursuits won’t pay off if an organization, and its board, do not have the right people and vision. — Beth Nelson and Jim Gauss
Long gone are the days when rural hospital trustees could carry out their duties by merely attending board meetings where they listened to reports from the administration. With rural hospitals facing growing pressures, the responsibilities of rural hospital trustees are more demanding than ever. One of their greatest responsibilities is to become and remain educated about the issues facing their hospitals and the needs of their communities.
Todd Reding, board chair of Grinnell (Iowa) Regional Medical Center, offers this advice for potential and current rural hospital trustees:
- You’ve got to be willing to dedicate the time it takes to be a board member. If you’re not able to dedicate the time it takes to digest all the material that comes to you, you’re not going to be successful.
- You can never stop learning. You have to constantly be reading and staying up to date on the latest challenges and trends and best practices. You have to learn from other boards, your hospital association, the administrators.
- Circulate inside the hospital as part of your regular routine. I am in the hospital a minimum of once a week. I try to have lunch with physicians and staff and other board members. Interact with the hospital community. Board members who just come for meetings are not well-informed.
- When considering an affiliation or merger with a larger system, rural trustees absolutely have to start with addressing the community need. How can we provide the highest-quality health care for the greatest community need? Go from there. Don’t get caught up in egos and job titles and brands.