After Lee Memorial Health System's proposal to acquire two HCA-owned southwest Florida hospitals became public, leaders of the Fort Myers public hospital system explained they'd had no choice in keeping deliberations quiet.
Nashville-based HCA, a for-profit system that had been expanding one of the two facilities involved, had been positioning itself to focus on better-reimbursed patients, "which would have been devastating to our public system," says Richard Akin, Lee Memorial's board chair. But HCA officials wouldn't even discuss selling Gulf Coast Hospital and Southwest Florida Regional Medical Center without a strict confidentiality agreement, says Akin, who joined the board shortly after and has been briefed on the negotiations.
"They said, 'If this becomes public, don't call us back,'" Akin says. "In other words, they weren't willing to do the deal in public. That's by far the main reason it was not discussed publicly."
The acquisition, which gave Lee Memorial a dominant position in the Fort Myers region, was presented to and unanimously approved by the board after a lengthy meeting Aug. 31, 2006, and was finalized later that fall. Akin, one of the incoming members who defeated an incumbent in the election that same fall, acknowledges that the lack of prior public input created a community rift. "The public was incensed, the News-Press was incensed and the doctors were incensed," he says. "It created a sense of distrust that we still haven't gotten past."
Hammering out a strategic direction amid a volatile health care environment — under the klieg lights of public scrutiny — is no easy task, as the leaders at Lee Memorial can attest.
Unlike boards for nonprofit and for-profit hospitals, directors of publicly funded hospitals must navigate open disclosure requirements and often reach decisions with a mixed bag of personalities at the table, either elected or appointed.
Some board members may lack health care expertise while others may become disruptive or so-called "one-issue" members, pushing a specific agenda. Forcing off renegade members can be difficult to impossible, depending upon the state laws involved. As a result, public boards enjoy less flexibility to develop the type of cohesive board needed to tackle today's health care complexities, according to hospital leaders and governance experts.
There are ways, though, that board members, with the support of a strong chief executive, can counteract these hurdles, they say (See sidebar below). Educational sessions and board retreats can help bring members up to speed and more quickly address any problems with board dynamics. Talented local residents can be cultivated to offset gaps in board expertise. And committees can be structured so they complete significant board business in smaller groups while still keeping the full board apprised.
Running a public hospital system requires more communication, particularly as financial challenges make it increasingly difficult to meet all of a community's health needs, says Michael Covert, chief executive of San Diego-based Palomar Pomerado Health. But, he adds, "I am one of those people who actually likes working in the public setting, because you know who the owners are. That grounds you."
But some governance experts worry that the constraints placed on public boards are too cumbersome and, to be blunt, counterproductive. James E. Orlikoff, a long-time health care governance consultant based in Chicago, falls into that group. He's a strong proponent of public hospitals restructuring themselves, ideally as nonprofit 501(c)(3) entities, although some public hospitals have adopted other structures, such as creating a governance authority for the board.
The need for strengthening the governance of safety net facilities has never been more acute, Orlikoff says. Public hospitals hit the headlines because "there are more problems with governance in public hospitals," he says. "And, when there are problems, they can't deal with them. Look at the big wigs — look at the crown jewels. Parkland in Dallas: big trouble. Grady in Atlanta: big trouble. Cook County in Chicago: big trouble."
Open Meetings Window
Roughly one-fifth, or 1,100, of the 5,000 U.S. community hospitals are classified as state or local government hospitals, according to American Hospital Association data. Larry Gage, former president of the National Association of Public Hospitals and Health Systems, estimates that a minority of board members, fewer than 20 percent, are elected.
But even appointed board members can feel pulled crosswise, says Gage, president of the national association for three decades until last year and a partner specializing in health care law at the Chicago office of Ropes & Gray. "I think certainly in many instances board members who are appointed by elected officials can struggle with balancing the political demands on them with their fiduciary duties," he says.
Public trustees are all united by one common challenge — how best to perform the bulk of their business and related discussions in public view. Many years ago, someone from a competing hospital regularly attended Lee Memorial's board meetings, recalls Jim Nathan, the system's long-time CEO. "We knew her family, we knew about her children. She might as well have been one of our board committee members."
Meeting in public can constrain the type of give and take needed to hash out complex decisions, says Pam Knecht, president of ACCORD LIMITED, a health care consulting firm based in Chicago. "People don't want to ask dumb questions in front of the media or the public," she says. "And they don't want to ask questions that could be spun in a way that makes it sound like something negative is going on."
Some public boards go to considerable lengths to discuss dicey issues in relative privacy, says Orlikoff, who estimates that he's worked with more than 150 public boards through the years.
One board scheduled meetings at unusual hours, such as 6 a.m. on a Monday or 7 p.m. on Christmas Eve, he says. A more common work-around, one that Orlikoff has encountered at least 15 times, is when a board creates two agendas. One is a boring, posted agenda to work through if members of the public or media are present. If everyone leaves, they jettison that plan and start hashing out the strategic challenges of the day, he says.
"Agenda No. 2 oftentimes isn't written down anywhere," Orlikoff says. "It's a hidden agenda, quite literally."
Alternatively, in states that allow a few board members to meet without violating the open meetings law, the committees might be structured with relatively few board members, Knecht says. Thus, the bulk of hospital business gets done at the committee level. "The challenge then is to make sure that the full board really feels informed about what's going on at the committee level," she says.
To keep other members in the loop, Knecht advises committees to create a summary report, focusing on items that require the board's input, rather than just handing over the minutes to sift through. Knecht and other governance experts also recommend taking every opportunity possible to build board cohesion through meetings and educational dinners on broad subjects related to health care, but not specifically to hospital business.
But the restrictions on smaller gatherings of board members can be quite limiting, depending upon the state law involved. In some states, such as Florida, a gathering of just two board members can constitute a public meeting (with some exceptions, such as portions of the meeting that involve patient quality assurance issues). Otherwise, under Florida's Sunshine Law, nearly any gathering of two or more board members falls under the open meeting requirements, regardless of setting, if business is discussed on which "foreseeable action" might be taken.
The spirit of the law "is well-intentioned," says Akin, Lee Memorial's chair. "But sometimes when I have a member who doesn't understand — let's just say, contribution margin — I really would like to be able to take him aside and have a cup of coffee and explain how it works. But I can't."
In Washington, where open meeting requirements provide a bit more latitude, members can discuss issues related to hospital business as long as they don't comprise a board majority. So when a new member joined the five-member board at Kittitas Valley Community Hospital last year, president Joan Baird Glover was able to spend considerable time briefing her about the 25-bed critical access hospital in Ellensburg, Wash.
Glover reviewed the bylaws, helped the new member sort through board packets and set up a series of meetings with the hospital's senior leaders. "Then, she and I had a series of lunches in which I was serving, I guess it would be correct to say, as her mentor," Glover says.
Two critical components are needed to build and sustain a strong hospital board, Orlikoff says. First, he says, is the opportunity to select your own members; the second is the ability to remove a member for cause. "Public hospital boards have neither of those," he says.
To develop a strong mix of board expertise, and identify like-minded individuals, some public hospital boards strive to grow their own. When the board at Kittitas Valley Community Hospital needs particular expertise on one of its subcommittees, members will approach a knowledgeable local resident, Glover says.
Lee Memorial adopted a similar tactic with its subcommittees more than a decade ago, Nathan says. When the health of the board's financial expert began to decline, it became clear that more finance expertise was needed. Today, several committees, including finance, planning and quality, include nonelected members, all of whom are appointed for one-year slots.
Once a nonelected expert accepts the appointment to a subcommittee, he or she is subject to Florida's open meetings and open records laws. These nonelected experts provide input only, based on their expertise; the board members make the final decision, Nathan says.
Despite such proactive efforts, it can take only one disruptive member to upset board equilibrium, says Ben Lindekugel, who directs member services for the Association of Washington Public Hospital Districts. As a preemptive move, Lindekugel advises his public hospital members to write down the rules that govern board processes, including running meetings and an ethics code, as some examples.
"What happens is that if you don't do that, and then you get somebody who comes on the board who really is out to 'shake it up,' and then you start imposing order on what had been a fairly informal process, then it's much harder," he says.
Another insurance strategy that Lindekugel suggests: educate the community as to what the public hospital is doing and why. "So the ground is less fertile for people to come in and feel the need to reform," he says.
Since 2005, Kittitas Valley Community Hospital has held several community roundtables each year, with between 15 and 20 people invited each time, says Glover, who has served on the hospital's board of commissioners since 1996. The events, which combine a hospital tour with dinner and an educational session, are designed to inform participants about the hospital's workings, she says. "In a small community, word of mouth is one of the primary ways of communicating."
The reaction to the HCA acquisition was swift, as local newspaper clips illustrate. One piece, referencing how Lee Memorial owned five out of the county's six hospitals, described how some critics had dubbed the expanded health system a "Leenopoly."
According to details that Nathan provided the local media shortly after the HCA acquisition became public, the health system's enabling legislation had provided him general authority to initiate acquisition discussions without explicit board approval. In June, Nathan informed the then board chair about the discussions with HCA and the related confidentiality agreement. In August, prior to the Aug. 31 public board meeting, Nathan and a few key hospital staffers held a series of meetings with individual board members about the potential acquisition.
The news coverage also reflects the Southwest Florida system's efforts to rebuild community trust. In early 2007, the board meetings were moved from 2 p.m. to 6 p.m. to encourage attendance. Akin stresses that openness is the default board approach today, even when strategic and acquisition issues are involved. "I think we would be taking a huge step backward to start having closed meetings," he says.
For example, the health system is interested in joining forces with some local doctors to more aggressively go after managed care contracts, Akin says. That process is unfolding in public view, he says.
Moving forward, can public hospitals like Lee Memorial overcome their governance constraints to survive and thrive? In some senses, public facilities have inherent competitive advantages in today's transparent age, Nathan says. "We've had to live to some degree with that transparency forever," he says.
Public hospitals should consider their structural options, Gage says. But converting to a nonprofit entity doesn't always make sense, particularly for urban-based facilities that depend upon significant Medicaid and other public funding streams, he says.
Orlikoff counters that public boards shouldn't be quick to assume that the funding benefits are substantial. A good exercise, he says, would be to calculate the precise dollars involved. Then weigh if the resulting public revenue raised, now and moving forward, sufficiently offsets the hurdles involved in public governance.
Ultimately, the precise structure of these safety net facilities matters less than their long-term survival, Orlikoff maintains. "Isn't the better measure of success how well it [the hospital] performs the safety net function?"
Charlotte Huff is a writer in Fort Worth, Texas.
Sidebar - Solidifying the CEO-Board Bond