Article Images

Health care is an industry constantly in flux, so there's a decent chance that your hospital has been through a merger in the past decade, is considering an affiliation right now, or will seek new partnerships in the next few years.

Each of these scenarios may make great business sense and assure a more secure future for the hospital. But for trustees, they can represent a real threat — you may be losing your spot on the board before it's all over. When organizations come together, it's likely that the resulting system won't need all those people around the boardroom table.

While there are different models of system governance depending on how integrated the organizations will be and how control will be shared, it all boils down to some basic decisions. Does everyone get a seat on a giant system board? Do some trustees get reassigned to local committees? Or does everyone get the boot so the new entity can start fresh?

Those choices are more than just procedural. The way governance is designed says a lot about the parties involved, how they feel about each other and what values are held by the new organization.

At the same time, a merger easily can be brought down by discord over decisions about choosing the CEO and the board chairman. "These are often make-or-break issues," says Larry Scanlan, a consultant and president of Insight Health Partners LLC. "They can stop a deal if they are not thought through, if you haven't fully considered what is best for the organization and for the community."

Maintaining Equality

When Health First in Brevard County, Fla., came together in the mid-1990s, the two hospitals involved were of different size, plus one was a large teaching institution and the other organization had more limited services. And yet, the resulting entity included an equal number of board members from each organization. The idea was to focus on the new system and serve what it needed, explains Mike Means, recently retired CEO of Health First.

"You can't be worrying about who has more board seats and who is in a controlling position," says Means about creating "systemness." "While those dynamics will never be absent, spending time worrying about them can be destructive."

The merger, which took place in 1995, brought together Holmes Regional Medical Center with the smaller Cape Canaveral Hospital. Means had learned from previous experience that equal representation was a good way to start off on the right foot with a new organization. "I convinced them that size doesn't matter with not-for-profits. No one has stock, the assets are entrusted to the board members."

The hospitals maintained local boards, but they were largely advisory and handled a more limited set of issues, including physician credentialing, and met quarterly. Each of the hospital boards elected its own seven members to go to the system board.

If he had it to do over again, Means says, he would still do a 50-50 board arrangement. But he would find a way to bring all the board members to the system level at the beginning to avoid the potential for hurt feelings. Doing so would have meant convening a group of 35 people or so at the beginning, which eventually would shrink through attrition using term limits.

"The fact that half of each hospital's board members didn't get to come to the system board created a little bit of resentment and parochialism," Means recalls. It can be difficult for people not to see themselves as representing a particular hospital or geographic area rather than the entire system, when that has been their orientation for a long time.

The other lesson from the Health First merger, Means says, was designing it so there was no turning back. "We referred to it as 'burn the lifeboats,'" he says. "I watched so many major systems that structured their transactions with an out clause, like two people who get married but keep their apartments. It's not a good idea. When things get tough you can walk away.

"We said, 'Nobody's going back to the ship,'" he says. "That caused us to dig in and fight. That was the key to success."

Soon after the merger, the new system chose to expand into the health plan business. That required the board to view the choice from the system's point of view. "It required a different mindset," Means says. "A truly integrated organization is very different in every facet from an organization that simply runs a community hospital."

While it's important for an integrated organization to define what it will be in the future, the process must still honor the past, says Scanlan. "There's a grieving process [after a merger]," he notes.

Affiliation, Not Merger

When organizations come together, language is key. Elkhart (Ind.) General Hospital and Memorial Hospital of South Bend avoid the term "merger" in describing their recent affiliation. "The reason for the affiliation is to ensure that EGH can continue to serve the people of Elkhart," the hospital says in an FAQ about the move. "The equal structure of the new parent organization board prevents either hospital from dominating. Elkhart General will retain our separate board and report to the new parent organization in a structure of true partnership."

Though Memorial is about two-thirds of the new organization, the system board has seven members from each organization, and local boards at each hospital will maintain committees relevant to local needs, such as quality, credentialing, patient experience and community health. Philip Newbold, president and CEO of Memorial for the past 23 years, is CEO of the new system, and Don Krabill, chairman of Elkhart's board, will lead the system board.

"We'll alternate for a few terms, but eventually all that will go away, and it won't make any difference where you work, where you live," Newbold says. "We'll select the best board members. Initially, though, there's an awful lot of equalness."

Newbold expects it will take some time for system trustees to start thinking in terms of the whole system rather than just their home hospital's interests. "You have to look at issues across a system of six or seven counties rather than one institution or another," he says. "The board has to get used to thinking broadly." It helps that the two hospitals have a lot in common, including about 137 community physicians who are common to both medical staffs; they have the same radiology group and the same pathology group.

To move that process along, one of the new board's first tasks was developing a strategic plan for the system. There's also work on integration along major clinical service lines and a common information technology platform.

The board also went on several big retreats to do some deep thinking about what being in a system means and what the new organization's values should be. A group of about 25 went through the process together and came up with a preliminary value statement and vision.

Streamlining for Efficiency

Sometimes, even if the governance arrangement is thought through carefully at the time a system is created, adjustments need to be made down the road. That time may be coming for many systems that formed during the integration rush of the 1990s. Saddled with multiple boards and layers of decision-making, these systems are looking at board consolidation as a way to streamline governance.

"As systems continue to grow with the addition of hospitals, physician groups and ancillary providers, the question that's always worth asking is whether there is a compelling reason to continue to maintain all of the boxes on the corporate organizational chart," says Monte Dube, a Chicago attorney and consultant. "Do they facilitate mission alignment or inhibit it? In my experience, simpler is better."

The move toward streamlined governance structures also is being driven by the quality movement, which requires systemwide evaluation and coordination, says strategy consultant Marian Jennings. "When you say our system should stand for a certain standard of quality and service and access, how do you do that in an organization where you have these multiple boards and multiple quality committees? The likelihood [that] you can drive a quality agenda across the organization is small."

That's what leaders of Care New England Health System in Providence, R.I., decided after 15 years of being together but, in reality, functioning as a federated group of organizations acting largely independently. The system (an acute care hospital, a behavioral health facility, a maternity hospital and a visiting nurse association) had governing boards at the system level and the individual organization level. But all that structure was cumbersome, and many key decisions had to go through multiple approvals. It left the system vulnerable in a fast-moving health care marketplace.

The move toward tighter integration had been delayed in part, says new CEO Dennis Keefe, by distraction from three failed merger attempts with larger organizations. "After 10 years of thinking your future will be part of another system's, then [having] that not happen, the board had to change its approach," Keefe says.

With strategy help from consultant Jennings, Care New England looked toward a future on its own, pulling its four parts together into a more unified whole. Central to the project of more closely integrating the organizations was restructuring governance, which was spearheaded by longtime trustee George Shuster, a now retired textile executive, who enjoyed widespread respect among his peers on the board. "You need to have that integrity, respect and trust among the board leadership and with the presumptive board chair to have this get off the ground," Keefe says.

"What we really had was very decentralized," Shuster says. "Each hospital had its own board acting in a very autonomous manner. We had operating unit boards that were pretty much acting on their own making decisions for their own [respective] hospitals that were not always consistent with what the whole system was trying to do. That led to some missteps."

Under Shuster's leadership, the system board created a large planning committee including representation from all the boards at all levels, a total of more than 40 people. That group took its time talking through the issues, something Shuster believes is essential.

"Whenever there's change, there's initial resistance," he says. "If you try to do it too fast, you'll never get over that resistance. If you take your time, talk things through, when it does happen it will be a lot more complete. We spent a whole year on this, and it seems to me, looking back, to be about right."

The meetings were not overly structured, but moved naturally through the topics at hand. Once consensus was achieved on an issue, it was resolved and set aside without drawn-out efforts to come up with a perfect solution, Shuster says. "We couldn't have sketched out where we were going to go on Day 1; we just let it evolve."

Jennings helped focus the group's thoughts about the level of integration, offering four models of governance along an integration continuum. The group settled on the second-most integrated choice.

"We didn't centralize everything," recognizing that certain areas shouldn't be decided at the system level, Shuster says. Those included philanthropy — each entity maintained its own local foundation — and quality, which is handled at both the local and system level. The local quality committees focus more on credentialing and quality improvement projects specific to their facilities, while the system board looks at quality from a bigger perspective, responding to payer quality initiatives and measures maintained on the system's balanced scorecard.

The difficult balance between keeping interested trustees involved and streamlining decision-making was achieved by maintaining a "robust" committee structure. "You start with roughly 80 people and now you have a new board of 18," Shuster says. "You've just disenfranchised some very hardworking, very energized people who don't have an ongoing role. That's not going to be good for the organization."

So the committees, most of which are maintained at the system level, still allow trustees to be engaged in the areas in which they are most interested. The new system board is populated with people who tend to have more of a system orientation rather than a strong interest in any one of the business units.

Terms are three years, and there is a limit of two terms per member. Future board members will be chosen more for skill sets than for geography.

One way the board and its committees will build "systemness" is to hold each board meeting at a different location in the system. There was also an initial training session that allowed the trustees to visit each of the hospitals and the visiting nurse association.

The transition has gone well so far, Shuster and Keefe report. "We can already see that some of the resistance that's natural in the earlier days of the system, and what we observed in the first meetings of the superplanning committee, are noticeably gone," Shuster says. "The identification with any given hospital that you used to see is really not there anymore. It's amazing how quickly that evaporates."

Pressure to Integrate Quickly

While it makes sense to invest time in the process of consolidating boards — and to involve as many people as possible so everyone is comfortable with the changes — consultant Jennings says there is less time than there used to be to ease transitions. "If you formed a system in the 1990s, you actually had a decade to realize this is a cumbersome structure and had a fair amount of time over five to eight years to go through a restructuring," she says.

But things are changing faster now. "Time is of the essence. The markets are too challenging right now to take that time. You may not be as agile as you need to be in your market," she says.

Jennings is a big fan of integration in a delivery system, with a competency-based board. She recommends that systems going through integration now put the board consolidation on a fast track rather than keeping a lot of people on board for political reasons. "They should take the biggest step possible to get as integrated as possible as quickly as possible," she says. "You take the time in the process to engage constituencies. But, given that each step is painful, sometimes it's easier to take one enormous step and get it done."

Jan Greene is a freelance writer in Alameda, Calif.

Online Exclusive

What does shared governance mean for an accountable care organization? Read about the structure of an ACO governing body in the Web-only feature "Building the ACO Board".

Sidebar - How to Build the New Board


Future orientation

Fiduciary responsibility for new entity

Focus to achieve merger objectives (not represent legacy organization)


Skill-set matrix to bring required talent to boardroom


Ability to grasp issues and respond quickly (12-18 members)

Term limits

Attention to skill-set matrix and market changes that require new blood

First board chair

Promotion of oneness of new organization, mentor to new board


Establishment and monitoring of standards for governance performance