A new report projects 10 governance trends for nonprofit hospitals and health systems in 2014.
The report was prepared by Michael Peregrine, JD, partner with McDermott Will & Emery in Chicago.
1. Standard of care. The fiduciary standard of care for health system directors will become more rigorous as systems' scopes of operations and the value of charitable assets under control increase. "A premium will be placed on both effective management support of the board in the exercise of its duties, and greater board awareness of the responsibilities of management," according to the report.
2. Level of engagement. Boards will need an increased level of engagement from their members in terms of time commitment, level of attentiveness and constructive scrutiny, according to the report. Other measures to increase governance efficiency, such as committees and board-focused technology, will also take on more importance.
3. Strategic planning. A key responsibility for boards in 2014 is their active participation in the development, implementation and periodic modification of comprehensive strategic plans for their systems. Special attention will be expected for challenges stemming from the implementation of the Patient Protection and Affordable Care Act, too.
4. Board composition. The director nomination process will become more focused on candidates who have "the competencies necessary to address emerging operational needs," such as population health, insurance capabilities, health IT and quality. Rather than "prestige" appointments, "fitness to serve" requirements will become more popular.
5. Compliance oversight. A slew of factors, including the Tuomey decision and increased qui tam activity and anti-fraud enforcement, are requiring more vigorous compliance oversight from system boards and how they approach legal risks associated with particular transactions and arrangements.
6. Risk reporting. "The board and management will be expected to work together to develop an effective mechanism by which risks that 'keep management awake at night' are promptly communicated to the board, in appropriate format and context," according to the report. A board-driven corporate culture means management is encouraged to report bad news to the board.
7. Governance structures. Boards will evaluate the long-term effectiveness of their current governance structures, with emphasis on board size, composition, committee structure, reporting relationships and reserved powers. This evaluation is sparked by the "seismic reconfiguration" of the healthcare industry, according to the report.
8. Heightened involvement. Leaders should be attentive to business initiatives and corporate challenges that require complete board "ownership," according to the report. "These are initiatives and challenges for which the organizational response cannot be fully, and fairly, delegated to executive management but which require extraordinary board involvement."
9. Conflicts awareness. The board as a whole must be sensitive about potential conflicts that stem further from the traditional "financial relationships" context. The report suggests that particular attentiveness be paid to risks arising from new health system business initiatives and from shared business, social, familial and civic relationships between board members.
10. The role of general counsel. "The board must work in concert with the CEO to acknowledge the increasing professional ethics challenges in the general counsel's role as both 'guardian' of the system's legal and reputational profile, and as an important business 'partner' to management," according to the report. This is particularly important as systems diversify their portfolios and face unique legal implications.
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