How healthcare reform has changed the business of hospital boards
Historically, hospital boards consisted of local community leaders around a table where presidents of local banks and owners of local businesses discussed hospital matters. Gather a large group of local leaders together — all of whom have similar vested interests — and the discussions will be, presumably, polite.
Until healthcare reform came along, that is.
Once a forum for professional networking and community involvement, hospital boards are responding to industry pressures with a more intent strategy. They have taken, for better or worse, a more serious approach to their proceedings.
"What you tend to see in boards is that a lot of socialization takes place where everyone tries to be agreeable," says Tom Flannery, a partner at Mercer. "The challenges that healthcare organizations have [now] is not so much for people to just be agreeable but for people to be able to appropriately challenge each other."
Finding those board members willing to challenge the status quo is the new focus for many hospital and health system boards, and it is pushing the traditional board recruitment process into new territory. For many systems, their pursuit for specific talent extends outside their communities and into the national level.
From board room to situation room
As Mr. Flannery said, the tone of hospital board culture has shifted. Boardrooms, which were largely social environments, now resemble Situation Rooms. For a hospital or health system to survive (much less thrive) healthcare reform, board members need to navigate some serious obstacles.
Many of these obstacles are byproducts of reform, such as hospital and health systems' expansion in size, scope and capacity. As a result, board members may be tasked to make decisions for organizations that are twice or three-times the size of their own.
"Hospital and healthcare in the U.S. has grown into a very large business," says Wayne Sensor, CEO of Omaha-based Ensocare, who was also recruited to the board of St. Paul, Minn.-based HealthEast Care System in February 2014. "You may be talking about a board with a responsibility for a billion-dollar budget. That undoubtedly surpasses the size of the institutions of any of the boards [those members] represent. By sheer magnitude, these are big complex enterprises that require changes."
These changes translate into higher expectations of board members than was customary in years past.
Ten years ago, personal passion for an institution was a prominent reason for board membership, but passion alone isn't enough anymore, says Mr. Sensor. "There's a substantially greater expectation of not only showing up, but showing up prepared to really drill into the topics and have meaningful debates for the benefit of the institution."
To facilitate those debates and challenge the organization to develop a focused and forward-thinking strategy, healthcare organizations are shifting how they approach board recruitment and redefining the types of people and qualifications they want at their table.
First, organizations are increasingly looking for board members with heightened talent and expertise in areas such as finance, risk management, insurance, technology and human resources. As board complexity increases, so does the need for specific experts.
"Board members need to understand not only the basic issues of what healthcare is about, but the complexities of financing these operations, dealing with major acquisitions, management of governance of physician practices and putting together a coherent care delivery system," Mr. Flannery says.
Secondly, the way organizations are approaching board recruitment is more focused on a fluid anticipation of needs to come, not just current issues and concerns.
Historically, when addressing an impending vacancy, a nominating committee might throw some colleagues' names into the conversation. The board would approve a name and then extend an invitation to join the board, says Mr. Sensor.
"While there's still certainly some of that occurring, I would suggest the migration is toward very intentional board succession planning," Mr. Sensor says. "The board has been thoughtful around key competencies that they will need to drive the institution to its vision and strategy….It's not a static process of simply filling a vacant seat with the same skill set. It is in the context of what knowledge, skills and experience at the board level it will take to move the institution toward its vision and strategy, which is looking down the road."
Recruitment turns transcontinental
Mr. Sensor is a prime example of a health system looking externally to find the best candidate for the board. Today, he lives in Omaha where he serves as CEO of Ensocare, a care coordination solution provider. Earlier this year, Mr. Sensor was recruited by a search firm for his position on the board of HealthEast Care Systems in St. Paul, Minn. Mr. Sensor says the search firm was seeking a thought leader with confidence to question the status quo and experience as CEO of a large institution. (Mr. Sensor previously served as CEO of four other hospitals and health systems, including Omaha-based Alegent Health.)
"The trend is consistent across the country — there's a growing realization that we may not have the talent at our immediate disposal, whether we're in a big city or not," Mr. Sensor says.
The urgent hunt for the most competent candidates also contributes to hospitals' and health systems' increasing use of search firms, which Mr. Flannery says is indicative of the changing board recruitment environment.
Mr. Sensor says the increased use of search firms applies to community hospitals and large networks alike. "If you get very intentional around understanding the talents you need, it is unlikely the institution can fill all of those needs locally. For the smaller community hospitals, it may be even more difficult to find the talent. But for the larger institutions, the bar will be higher, thus often requiring the use of a recruiter."
At the same time, hospitals and health systems need to be mindful of finding external board members that are still representative of the internal community, suggests Cindy Chandler, co-founder of Chandler Group, a Minneapolis-based search firm. "Many of the boards are still missing the diversity that represents the community they serve, and the people that serve on the board do not have access into those communities," she says. "You don't want to bring someone in from outside the community just because they will be a good board member. You identify the expertise the board and CEO are looking for in a very specific way."
Having board members serving across state lines has a handful of implications, both positive and negative. Where board members traditionally participate in key events and are public figures in a community, this is less likely if a board member lives a couple of states away, Mr. Sensor says. For remote board members, the role as a community leader is less pronounced. At the same time, Mr. Sensor says having members from outside the community reduces conflict of interest. He gives the example of a local community where a board member might live next door to a member of the medical staff who will be impacted by a key decision. "When you compare that with a board member that is external to the community, they're really not going to feel the pressure of local politics," he says.
Additionally, with modern technology like teleconferencing as well as the expansion of hospitals and health systems to maintain presence in several communities, governance isn't hampered when board members are spread across the country, Mr. Flannery says.
"These are very sophisticated men and women who are stepping into these roles, and they understand their obligations," says Mr. Flannery. "They're being very mindful of their need to participate and contribute in a very positive way….Some of these board members are coming out of big companies, so they're accustomed to the geographic spread and the governance obligations that they're signing up for."
What's more, external board members can provide valuable insight to trends, ideas and movements from the other end of the country.
"Good governance in hospital boards is a universal goal. What isn't universal is the willingness of hospital boards to bring in board members from outside their markets in order to offer new perspectives," says Brad Chandler, Ms. Chandler's husband and the other co-founder of Chandler Group. Having long-distance board members allows hospitals and health systems to ask and see what has and hasn't worked in other communities and markets. "That's where board members coming from outside the community can be very valuable."
Looking forward
Like the rest of the industry, hospital and health system board recruitment is adjusting and adapting to the new pressures and requirements needed for such organizations to stay afloat. To do so, there is an increased focus on specific talents a hospital needs. Health systems are also bringing on people with reputable qualifications that will not only help organizations get on a track, but remain on the track toward continued growth and success, which, Mr. Sensor argues, is more difficult today than ever before.
"The pressures, the Affordable Care Act and other changes in reimbursement, put tremendous pressure on these institutions," Mr. Sensor says. "When you look back 10 to 20 years ago, it clearly wasn't as difficult to be successful in the hospital world. Certainly with these pressures today, you need to operate a really well-run organization to be successful."
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