The Role of Healthcare Boards of TrusteesAn Introductory Module

Developed By:The American College of Healthcare Trustees

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Purpose

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The purpose of this presentation is to provide an introduction to the role and responsibilities of healthcare boards of trustees.

Agenda-unit one

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1. Introduction2. Duties3. Gravity of the Board’s responsibility4. Healthcare System Operations5. Agency6. Historical Perspective

Introduction

• Overview of Boards • Typical Duties of Boards• Unique Duties of Healthcare Boards• Roles on a Board

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Introduction: Overview of Boards

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• A board of trustees is a body of elected or appointed members who jointly oversee the activities of a company or organization.

• Other names include board of directors, board of managers, board of regents, board of governors, and board of visitors.

• A board's activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization's bylaws. The bylaws commonly specify the number of members of the board, how they are to be chosen, and when they are to meet.

Introduction: Typical Duties of Boards

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• Typical duties of boards of directors include:• Governing the organization by establishing broad policies and

objectives including risk management

• Selecting, appointing, supporting and reviewing the performance of the chief executive

• Ensuring the availability of adequate financial resources

• Approving annual budgets

• Accounting to the stakeholders for the organization's performance

• Setting the salaries and compensation of company management

• Strategic Planning

Introduction: Unique Duties of Healthcare Boards

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• Unique duties of boards of directors of healthcare organizations include fiduciary responsibility for:• Quality of patient care

• Regulatory compliance

• The operation of healthcare Boards of Directors often influenced by the rules of governmental agencies like The Joint Commission, CMS, and state health departments

Gravity of Responsibility

• Courts have found Members of the Boards of Directors of Healthcare Institutions individually liable for lapses in– Patient safety– Compliance with financial regulations• It is worth referring to this government website

– http://oig.hhs.gov/fraud/docs/complianceguidance/Corporate%20Responsibility%20and%20Health%20Care%20Quality%206-29-07.pdf

Directors have a fiduciary responsibility for quality and safety• Board Members have both an oversight role and a

decision making role and, in non-profits, must insure adherence to organizational mission.

• Board Members must set the tone from the top and can not delegate their responsibilities to anyone else

• Board should require reports from the medical staff, CEO and Chief Medical Officer, and nursing and hospital safety committee

• Must be knowledgeable enough to ask right questions

Compliance• Compliance is a topic of other courses by our organization

developed by major authorities in the field including our own officers and directors.

• Baker and Peterson, in their treatise, “Post-Caremark implications for HealthCare Organization Boards of Directors” published in the Seattle Journal of Public Justice in 2004 make some important points:– Concern over waste, fraud, and abuse is a top concern of Justice

Department– The Government is aware of economic benefits of qui tam

(whistle blower suits)

Baker and Peterson continued

• Executives run the day to day business but Board Members have an oversight function.– Must have requisite knowledge of the business

(hence the need for our organization)– Must have a monitoring structure in place– Members of both for profit and not for profit

corporations have the responsibility for• Duty of Care

Office of the Inspector General• Baker and Peterson quote the Office of the Inspector General (OIG) as

stating that the duty of care requires that Board Members conduct their business “in good faith” and with a level of care that an ordinarily prudent person would exercise in like circumstances and in a manner that she reasonably believes is in the best interest of the organization. Liability can stem from a Board decision considered ill advised or negligent or failure to prevent a loss from failure to act where due attention may have prevented the loss. Liability usually arises from the business judgment rule which states that the decision must be the product of a

• process that was deliberated upon in good faith or was otherwise rational. Directors may be exempt from liability under the business judgment rule if the decisions were made in good faith, the Board Member was disinterested(i.e. had no conflict of interest) was well informed, and the Board Member thought the decision was in the best interest of the organization.

OIG continued• Baker and Peterson further describe the liability of Board

Members as outlined in the Caremark litigation. It was found that the Board Members failed to address violations of federal and state law related to Caremark’s employees violating anti-kickback statutes, using illegal billing practices, billing for medically unnecessary and excessive services, illegal waiving of co-payments, and inadequate record keeping at their pharmacies. While the executive team and their managers and other associates are responsible for the day to day activities of the corporation, Board Members are responsible for maintaining adequate monitoring with a robust compliance plan. They must have a working knowledge of healthcare law.

Introduction: Roles on a Board

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• Director - a person elected or appointed to serve on the board of an organization, such as an institution or business.

• Inside director - a director who, in addition to serving on the board, has a meaningful connection to the organization . As an example, an officer

• Outside director - a director who, other than serving on the board, has no meaningful connections to the organization

• Executive director –in a not for profit organization, the officers such as president, vice president, secretary and treasurer are elected from among the membership and are voluntary or receive a small stipend whereas the executive director is the paid administrator that provides full time duties and continuity

Board Duties

• Fiduciary Responsibilities• Financial Oversight• Patient Safety• Regulatory Compliance

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Board Duties: Fiduciary Responsibilities (1/2)

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• The term fiduciary refers to a relationship in which one person has a responsibility of care for the assets or rights of another person. A fiduciary is an individual who has this responsibility. The term "fiduciary" is derived from the Latin term for "faith" or "trust."

• In a organization, the board of directors, as a body, has a fiduciary responsibility for the decisions they make with regard to organizational assets and the rights of stockholders or the community in a not for profit.

Board Duties: Fiduciary Responsibilities (2/2)

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• The fiduciary responsibilities of board members includes:• Avoiding conflicts of interest• Acting in the interest of the company rather than the

member's personal interest• Providing oversight to assure that all organizations

activities are transacted legally• Making decisions to protect the assets of the

organization and the rights of stockholders or the community

Board Duties: Financial Oversight

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• Financial Oversight refers to the supervision of financial practice and policy implementation, as well as the review and monitoring of financial transactions and reports.

• The basic requirements include:• Preparation of a Budget Plan (including anticipated revenues

and expenses)

• Processing of Financial Transactions

• Financial Review including audits

• Internal Controls

• Strategic Planning

Board Duties: Patient Safety

Source: AMA “Strategies for Leadership: Advancing the Practice of Patient- and Family-Centered Care .”

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• Boards have a duty to ensure patient safety by: • Focusing care to be “patient-centered”

• Narrowing the range in variation of care provided to patients

• Involving patients in decisions concerning their health care

• Using safety criteria from governmental and non-governmental agencies to continually evaluate and improve their institution’s performance

• Creating a “culture of safety” that focuses upon the prevention and avoidance of harm to healthcare system patients, visitors, and staff

Board Duties: Regulatory Compliance

Source: AMA website, Regulatory & Compliance Topics, http://www.ama-assn.org/ama/pub/physician-resources/legal-topics/regulatory-compliance-topics.page? 20

• Boards have a duty to ensure regulatory compliance with: • Health care organization license requirements

• Health Insurance Portability and Accountability Act (HIPAA)

• Affordable Care Act (ACA)

• Americans with Disabilities Act (ADA)

• HHS Guidelines for Limited English Proficiency (LEP) Patients

• Federal Trade Commission (FTC) “Red Flags Rule”

• Stark Law Rules

Healthcare System Operations

• The value chain• Goals

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Healthcare System Operations: The Value Chain

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• Inputs: Doctors, administrators, nurses and other associates, facilities, equipment, funding

• Processes: Patient acceptance, processing, observation, treatment, discharge, billing, organizational planning, public relationship management

• Outputs: Patient healthcare outcomes, institutional knowledge

Healthcare System Operations: Goals

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• Reduce morbidity and mortality• Eliminate “never events”• Reduce ambulance diversions• Avoid bottlenecks and waiting times • Improve staffing solutions and quality of care• Increase patient throughput and revenue • Retain staff and reduce overtime expenditures• Improve financial performance

Historical Basis for Boards of Directors

http://www.hofstra.edu/pdf/law_lawrev_gevurtz_vol33no1.pdf

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Corporate Boards have basis in law and history

• Gevurtz points out that a Board-centered form of corporate governance is well established in the law

• Predicated on the idea that:– distributed stockholders require central management to

run the company. The same would be true of a community in a not for profit

– Board centered governance is based on the (contested) concept that groups make wiser decisions than individuals

– Agency-Board must insure that officers maximize stockholders’ value (or stake holders’ value)

• History helps us understand origins of modern Director

Franklin Gevurtz- Hofstra Law Review

• Common in early medieval Europe to have a Chief Executive Officer and Board of Directors. The practice was Prevalent in:– The Church• 1059 Nicholas decreed that College of Cardinals would

elect the Pope. Debate over supremacy of College vs. the Pope in medieval times is relevant to issues of corporate governance today.

– Guilds and Town Councils were analogous to the Board of Directors whereas the citizens as a whole were analagous to the stockholders or community and of course the towns officers analogous to the executive team.

Hofstra Law Review continued

• The 1505 charter of the Company of Merchant Adventurers called for the election of “the most sadd [sic] discreet and honest persons

• Similar Descriptions often used for the most appropriate members of British town councils

• The Ipswich Town Council and other early medieval European town councils demonstrated parallels to present model of corporate governance

Hofstra Law Review• town councils could have had the executives (Bailiff, coroner, etc) run the

town under the general supervision of assemblies of the entire town but chose to have a town council oversee the executives. Potential reasons for this are that many members of the town had no interest or no aptitude for participation. A more nefarious explanation was that the wealthy land owners wanted to keep power to protect their own interests. This would be analogous to large stockholders in a corporation reserving seats for themselves or their allies. If that were the case, one would expect to see varied numbers of members on the various town councils whereas, in reality, town councils tended to have twelve members, or multiples or fractions of twelve, arguing for a theory of government rather than the number of luminaries in the town accounting for the number of town council members (analogous to governors or directors in today’s corporation

Gevurtz

One task assigned to town councils was to “render judgments” and reflected the belief that the collective wisdom of a group often made better decisions than an individual. In fact, the modern Board Member is expected to wield authority through the group as a whole rather than as an individual. In truth, this is often not the case and prominent Board Members often wield great power. The author states that the need for a town council (think Board of Directors) goes back to a doctrine in Roman Canon Law, “quod omnes tangit ab omnibus approbetur” meaning that which touches all must be decided by all. Of course, it can be disputed that groups make wiser judgments than individuals. Trial by jury seems to represent a trust in group judgment

http://www.hofstra.edu/pdf/law_lawrev_gevurtz_vol33no1.pdf• The electoral college (analogous to Board of Directors, town council) seems

to represent a compromise between the popular vote aka will of the people (vox populi) or town as a whole and the benevolent despot (Plato). The tension between Alexander Hamilton and Thomas Jefferson is well known with Hamilton fearing the excesses of the French revolution and preferring a rapprochement with Great Britain and a return toward monarchy and Jefferson fearing the concentration of power in the hands of an individual (unless he were that individual). The composition of the town council was not really determined in a democratic fashion with existing members electing new members as vacancies arose. Similarly, members of the Board of Directors of a modern corporation are typically appointed by the officers of the corporation

http://www.hofstra.edu/pdf/law_lawrev_gevurtz_vol33no1.pdf• Gevurtz notes that the parallels between the modern board

and historical counterparts is incomplete. The legal issue about whether Boards appoint or can recall officers has now been resolved in favor of the Board, although de facto deference to the CEO is often the case. Such tension between monarchs and the three estates (nobility, clergy, and burghers) was high in 18th century Europe. While councils often represented themselves rather than the general citizenry, the modern Board is meant to represent the stock holder and solve the agency issue. That is, the Board is intended to insure that the officers keep the stockholders best interests at heart. History buff’s attention is called to Gevurtz scholarly monograph

The Enlightenment in Europe1700-1800

• The concept of what touches all should be decided by all can be extended to the upheavals in Europe and to the New World during modern times

• The absolute power of the monarch was questioned• When it wasn’t practical for the entire

population(stockholders or community) to make decisions, they should be represented by an elected body such as the Board of Directors, Board of Governors, or Board of Trustees (the names have evolved over the years.

The Board Member’s Demeanor

SADD

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SADD

• Middle English for grave or serious person• Natural extension to gravitas– Merriam Webster dictionary• Definition of gravitas-high seriousness in bearing or

treatment of a subject• Examples of gravitas

– “the new leader has an air of gravitas that commands respect”

– “the comic actress (sic) lacks gravitas for dramatic roles• Origins of word gravitas- from Latin

“How to command respect and get your gravitas on” by David Peck in Huffington Post

http://www.huffingtonpost.com/david-peck/six-ways-to-command-the-r_b_2866860.html• Be poised and assured in the

value of your contribution• Use great judgment about using

assertions, questions, and silence• Avoid verbal habits such as “um”• Be confident and kind but not

arrogant• Watch your body language

– 80% of communication non-verbal

• Observe yourself and the situation as you participate

Gravitas is not a mask but a way of improving your efficacy

Gravitas or stature• David Peck, in his useful post,

http://www.huffingtonpost.com/david-peck/six-ways-to-command-the-r_b_2866860.html indicates that gravitas sometimes takes effort to cultivate. That it is a useful trait in a board member is self-evident. He indicates that it facilitates having an influential voice at “the big table”. He advocates being poised and assured in the value of your contributes. You don’t need to prove yourself. One should listen to the thoughts of content experts without being awed by them. Peck advocates using great judgment about assertions, questions, and silence. Be an active listener during silences and don’t be distracted by your smart phone or ipad. Keep assertions short and in context, and preferably about the present or future, not the past. Don’t restate others’ ideas. Avoid mannerisms or filler words such as “…at the end of the day…” Being confident and kind but not arrogant is salutary on the face of it. Using proper body language is key to establishing an effective presence, gravitas. Monitor your performance as you participate so you can make mid-stream corrections.

The Agency Issue

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The Agency Issue

• The agency issue arises because the Board of Directors is established to insure that the executive team either maximizes the wealth of stock holders or increases their value

• Executives may not be honest brokers if they act to enhance their own interests instead of that of the shareholders.

• In a for profit corporation, assets =owners equity + liabilities. In a not for profit, replace owners equity with community benefit

Agency Issue continued

• If the officers act in a fashion that would increase their compensation or perks or prestige rather than benefit the corporation’s stakeholders (stockholders in a for profit, community in a not for profit) the Board has a fiduciary responsibility to identify and stop it.

A sometimes daunting responsibility

• Even very experienced Hospital Board Members may at times find their responsibilities daunting

• The American College of Healthcare Trustees (ACHT) was founded to support our members in their efforts at wise governance.

The next slide has recommendations about questions to contemplate

Contact: David Levien, MD, MBA, FACSChief Executive OfficerAmerican College of Healthcare TrusteesTel: 443-844-9236Email: dlevien48@gmail.com

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This presentation may not be duplicated, shared, published, or otherwise disseminated without the expressed written consent of the American College of Healthcare Trustees, Inc.

Questions to contemplate

• Am I providing first rate oversight to the executive team and medical staff with regard to:– Quality of care and the patient experience– Compliance with government regulations– The financial health of our institution

• Is gravitas important? Am I leading effectively?• Are there gaps in my knowledge I would like to

fill?