Board oversight of community benefit activities may correlate to increased operating performance in community health systems – and a lack of board oversight with respect to community benefit matters may correlate to low performance overall.

Background

A recent report summarizing and analyzing research funded by the W.K. Kellogg Foundation and Grant Thornton, LLP indicates that there are “substantial gaps” between the current state of governance practices at community health systems and accepted tenets of good governance. The research described in the report, which was led by Lawrence Prybil, Ph.D., included surveying 123 community health systems and conducting interviews with board members of 10 high-performing systems. The survey covered a host of governance issues, including: board size and diversity, committee organization, performance evaluation, oversight of community benefits, and quality. For purposes of the research, participating systems’ performance was classified as “high,” “mid-range,” or “low” based on: (1) the three-year operating performance of each system’s hospitals as derived from clinical, efficiency and financial data collected by Thomson Reuters Healthcare and (2) each system’s governance practices and structure in relation to identified good governance benchmarks. Systems that ranked in the top third for both measures were designated as high performers. Likewise, systems that ranked in the bottom third for both measures were designated as low performers. All other systems were designated as mid-range performers.

Findings

The study described in the report was not designed to analyze statistical relationships between adherence to good governance benchmarks and operating performance.

Nonetheless, the report suggests that, in certain areas, the gaps between actual board performance and good governance standards are significantly greater for low and midrange performing systems, and are significantly smaller for high-performing systems. This correlation is due, at least in part, to the manner in which high-performing systems are defined in the research. As is set forth in the forward to the report, however, some of the correlations identified in the report “offer a compelling argument” for boards of community health systems to adopt the principles for good governance described therein.

Of the nine areas identified in the report as those in which the governance practices of boards of high-performing systems more closely approximate accepted good governance standards than those of mid- or low-performing boards to a statistically significant degree, four relate to community benefit matters and activities. Specifically, the research indicates that high-performing systems are more likely to (1) regularly engage in formal discussions about community benefit responsibilities and programs, (2) collaborate with other local organizations in community needs assessments, (3) have a system-level policy and a formal system-level plan with measurable objectives for the system’s community benefit activities, and (4) have boards that regularly receive reports on the organization’s performance in relation to community benefit programs.

Other statistically significant differences between high-, mid- and low-performing systems were identified in the following areas: (1) systems where the responsibilities of board committees are set forth in written, board-approved documents, (2) systems where the CEO believes the existing process for evaluating board performance is effective, (3) systems whose CEOs believe their board’s present processes for setting job expectations and assessing their performance are effective, (4) systems whose boards engage in a formal assessment of how well they are carrying out fiduciary duties, and (5) systems whose boards are actively engaged in the decision-making process and whose members openly and constructively challenge each other and the management team.

Practical Implications

Hospital and health system management teams and boards should review their current governance standards and practices for areas where the same can be aligned more closely with generally accepted standards of good governance, particularly with respect to community benefit programs. In fact, the report offers several recommendations for community health systems and their CEOs. Among these recommendations are to: (1) adopt a system-wide policy regarding the system’s role and obligations in providing community benefit, (2) collaborate actively with other organizations in ongoing community needs assessments, (3) adopt a formal community benefit plan that states the system’s objectives in clear, measureable terms, (4) ensure that reporting and accountability mechanisms to monitor progress are in place, and (5) provide thorough reports to communities served on a regular basis, at least annually. Of course, as is set forth in the report, each system’s plans, policies and reporting procedures should be consistent with applicable state, federal and local law.

Members of Drinker Biddle’s Health Law Practice Group are assisting our health care clients in addressing these and other governance-related matters. Please contact any member of our team if we can be a resource for you or otherwise assist in evaluating and enhancing your organization’s governance processes.