Executive Health Administration

Fundamentals of Hospital Board Governance

[fa icon="calendar'] Jul 17, 2017 10:18:00 AM / by USC


Think about the board of your organization. How many people are on it? How are the communities structured? Is the president or organizational leader a member of the board? How often does the board meet? Is there an executive committee?

All boards are different. When you have seen one board you have seen one board. Although every board is unique, they share common legal and regulatory characteristics.

In this article, we outline the common elements of healthcare boards and the information you need as a healthcare professional to deal effectively with boards.

What is Hospital Governance?

A working definition for hospital governance is its exercise authority, to influence, to control, and to direct.

Understanding the function of governance in healthcare, having effective board leadership skills, and a comfort level in working with boards are key determinates in the selection process for executive healthcare jobs in any organization. However, governance can be a Catch 22 for newcomers.

Let's break it down.

There are 4.5 million boards in the US, and they come in two flavors:

  1. For-Profit boards are value based on capitalistic market determinants and accountable to shareholders.

  2. Not-for-profit and government boards are value based on policy determinates and accountable to members or the state in which he is located.

Two Types of Boards by Function

  1. An advisory board provides advice and council to a higher authority. They are absent legal authority and responsibility for actions.

  2. A fiduciary board has legal authority and responsibility for the well being and success of the corporation. A fiduciary board and it's directors are individually and collectively legally responsible and accountable for its or their actions.

Statuary Duties of Hospital Board Directors

duty of loyalty which means placing the organization's interests above the interest of the individual.
  • A duty of obedience which means acting in accordance with the law and the organization's own charter, by-laws and policies.

  • A duty of caring which means acting the way a prudent person would act in similar circumstances.

These are areas of personal legal liability.

Download Dr. Carol J. Geffner's Article on Trustee Governance

Board Structures of Healthcare Organizations

There are different not-for-profit and for-profit board configurations. Not-for-profit boards focus on understanding the role of members and/or sponsors. For-profit boards focus on understanding the role of shareholders.

Board Structure for a Non-Profit Health System With a Corporate Member

non profit hospital board structure with corporate member

Board Structure for a Non-Profit Health System Without a Corporate Member

non profit hospital board structure without corporate member

Board Structure for a Religious Affiliated Health System

board structure religious affiliated hospital

Board Structure for a For-Profit Health System

for profit hospital board structure

Forming a Non-profit Healthcare Organization Board

Several items are necessary for the legal formation of a not-for-profit board.

  1. Articles of incorporation are filed with the Secretary of State. The articles spell out name, mission, location and dedication of assets to charitable purposes and specifies distribution of charitable assets upon dissolution.

  2. By laws are also filed with the Secretary of State. Simply speak to rules as they pertain to the operations of the corporation. This may include selections of members, committees, meeting times, officers, etc.

  3. IRS application for tax exempt status that's for charitable purpose and exempts the organization from state and federal tax.

Differences Between For-Profit Board of Directors and Not-For-Profit Boards

For-profit directors are elected or appointed by the owners or shareholders to govern the company. They are accountable to the owners or shareholders for the outcomes, usually financial, of the company.

Not-for-profit directors are similar to for-profit with two distinctions. First, not-for-profit owners are those with a stake in the existence or outcome of the business. That is, community served, physicians, employees, donors, volunteers, etc. Second, determination of the purpose. Why does the company exist? See the articles of corporation, vision statement and mission statement.

Board Responsibility vs. Management Responsibility

Board responsibility is deciding the right thing to do. Management responsibility is deciding the right way to do the right thing. A board responsibility is visions and strategies. These set the direction for the organization. These are an inductive process wherein broad ranges of data are reviewed to identify patterns, relationships, trends. They ask where the organization should be going. A management responsibility is tactics and plans. A deductive process is designed to produce plans, time tables and measurements. They say how the organization is going to get there.

Who is responsible for what in a strategic planning process?

The board determines areas of strategic focus. The board and management together analyze trends in each area of strategic focus. Management determines implications of major trends, proposes initiatives and is in charge of implementation and accountability.

Other duties of the board include:

  • determining the organizations mission and purpose,
  • recruiting and hiring the CEO,
  • providing ongoing support and guidance,
  • reviewing the CEO's performance, and
  • insuring effective organization planning

The board also:

  • provides oversight for the organization's programs and services,
  • enhances the organization's public image,
  • serves as a court of appeal, and
  • assesses it's own performance

Quality of Care Assurance

Quality assurance is a key responsibility for four reasons:

  1. moral and ethical obligation,
  2. legal accountability,
  3. legislative and regulatory requirements, and
  4. fiduciary responsibility.

Let's take a closer look at these four reasons.

Moral and legal obligations are required when the hospital or health system's mission statement references quality care.

Legal accountability is required because historic and recent court rulings confirm this such as the Darling case and underscore the need for D&O coverage.

Legislative and regulatory requirements such as JCAHO, DHS, CMS and compliance standards require board authority and accountability for quality care.

Fiduciary responsibility includes both direct and indirect implications. For example, Medicare requires board oversight and poor quality outcomes can cause the organization to suffer financially.

Hospital Trustee Governance

Hospital boards are facing unprecedented challenges and risks. Carol J. Geffner, Ph.D, professor of the Practice of Governance, Management and Policy at USC Sol Price School of Public Policy explores mounting pressures facing hospital boards.

What's Inside

  • 3 Critical Issues Facing Healthcare Board Members
  • 5 Governance Best Practices for Mitigating Organizational Risk

Download Now

Topics: Innovative Leadership, Hospital Administration, governance


Written by USC

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