Author: Kevin Talbot
Across the country, a small number of larger, more complex health systems have quietly begun to pay healthcare directors for their service on boards. At first glance, this seems out of place in a nonprofit healthcare industry that has relied for decades on public service-minded individuals who lend their expertise without pay. But something seems to have changed to make paying directors more culturally acceptable to some organizations.
What has changed? Practically everything!
As anyone who has served on a health system board recently will tell you, this isn't your father's board. The stakes are higher for today's healthcare board members, the risks are greater, and the amount of effort required of healthcare directors has grown substantially. The vast majority of board members continue to serve without pay. However, some systems have found that compensating directors helps them in recruiting more highly skilled outsiders with diverse backgrounds who are able commit the time and energy and who take the risks inherent in board service in the 21st century.
This article will examine some of the changes taking place in boardrooms across the healthcare industry that are influencing some organizations to consider paying directors.
Healthcare boards are smaller and members have more sophisticated skill sets
Your father's healthcare board was made up of local, community-minded businessmen who came together several times a year to hear presentations by the CEO and give their approval. As hospitals began to merge and create systems, healthcare boards merged, too, and grew bigger and more unwieldy. Large healthcare boards often suffer from problems that arise out of their size. A certain amount of "social loafing" occurs on large boards. Individual members feel less accountable for results, and less engaged than directors on smaller boards. Some directors of large boards come to meetings without spending enough time on preparation, and they may not be well-versed on issues to be discussed. Often, the result is a board slow to take action and members who don't find a lot of satisfaction in their board service.
The pace of change in the healthcare industry has forced many health systems to reduce the size of their boards, and to expect more from directors. While systems have reduced board size, they have also, by necessity, become more careful about whom they recruit for board positions. Skills in business, finance, IT, social media, and marketing are valuable; clinical experience and backgrounds in systems integration, population health management, chronic illness care, public health, epidemiology, insurance risk, and risk management are at least as valuable.
The interest in recruiting healthcare directors with sophisticated skill sets is driven by the need for patient-centered care, the focus on quality and safety, and a heightened emphasis on director independence. The trend toward greater physician integration and the simple fact that people with clinical backgrounds are moving into CEO and senior executive positions makes those same backgrounds desirable in healthcare board members.
Healthcare boards increasingly try to reflect the diversity of the patient base in gender, race, ethnicity, age, religious traditions, and other factors because diversity helps the board to better understand the issues facing the organization, therefore bringing in multiple perspectives when deliberating the strategic imperatives of the enterprise. Diversity will only happen when board leadership makes it a priority. Of course, finding directors with the right skills and experience remains the highest priority, so women and minorities with desirable skills will be in demand.
Healthcare boards are managing more complex clinical enterprises with a multitude of risks
The healthcare industry is consolidating at a breathtaking pace, with mergers and acquisitions announced almost weekly. This is happening because scale matters. Economic pressures are a primary driver of industry consolidation. Revenue is constrained, margins are squeezed, and sales and property tax exemptions are being challenged by state and local authorities.
At the same time, healthcare providers are increasingly expected to focus on the entire continuum of care. This has led to widespread hospital-physician integration, the establishment of Accountable Care Organizations, the development of population health management strategies, and the assumption of insurance risk.
Healthcare is being transformed through consolidation and integration. Boards are required now to manage complex clinical enterprises that look nothing like the simpler organizations of the past. With complexity comes a long list of risks that need to be managed, including strategic, operational, financial, compliance, and security risks.
These risks arise from all directions, including electronic health records, physician-hospital integration, high turnover, the outsourcing of services, and changes in the economic, political, regulatory, and social landscapes. Fraud and abuse cases are on the rise. Whistleblower cases have doubled in the past five years. Data breeches were up 140% in 2013. Most worrisome is the idea of the "unexpected crisis." Healthcare board members must ask themselves, "What don't we know that we should know?"
Responsibility for risk oversight lies with the full board, and the board must focus intensely on risks before they become value killers. But healthcare board members face an additional risk – the risk to their own reputations. Joining the board of a troubled healthcare organization can expose people with long careers full of accomplishments to the risk of failure or, worse yet, scandal.