Fundamentals of Hospital Board Governance

When you enter the hospital as a patient, you have certain expectations for how you will be treated. You expect that the doctors will use tests to assess your health. From there, you can reasonably anticipate that the assessment will lead to your diagnosis and treatment protocol. Of course, you also expect that the nurses and other hospital staff will be courteous, respectful and professional at all times. Perhaps you will have some concerns about the amount of the charges and whether they will be covered by insurance, or if the hospital will work with you to repay the costs. The type of the hospital’s governance structure probably never crossed your mind. That’s because the care and services that hospitals provide are pretty much the same, even though their governance structures vary significantly.

Hospitals can be for-profit corporations, non-profit organizations, or non-profit organizations with religious affiliations. Each type of governance structure has different regulatory requirements, accountability and responsibilities, but they share the same fiduciary duties.

Connecting the Dots Between Philosophy of Care and Governance Structure

The main difference between a for-profit and a non-profit hospital is how they distribute extra funds. Boards of directors of for-profit corporations need to decide how much of the profits they will invest in maintaining current operations or use for growth and expansion, and how much they will distribute to their shareholders. Non-profits hold some monies in reserve and reinvest some amounts in marketing or in higher quality of care. Boards of directors of religious groups that own or sponsor hospitals make decisions about how much of the money gets reinvested and how much will be returned to the religious organization.

The mission and bylaws of each governance structure are very important because they define and outline the culture about the main focus for the organization’s strategy. The bylaws may have a philosophical focus for using extra funds on advanced equipment, research and innovative care. They may also make their patients and quality of care the major focus for any extra funds. Some hospitals hold the philosophy of continuing to provide the current level of care to sick people who can’t access care due to lack of insurance and personal funds. For-profit corporations will be continually monitoring their profits, which is their goal, along with providing quality care to patients.

Regardless of what the corporation’s main focus and governance structure are, most hospitals look pretty much the same with regard to efficiency, administrative oversight, quality of care and daily routines.

Governance Structure Matters to Some Hospital Employees

It’s important for board members to understand the type of governance structure that they serve. Each has its own set of laws and regulations that board members must know and understand to fulfill their duties effectively.

The type of governance structure is important for some hospital doctors and other employees, who may have strong feelings and personal ethics about whether hospitals should be making a profit from healing sick people. Many hospital employees find greater job satisfaction working for hospitals with governance structures and beliefs about the availability and administration of hospital care that match their own beliefs and values.

Statutory Duties for All Governance Types of All Hospital Boards

All boards, including hospital boards, have three, specific fiduciary duties. All board members have a duty of loyalty, which means they need to put the interest of the organization over those of private individuals. They also have a duty of obedience, which means making decisions according to laws, policies, charters and bylaws. The third fiduciary duty is duty of care, which means they are required to act prudently, as any ordinary person would.

Types of Governance Structures for Hospitals

Hospitals may have a for-profit or a non-profit governing structure. These boards are also considered fiduciary boards. Many hospitals also have an advisory board.

For-Profit Board

The value of a for-profit governance structure is the corporation’s capital. The company releases some of its profits to the shareholders. The board is accountable to the shareholders, as well as to regulatory bodies.

Non-Profit Board

The values of non-profit boards are based on the organization’s mission and bylaws. Board members are accountable to the public they serve. Non-profit hospital boards sometimes have a corporate member who has authority over the corporation. Hospitals that have a religious affiliation may have a religious leader with authority over its corporate members.

Advisory Board

An advisory board doesn’t have any legal authority, and they don’t have any responsibility for their actions. The purpose of an advisory board is to counsel the board directors on matters where the committee board members have strong areas of expertise.

Fiduciary Board

As mentioned previously, non-profit and for-profit boards have fiduciary duties, which is why they are considered to be fiduciary boards. Despite the board governance organization, all non-profit hospital board directors have a legal responsibility for the corporation’s well-being and success. In addition, the board has both individual and collective responsibility for legal actions.

Differences in Responsibilities for Management and Their Boards

The duties of boards and managers of hospitals largely mirror the duties and responsibilities of board members and managers in other industries. The board is responsible for planning and strategizing for the future to keep the hospital’s finances sustainable. To achieve effective planning, they spend much of their time identifying trends, patterns and relationships. They also hire the CEO or executive director and set their compensation. Most boards also perform self-evaluations for each board member and the whole board.

Managers are the worker bees behind the board. They carry out the duties according to the board’s strategic planning. Managers bear the responsibility for submitting reports to the board that inform them about the progress the corporation has made, whether that be financial progress or progress in the quality of care. Managerial reports will also show how they intend to reach the goals that the board has set for them.

Fundamentally Different Governance Produces Fundamentally Similar Care

It may seem odd that many different types of governance structures would be capable of producing the same quality of healthcare on the front end for the general public. That is likely more attributable to the mandatory standards in the healthcare field, rather than corporate governance. What is common among hospital boards is that all have fiduciary duties, and they are all liable and accountable for their actions.