What Are the Top Governance Challenges for Hospital Boards?

Ongoing financial pressures and legislative uncertainty are contributing issues to the top governance challenges for hospital boards of directors. As a result, boards are needing to focus more of their time and energy on strategies that help them manage evolving risks.

Hospital boards of directors are finding that an asset-only approach doesn’t account for financial and operational risks across the organization. High levels of exposure to the capital markets and operational variability create volatility in the financial profiles of hospitals. Many of the challenges that today’s hospitals are facing are, to some degree, out of management’s control, which complicates things even further.

Many hospitals are facing additional challenges related to their industry and the demographics of the patients they serve, such as children’s hospitals.

Top Challenges for Hospital Boards of Directors

The top challenges for hospital boards have to do with providing unnecessary care, forming partnerships with physicians, pursuing the most effective innovations and developing wise investment strategies.

Physicians must uphold certain medical standards to protect themselves and their patients. At times, high medical standards require physicians to prescribe medications, perform surgery or recommend testing that’s unnecessary.

Board directors should also be aware that physicians rely less on hospitals for job security than they used to due to changes in the structure of hospital business models. Physicians usually now have more technological expertise than most board members, which makes them critical partners for board members. Boards are wise to recognize the value in partnering with physicians and to work toward strengthening these relationships.

With so many technologies available, hospitals have to carefully make the choices that benefit their communities the most while staying within the hospital’s budget.

The volatility of the capital markets is also a top concern for hospital boards of directors as they face new risks. Boards must evaluate their risks related to their balance sheets and employee retirement asset pools. In addition, boards need to consider more complex investments to achieve long-term financial health. In considering making changes to their financial strategies, boards need to consider how investment strategies fit with the organization’s overall objectives.

While these are general challenges that all hospital boards face, children’s hospital boards face different and unique challenges, in addition to those that other types of hospitals face, because of the population they serve.

Governance Challenges Facing Children’s Hospitals

In assessing the challenges that children’s hospitals face, it’s important to understand the total impact of the environment that they work in because of the unique and important population that they serve.

The following issues represent some of the unique factors that children’s hospital boards must address:

• Reduced CHIP funding from the federal government.
• Reduced 340B funding (a discount prescription purchasing program for nonprofit hospitals).
• Poor mix of payer and uninsured populations.
• Complex medical issues that require a multidisciplinary team of caregivers and niche specialists.
• Children and families who need social service support from the community, which children’s hospitals are required to coordinate prior to a child’s discharge.
• Advocacy for children’s medical and mental health services.

Children’s hospital boards are facing issues related to policy and the regulatory environment. The volatility is causing children’s hospital boards to advocate and lobby for children’s health at the federal, state and local levels. Paul Viviana, President and CEO of Children’s Hospital of Los Angeles and Chair of the California Children’s Hospital Association, says that legislative advocacy is critical for children’s hospitals in addressing the “changing reimbursement, eligibility standards, regulations, and program funding.” He adds that children’s hospital boards should make this a top priority because children can’t advocate for themselves.

The current environment requires hospital board members to be well-connected with elected officials and other advocates and to be able to communicate the array of service needs, including clinical care, home care, outpatient services, acute-care services and follow-up care. Hospital board members need to emphasize that the children under their care are typically very sick and require highly specialized physicians and treatment plans.

Boards of children’s hospitals are also challenged by the competition for philanthropic funds and other types of community-based financial support. Hospital boards must have strong relationships with donors and businesses that have the ability to support specific programs, services, research or teaching, as well as providing financial assistance for patients in need.

Children’s hospital boards also need to be aware of their relationships with other providers and payers, women’s hospitals, community clinics, community children’s hospitals and medical centers that lack the degree of service that child patients need. Boards also need to factor in their participation in other types of provider networks, such as health plans and health networks.

Best practices for boards consider that boards will perform annual self-assessments and focus on such issues as the healthcare industry, financial information, patient satisfaction, functioning, aligning with the mission and vision of the organization, and strategic direction. Boards need to learn from their self-assessments and work toward filling in any gaps in knowledge and/or service.

Finally, children’s hospital boards deal with complex funding and payment issues. Children’s hospitals are heavily regulated and have several watchdogs, which complicates things further.

Board directors need to be able to track money through various financial systems, including provider fees, 340B payments, disproportionate share hospital funding and Medicaid payments.

The combined set of issues will require board members to tap the expertise of their network connections, apply their industry knowledge and expertise, and be willing to advocate for the best interests of their patients.

An Enterprise Risk Management Approach Meets Hospital Board Challenges

While noting the many challenges that hospital boards are facing, healthcare providers can position themselves better to make decisions about the risks they’re willing to accept and to make decisions about the investment and allocation of assets.

Today’s healthcare environment requires an enterprise risk management approach to monitor performance and to take an integrated, coordinated approach to healthcare. This is one reason why it’s so important for hospitals to use a board portal system to ensure good governance as they make these complex and difficult decisions.

By taking an enterprise risk management approach, healthcare providers and their boards will be on track for financial success and ensure that they can fulfill their missions toward bringing the best possible healthcare to their communities.