A new health system means new governance

Trustee talking points

Integrated hospitals and health systems hope to achieve all of the benefits of scale, in efficiency, quality and scope.
Legacy governing board systems often stand in the way of the changes required to accomplish this, particularly when it comes to leadership.
A well-defined governance structure, with roles and responsibilities clearly spelled out, is essential to operational and strategic integration.
A system board must set the tone and be up front in addressing the needs of organizationwide transformation.

Faced with the challenges of delivering greater health care value, today's integrated hospitals and health systems must focus on truly achieving the benefits of scale. It is a new era of transformation in which boards have a critical role to play.

The strategic rationale is sound. Scale permits health care systems to:

Achieve operating efficiencies, such as creating high-quality, standardized, systemwide shared services instead of having multiple human resources, information technology, revenue cycle and other administrative functions.
Care for a broader and more geographically diverse patient population than in the past.
Prepare for the assumption of risk under population health management.

To accomplish this transformation successfully, systems need to focus on creating the optimal operating model and implementing operating processes to achieve efficiency, effectiveness and exceptional service, and reduce administrative and clinical process variation across the health care system.

But it is equally important for health care systems to create an optimal governance model, which means change needs to occur at the level of the board of trustees and across the top management team.

Accelerating change

In most industries that have grown through mergers and acquisitions, the addition of a significant business unit causes changes in the acquirer’s board structure and membership. As health systems have come together, however, system-level boards have often simply incorporated members from each of the local hospital boards while also keeping legacy local board structures in place without distinctly different roles and responsibilities.

This has created a “representational” model for many health care system boards, characterized by a large number of board members, many of whom feel compelled to represent the interests of their local institution. Although system board members eventually learn that they must adopt the mindset of thinking on behalf of the greater entity, this change takes time and requires trust building as well as education. In some systems, it has taken nearly a decade to move from a representational board to a true system board.

Waiting 10 years to bring about the governance and leadership changes needed to function effectively is just not feasible. Today’s systems must have the leadership and board structure to deal with the rapidly changing health care, legislative and regulatory environments. Systems can create and foster an optimal governance structure in a number of ways.

Out of many, one

It’s an understatement to say that the challenges of combining and integrating disparate hospitals into a single system are significant.

The operational issues — integration of nonclinical departments into providers of shared services, standardization of processes, focusing clinical departments on quality and patient satisfaction — require expert navigation and change-management efforts to be successful. There are proven methodologies and pathways to accomplish this transition, which is made somewhat easier because its value is readily apparent: The standardization of processes leads to lower costs, higher reliability, better service and greater satisfaction.

But another set of real challenges arises when the transition from local operating units to “systemness” begins.

One of the major shifts that takes place at the local hospital level is that the roles of executives change. Each local hospital brings its own CEO and, in some cases, a chief operating officer, a chief financial officer, and vice presidents of human resources, information technology and so forth. Most of these functions are subsumed by the system’s shared services, and the autonomy that used to be held by the local CEO is now diminished. The role of the local hospital leader is now shifted to that of a president — more of a hospital operating executive or business unit manager.

Along with these changes in executive roles, local boards face a shift in responsibilities. The board and the system must delineate the formal roles of the system and local boards, the delegation of authority, and how that delegation might change over time. Management of budgets, capital allocation and major programmatic investment approval are examples of functions that should be centralized. There are Joint Commission requirements that quality and credentialing be retained at the local board level, although the functional responsibility for these requirements can be delegated to a system team.

Determining the pace of this change and developing a specific change management path is necessary to help the local hospital organizations make the transition from their current definition of success to a future one. How the system deals with this in terms of the individuals in local hospital leadership positions and the way the system realigns the organization around these new goals is a key management issue.

The end result of this path is that the roles of the local hospital and local medical campuses become increasingly focused on delivering high-value clinical care. Before the focus on creating higher quality and lower costs through system mergers and acquisitions, clinical medicine was the local medical center’s business, but it also had the individual functions that are now paired with shared system services, with the local teams providing more of a client-service approach.

When integration is accomplished, the community-based locations are often where the system focuses on connections with patients. Management must drive both patient and physician engagement in a manner that addresses local needs and still facilitates coordinated care across the new system. Local leaders must focus on the delivery of clinical services in a high-quality and highly efficient way. Much of the work that is nonclinical in nature can be done somewhere else. Thus, the local campus becomes all about the clinical business.

When this model is successfully implemented, it allows for a high degree of efficiency in the use of assets and people, creating a great deal of value.

Overcoming barriers

All too often in the process of creating systemness, there is an organizational desire to soft-pedal the changes that will affect the local hospital boards and leadership positions.

Our experience has taught us that the board should focus on transparency and be clear and explicit about:

The specific responsibilities of the system board and local boards.
The characteristics of executive leadership responsibilities at both the system and local levels.
How these functions and roles fit with best practices and contemporary board selection with respect to talent, diversity and other aspects of true board guidance.

This approach legitimizes a conversation that may alter formal responsibilities of those executives and board members.

Experience also tells us that there should be a clear set of decision rights for both the system board and the subsidiary boards. In general, the system board is where the fiduciary responsibilities should lie. There should not be a duplication of authority over fiduciary responsibilities and financial decision-making. The system, from time to time and at its own discretion, may delegate authority for financial decisions (it may depend on the amount spent), but ultimately the system board is responsible for financial matters.

Clarifying roles

There should be a clear distinction between the role of the board of trustees as the fiduciary and governing board, and the role and responsibilities of a foundation and fundraising. If those are not already handled by a foundation board, they should be moved to one. There are clear scopes of responsibility that should be defined in certain board structures. They should not be rolled up into one, nor should they be duplicated.

The most important obligation of the system board is to set the tone at the top. The system board needs to explicitly show that it is implementing a rigorous review of its own functions and that it is moving toward recruiting members with the skills and capabilities necessary to meet the current and future needs of the organization. (And if it doesn't, then the board is signaling that it doesn't expect similar self-assessment from others in the organization.)

For example:

Does the new board have members who understand the financial implications of the shifting payer environment so they can aid in the transition away from fee for service to value-based compensation?
Should there be a board seat for representatives of key community employers who can speak to the kinds of population health goals they care about?
How will the voices of nonacute care partners be considered in the board’s decision-making process? These stakeholders — skilled nursing facilities, home health providers, urgent care centers, telehealth partners and others — may be key to lowering the costs of integrated and higher-quality care.

Evolving needs

Health systems are more complex than they have ever been, and, as multibillion-dollar operations, they are bigger than they have ever been. The imperative is for their boards to function effectively today while also addressing the future needs of the system as it evolves. All too often, the process of developing system board structures has been left to happen organically — taking as much as a decade with some systems.

There are distinct advantages, especially today, to making a purposeful move to system thinking. It is a transition that needs to be accelerated in an intentional way.

We have found that there are five primary considerations when creating and working on a board structured to support systemness and not merely represent its constituent institutions:

Recognize that this is not a small issue; it is better to address it directly and up front.
Realize that an organization and board that have been organized to focus on transactions may now be moving to a transformational mode focused on changing the business model. The leadership approaches for these two modes are different, and you must know which your organization is pursuing.
The system board must undertake intentional efforts to provide clarity and definition around roles and responsibilities, including powers of the respective boards and their members.
A strategy must be developed to manage talent at both the executive leadership and board levels to align with and support the goals of the system.
The board must set an example for leadership and line staff to follow.

Too often, in the imperative to bring about the operational benefits of scale, health care systems neglect the important work that needs to happen to build a well-defined and high-performing governance structure to guide and oversee the duties and responsibilities of the system board of trustees, the local boards and the executive leadership of the organization.

A well-planned, intentional effort to clearly define the boards’ duties and responsibilities, and careful definition of the skills and capabilities needed at each level, will provide numerous benefits to the system.

Jeff Jones (jdjones@huronconsultinggroup.com) is a managing director at Huron Consulting Group and has more than 26 years of experience helping large health systems, academic medical centers, children’s hospitals and large physician groups.

Trustee takeaways

There are distinct advantages, especially today, to making a purposeful move to system thinking. It is a transition that needs to be accelerated in an intentional way. The Huron Consulting Group has found that there are five primary considerations to creating and implementing a board structured to support “systemness” and not merely represent its constituent institutions.

Recognize that this is not a small issue; it is better to address it directly and up front.
Realize that an organization and board that have been organized to focus on transactions may now be moving to a transformational mode focused on changing the business model. The leadership approaches for these two modes are different, and you must know which your organization is pursuing.
The system board must undertake intentional efforts to provide clarity and definition around roles and responsibilities, including powers of the respective boards and their members.
A strategy must be developed to manage talent at both the executive leadership and board levels to align with and support the goals of the system.
The board must set an example for leadership and line staff to follow.