This year we mark the 15th anniversary of the Enron Scandal — the uncovering of egregious business practices that led to prosecution and jail time for some executives and provided the stimulus for legislative actions.
Passed in 2002, the Sarbanes-Oxley (S-Ox) Act was designed to close gaps in corporate integrity and governance oversight; it called for financial oversight by committees of independent board members with content expertise in auditing and finance. The legislation excluded charitable/non-profit organizations.
To its credit, the Agency for Healthcare Research and Quality studied effective practices for quality oversight by hospital governing boards, and concluded that hospitals and health systems would benefit by embracing S-Ox core principles of good governance — with one important caveat: a hospital’s fiduciary responsibility is inextricably linked to providing high-quality clinical care to the public it serves, and this should be reflected in board operations and director position descriptions.
I and other colleagues in the healthcare quality sector understood that good governance was an important step in reducing the unacceptably high rate of medical error in our nation’s hospitals, and argued that hospitals should be held accountable for the value of their services (i.e., cost-effective, high quality care with improved clinical outcomes) in the same way proprietary corporations are held accountable for financial strength and comprehensiveness.
Then the stunning financial crisis of 2008-2009 made it clear that board independence and expertise were not enough; hence the passage of the Dodd-Frank Act that expanded for-profit board requirements and spurred corporate directors to build even more independence and diversity of expertise into their board structures and governance codes.
So, have we made any progress with respect to good governance in healthcare sector?
If we look at what I believe is the primary indicator, the answer would be, “Not enough”; medical error is still the third leading cause of death in the U.S.
Large non-profit organizations are run in the same way as for-profits and I believe that their boards of directors should be subject to the same level of scrutiny; unfortunately, this is not the case.
Lay hospital board members are usually unpaid, and most lack content expertise in the disciplines that are vital to good governance — e.g., quality management, patient safety, health economics, population health.
In his recent article for JAMA, Michael Jellinek, MD, takes it a step further; he makes the case that hospital’s chief role is to serve the community by ensuring ethical, sustainable, high quality treatment at a reasonable cost — and that trustees should look to the principles of population health management as a means to decrease the use of unnecessary services and lower costs for patients.
It all boils down to good governance — and a Dodd-Frank moment for hospital boards.