best practice governance: optimizing each core responsibility

Best Practice Governance:

Optimizing Each

Core Responsibility

Pamela R. Knecht

President & CEO

ACCORD LIMITED

33 West Monroe, Suite 2110

Chicago, IL 60603

312-988-7000

[email protected]

Annual Member Meeting &

Governance Day

Seattle, WA

October 12, 2018

CONFIDENTIAL

2

©ACCORD LIMITED 1990–2018 All Rights Reserved©ACCORD LIMITED 1990–2018 All Rights Reserved

“Effective governance by the board

of a nonprofit organization is a rare

and unnatural act…”

Taylor, Chait and Holland. “The New Work of Nonprofit Boards.” Harvard Business Review, Sept – Oct 1996

Sad, but too often true…

CONFIDENTIAL

3


Great Governance Matters

Governance refers to the structures and processes established

and used by the board to ensure that its fiduciary duties and

core responsibilities are carried out effectively and efficiently.

Better

Governance

Better

Hospital &

System

Performance

Better

Health

Care

See: Larry Stepnick, Making a Difference in the Boardroom: Updated Research Findings

on Best Practices to Promote Quality at Top Hospitals and Health Systems.

CONFIDENTIAL

4


CongressState & local

governments

Attorneys

General

Bond rating

agencies

IRS

Unions

Plaintiff law

firms

Public

at large

Your ownboard members

Independent

Sector

The

Not-for-

Profit

Board

Office of

Inspector General

Heightened Scrutiny

Fiduciary Duties Review

CONFIDENTIAL

6


Basic, Legal Fiduciary Duties

Reliance on Expert

Reliance on Management

True to Central

Purposes / Mission

The Duty to

Disclose

Shareholders

(For-Profit)

The Board

of Directors

Basic Duty

of Oversight

Share-

holders

The Duty of

Loyalty

The Duty of

Obedience

The Duty of

Care

State Attorneys

General

The Charitable

Beneficiaries

The Public Trust

(Non-Profit)

Owed to

Enforced byEnforced by

Business Judgment Rule

CONFIDENTIAL

7


▪ Develop the mission and help set strategic direction

▪ Establish policies, norms, procedures and goals

▪ Carefully select a competent President / CEO

▪ Delegate work to President / CEO

▪ Monitor performance of organization and President / CEO

Three Important Notes:

▪ Boards only have authority when meeting as a board

(not as individuals or sub-sets)

▪ The Board’s primary contact – and only employee –

is the President / CEO

▪ Boards must speak with one voice

Fiduciary Duty of Oversight

CONFIDENTIAL

8


Board of Directors’

Fiduciary Duty of Oversight

For Profit

Company

Government

Agency

Public Charity

or Social Welfare

Agency

501(c)3

Professional

Society

501(c)6

OWED TO: Shareholders The Public The Public TrustThe

Membership

ENFORCED

BY:

Shareholders’

Election

Process

Public’s

Election

Process

State Attorney

General &

The Charitable

Beneficiaries

Membership

Election

Process

Fiduciary Duties Clarification

CONFIDENTIAL

9


Will Our Board Be Held Liable?

▪ Not if the decision:

▪ was made in good faith,

▪ where the trustee is disinterested and reasonably

informed,

▪ and the trustee believes that the decision is in the

best interest of the corporation.

One Key Suggestion:

Start every meeting and conversation with a review of the mission

One Key Caution:

Identify and manage potential conflicts of interest

CONFIDENTIAL

10


Three Supportive Fiduciary Duties

CONFIDENTIAL

11


The

Law

Best

Practice

Middle

Ground

Nothing Illegal Nothing Illegal,

but Not ‘Squeaky

Clean’

Beyond

Reproach

Determine Conflicts & Independence Approach

Governance

vs.

Management

CONFIDENTIAL

13


▪ Governance – Exercising

accountability by setting goals,

making major policy and strategy

decisions, and overseeing

implementation

▪ Management – Delivering results by

implementing policy and strategy as

set forth by the governing body,

managing operations, and reporting

on performance

Respecting the Governance - Management

Distinction

CONFIDENTIAL

14


Mini Case Studies

Is this governance or management?

▪ Terminating the long-time chief of nursing

▪ Deciding whether to acquire land and/or a building

for a future medical clinic (expected cost:

>$100,000)

▪ Determining if a physician who had lost his medical

staff credentials due to a large medical malpractice

case should be re-credentialed

CONFIDENTIAL

15


1. Is it big?

2. Is it about the future?

3. Is it core to the mission?

4. High-level policy decision needed?

5. Is a red flag waving?

6. Is a watchdog watching?

7. CEO wants/needs board’s support?

Questions to Help Clarify Roles

Note: If the CEO asks the Board for advice on a management issue, the CEO should ‘declare’ that intent, and be responsible

for bringing the Board back ‘up’ to governance

Barry S. Bader. Distinguishing Governance from Management. Great Boards. Fall 2008, Vol. VIII, No. 3.

CONFIDENTIAL

16


For each of the board’s core responsibilities:

▪ Ensure a laser-like focus on the mission

▪ Set direction and measurable goals

▪ Approve board-level policies

▪ Assure systems and processes are in place

▪ Monitor progress vis-à-vis the goals, policies, and processes

▪ Hold management accountable

Governance-Management Primer

Board’s Core

Responsibilities

CONFIDENTIAL

18


Board’s Core Responsibilities

Set Strategic

Direction

Ensure Clinical

Quality,

Service, and

Safety

Advocate for

Those Served

and the

Organization

Ensure

Competent

CEO

Protect

Financial

Health

= Core

Governance

Responsibilities

= Fiduciary

Duties

Mission

Duty of

Care

Duty of

LoyaltyDuty of

Obedience

Perpetuate

Effective

Governance

CONFIDENTIAL

19


Board and

Management’s

Work: “What”

Management’s Work:

“How”

Strategic Goals

Objectives

Mission and Core Values

Vision

Situational

Assessment

Overseeing Process

and Ensuring

Stakeholder Participation

Clarifying Planning Assumptions,

Drawing Strategic Conclusions,

Identifying Critical Strategic Issues

and Discussing Options

1. Strategy Oversight

Board’s Work: Holding

Management Accountable

for Performance

CONFIDENTIAL

20


Conduct a Full Situational AssessmentHealthcare Landscape

Organization’s Position

Addressed the

‘Brutal Facts’?

Strategic Conclusions

Your Organization’s

Critical Strategic Issues

CONFIDENTIAL

21


Ensure a Clear, Shared Vision & Strategy

Secure

competencies for

value-based care

environment

Expand system of

care to better

serve our market

Build capabilities

to optimize

system

performance

Align with

physicians and

other providers to

meet needs of

populationCore

Strategies

10.Build a Clinically Integrated Network

11. Develop population health / risk

arrangements with the state

12. Cultivate strategic relationships with key

managed care players

7. Create deeper ambulatory/PCP

presence

8. Establish close, integrated relationships

with targeted hospitals

9. Engage other hospitals in the region

through affiliations that complement

system of care

Vision

Working together, we will transform

health care in our state:

• Be the standard of excellence in

safety, quality, service & value

• Provide easy access to an

integrated system of care

• Eliminate care disparities

• Prepare care providers to thrive

in future care environment

4. Build a comprehensive aligned network

of healthcare professionals

5. Organize regional delivery networks with

standard quality and business principles

6. Develop shared support services for

regional delivery networks

1. Clearly define the role of the system

2. Integrate select business functions and

processes

3. Initiate system-wide affinity groups to

share best practices and stimulate

innovation

Mission To improve the health

of those we serve and

prepare the next

generation of care

providers for our state

CONFIDENTIAL

22


Increase

market

strength

Create

exceptional

patient

experiences

Embrace

teamwork

and a system

approach

Provide

value-based

care

Be the

hospital of

choice

Metric Status Metric Status Metric Status Metric Status Metric Status

Performance Key:

Exceeds goal

Meets goal

Minimum acceptable

Not acceptable

Develop a Strategic Dashboard for the Board

CONFIDENTIAL

23


Some Best Practices for Strategy Oversight

▪ Clarify the board’s expectations of its role

▪ Spend more than half of meeting on strategic discussions

▪ Become and stay educated about issues and trends

▪ Ensure there is a clear, measurable strategic plan

▪ Ask tough questions on strategies; not tactics

CONFIDENTIAL

24


1. Why has our market share in orthopedics continued to decrease

over the last five years and what is management doing to reverse

the trend?

2. How will we increase access to healthcare services in outlying

areas of our community?

3. How are we doing vis-à-vis the strategic goals on our board

dashboard?

4. Others?

Not:

▪ Where should we place billboards about our new service?

Sample Strategy Oversight Questions

CONFIDENTIAL

25


2. Quality, Safety & Service Oversight

Be the driver – quality is ultimately the board’s responsibility*:

▪ Ensure effective mechanisms are in place to measure,

monitor, maintain, and improve quality, safety, and service

excellence.

▪ Approve quality improvement plans and goals, monitor

performance in relation to those goals, and exercise

accountability in seeing the goals become a reality.

▪ Approve recommendations for physician / clinician

appointments, reappointments, and clinical privileges,

based on well-documented recommendations resulting from

an effective credentialing process.

* Darling vs. Charleston Memorial Hospital, 1965

CONFIDENTIAL

26


Board-Medical Staff Relations

▪ The Board (not management) must hold the medical staff

accountable for:

▪ Clinical Outcomes

▪ Patient Safety

▪ Service Excellence

▪ Quality Improvement

▪ Physician Appointments and Clinical Privileges

▪ The Board must ensure strong relationships and, when

necessary, take hard stands as the fiduciaries of the mission

CONFIDENTIAL

27


Some Best Practices for Quality/Safety/Service Oversight

▪ The board requires major hospital clinical programs and services to meet quality-related performance criteria.

▪ The board includes objective measures for the achievement of clinical improvement and/or patient safety goals as part of the CEO’s performance evaluation.

▪ The board requires that major strategic projects specify both measurable criteria for success and who has responsibility for implementation of the projects.

▪ The board requires management to base at least some of the organization’s quality goals on the “theoretical ideal” (e.g., no central line infections, no sepsis).

▪ The board is willing to challenge recommendations of the medical executive committee(s) regarding physician appointment or reappointment to the medical staff.

Larry Stepnick, Making a Difference in the Boardroom: Updated Research Findings on Best Practices

to Promote Quality at Top Hospitals and Health Systems.

CONFIDENTIAL

28


A Few Quality Indicators …Ask About and Know the Red Flags

▪ Hospital mortality

▪ Unplanned readmissions

▪ Best practices compliance

▪ Medication errors

▪ Patient satisfaction: “Would

recommend this hospital”

▪ Employee satisfaction: “Would

recommend this hospital”

▪ Death rates, usually by diagnosis

or procedures, severity adjusted

▪ May indicate inadequate care

▪ Percent of time best practices

were followed

▪ Wrong drug, wrong dose, wrong

patient, wrong time interactions

▪ Key measure of several dozen

patient satisfaction indicators

▪ Key measure of several dozen

employee satisfaction indicators

CONFIDENTIAL

29


Sample Board Quality Dashboard

2017 Target 2017 Actual 1Q 2Q 3Q 4Q

CMS Overall Star Rating 3 Stars 2 Stars 2 Stars 3 Stars(5 Stars is top; 3 is

average)

CMS HCAHPS Star Rating 4 Stars 3 Stars 4 Stars 5 Stars(5 Stars is top; 3 is

average)

Leapfrog Hospital Safety Grade B D C B(A is top )

Selected Quality Issues◦ 30 day readmission (commercial) <=6.17% 7.33% 4.92% 4.92%◦ Low-risk C-section rate <=13.33% 13.78% 20.00% 20.00%◦ Follow-up visits >=75% 57.34% 62.07% 62.07%◦ (Other)

Key:Not Meeting TargetMeeting TargetExceeding Target

CONFIDENTIAL

30


Sample Quality Oversight Questions

1. How do our clinical quality and patient safety outcomes rank vs. our own targets, our peers’ scores, and national benchmarks? What are we doing to improve our rank/scores?

2. How do our patient satisfaction scores compare to our own targets, our peers’ scores, and national benchmarks (e.g., HCAHPS; Press Ganey)? How will the scores be increased?

3. How satisfied are our employees and physicians?

4. What process and criteria are being utilized to credential / appoint / reappoint physicians and other caregivers?

5. What serious, care-related adverse events have occurred in the past year? What did management put in place to ensure they won’t ever happen again?

6. Others?

Not:

• Should Mary be promoted to Director of Quality?

CONFIDENTIAL

31


3. Financial Oversight

Some Best Practices

▪ Stay current on health care financing and reimbursement issues

▪ Set and monitor clear financial performance goals, and demand corrective action as needed

▪ Authorize independent reviews and audits

▪ Ensure the alignment of all plans and budgets

▪ Choose key ratios and ask tough questions

CONFIDENTIAL

32


Some Financial Ratios

▪ Days Revenue Outstanding ▪ Effectiveness of A/R collection

▪ Days Outstanding Expenses ▪ Quality of A/P Position

▪ Days Cash on Hand ▪ Answers “How is the cash position

at the moment?”

▪ Operating Margin ▪ Picture of the profitability of the

organization

▪ Debt Service Coverage ▪ Measures factor by which cash

flow covers debt service

▪ Cushion Ratio ▪ Another view of amount of cash

available to service debt

CONFIDENTIAL

33


Sample Financial Oversight Questions

1. What is our targeted operating margin and how well are we

doing towards achieving that goal?

2. How are we increasing revenue (what new services will we

add)?

3. Why is ___ (insert the measure) trending down, and what is

management doing to correct it?

4. How do we rank vs. our peers and national benchmarks?

5. Others?

Not:

▪ How can we reduce costs by $10,000?

CONFIDENTIAL

34


4. Management Oversight

Some Best Practices

▪ Select a competent CEO and jointly set clear expectations for the CEO’s performance

▪ Provide on-going feedback with open and honest dialogue

▪ Conduct an annual CEO performance review using an agreed-upon tool and link it to CEO compensation process and package

▪ Executive sessions convened periodically without the CEO to discuss CEO’s performance

▪ Ensure use of current executive compensation practices

CONFIDENTIAL

35


▪ Establish the Rebuttable Presumption of Reasonableness (RPR):

1.The compensation arrangement must be approved in advance by

an authorized body of the applicable tax-exempt organization,

which is composed of individuals who do not have a conflict of

interest concerning the transaction,

2.Prior to making its determination, the authorized body obtained

and relied upon appropriate data as to comparability, and

3.The authorized body adequately and timely documented the basis

for its determination concurrently with making that determination.

▪ Committee includes executive compensation expertise

▪ Full board approves compensation philosophy

▪ Committee approves executive compensation plan and makes

recommendations to full board

Executive Compensation Practices

Source: IRS_01032018 https://www.irs.gov/charities-non-profits/charitable-organizations/rebuttable-

presumption-intermediate-sanctions

CONFIDENTIAL

36


Management Oversight Questions

1. What annual goals will be set for the CEO’s individual

performance?

2. Why has the CEO not accomplished the ___ goal? What is the

CEO doing to ensure achievement of that agreed-upon target?

3. Has the CEO put a written succession plan in place for both

himself/herself and key executives? If not, when will that be

completed?

4. Others?

Not:

▪ What did Dr. Smith say about the CEO over drinks last night?

CONFIDENTIAL

37


‘Advocate’ for the Community’s Needs

▪ Oversee community health needs assessment every 3 years

▪ Ensure specific health improvement goals are set and monitor management’s progress toward the goals

▪ Help host town halls / community forums to listen to needs

‘Advocate’ for the Organization and Industry

▪ Within the local community:

▪ Speak positively of the hospital in the community

▪ Attend social and other community events

▪ Support management’s efforts to influence state and federal public sector decision making, legislation, and policies

Important Note: Have talking points on the issue, or be accompanied by a subject

matter expert and get specific legal counsel on what the organization can and cannot do with respect to political and lobbying activities

5. Advocacy Oversight

CONFIDENTIAL

38


Some Best Practices in Advocacy

▪ Develop a policy regarding the board’s role in communicating with the community, legislators and other stakeholders

▪ Create a community benefit or community relations committee

▪ Review a survey of community perceptions on a regular basis

▪ Identify board goals in support of management’s legislative agenda

▪ Require management to annually report community benefit value to the public

CONFIDENTIAL

39


Advocacy Oversight Questions

1. How will community benefit be measured?

2. What percentage of our revenues will be dedicated to community

benefit?

3. Why hasn’t management conducted a community health needs

assessment in the last three years? When will management

correct that situation?

4. What legislative agenda does management want the board to

support, and how?

5. Others?

Not:

▪ What will be the CEO’s speaking points at the Kiwanis meeting on Tuesday?

CONFIDENTIAL

40


6. Governance Effectiveness

Best Practices Led by the Governance Committee:

▪ Board and Committee Structure Review

▪ Competency-Based Selection and Succession Planning

▪ Robust, Initial Orientation and On-going Education

▪ Annual Board Evaluation and Goal-Setting

▪ Updated Governance Policies and Documents

▪ Board Functioning and Culture Assessment

CONFIDENTIAL

41


Assess Committee Structure & Effectiveness

▪ Parallel board’s responsibilities; not management’s

▪ Have clear charters including decision-making authority

▪ Ensure board members are ‘spread’ evenly across committees

The Governance Institute’s 2017 Biennial Survey of Hospitals and Healthcare Systems.

Board

81% 75% 60%77% 24%

FinanceExecutive

Compensation

Quality &

SafetyExecutive

Community

Benefit

52%

Strategic

PlanningCompliance

48%59%

Governance/

Nominating

CONFIDENTIAL

42


“Combination of knowledge, skills, personal

characteristics, and individual and social behaviors

needed to effectively perform a job”

Competency-Based Governance: A Foundation for Board and Organizational Effectiveness, American Hospital Association’s Center for Healthcare Governance 2009

Competency-Based Selection**

** Not ‘Representational’ Governance

CONFIDENTIAL

43


New Competencies for Care ‘System’ Board

CONFIDENTIAL

44


▪ Appropriately sized board and committees with terms and term

limits

▪ All types of diversity needed to reflect service area

▪ Sufficient ‘independence’ as defined by IRS 990 and IRC 4958

▪ Non-board members on committees

▪ Recruit for ‘governance temperament’ and ‘boardroom skills’

If recruitment is limited to the local community, can board

get the competencies, independence and diversity

needed?

Rigorous, Competency-based Approach

CONFIDENTIAL

45


Sample Board Education Calendar

CONFIDENTIAL

46

A.Document-

Based

B.Observation-

Based

C.Survey-Based

D.Interview-

Based

Less MoreBoard Members’ Time

& Involvement Requirement

Board Evaluation Approaches

CONFIDENTIAL

47


Governance Documents Review Components

▪ Articles of Incorporation and Bylaws

▪ Board roster with names, titles, lengths of service, terms and term

limits

▪ Board committee structure, rosters and charters

▪ Board meeting calendar, agenda, board packet and minutes

▪ All board policies

▪ All board processes (recruitment, nomination, orientation,

succession, education, evaluation)

▪ CEO’s annual goals, evaluation process and progress toward goals

▪ Decision authority matrix (in a health system)

▪ Etc.

CONFIDENTIAL

48


“A strong board culture is the foundation

upon which boards can begin to build

nimble and responsive organizations.”

The Governance Institute’s 2017 Biennial Survey of Hospitals and Healthcare Systems.

CONFIDENTIAL

49


1. What, if any, changes are needed to our board and committee

structures?

2. What clarification is needed regarding roles, responsibilities and

authority?

3. Do we have the correct composition of our board(s) and

committees (size; competencies; terms / limits)?

4. Do any governance documents or policies need to be updated

(e.g., bylaws, charters, conflict of interest policies)?

5. What improvements could be made to our governance processes

(e.g., recruitment, selection, orientation, education, re-appointment,

goal-setting, and evaluation)?

6. How could we change our meeting frequency, length, agendas and

culture to be more effective and efficient?

7. Other?

Not:

▪ Which room is best for the Board’s meetings?

Sample Governance Oversight Questions

Ideas for Enhancement &

Needed Resources

CONFIDENTIAL

51


Ideas for Enhancement & Needed Resources

What are the top 3 ideas you will bring back to

your board regarding how

to enhance its effectiveness and efficiency?

What additional governance resources would you

find helpful from the Washington State Hospital

Association?

Thank you!

Pamela R. Knecht

President & CEO

ACCORD LIMITED

33 West Monroe Street, Suite 2110

Chicago, IL 60603

312-988-7000

[email protected]