A Report on CEO Perspectives Results of the “Governance in Nonprofit Community Health Systems” Study Regarding Community Benefit Policies, Plans, and Reports A Report on CEO Perspectives The Second National Congress on the Un and Under Insured Workshop on Hospital and Health System Governance Strategies for Meeting Community Benefit Responsibilities Washington, D.C. September 23, 2008 © 2008 Lawrence D. Prybil PhD All rights reserved.

Overview Reasons for Looking at the Governance of Nonprofit Community Health Systems Basic Role and Duties of Nonprofit Healthcare Boards Purpose and Phases of this Study Summary of Selected Findings Some Conclusions and Next Steps

I. Reasons for Looking at the Governance of Nonprofit Community Health Systems The importance and growing complexity of governing boards’ fiduciary duties. Increasing public interest and scrutiny of governing boards at community, state, and federal levels. The continuing transformation of our nation’s healthcare delivery system from largely independent institutions to various forms of systems and networks, many community-based. Considerable evidence that effective governance contributes positively to producing good organizational performance.

Some examples of studies – mainly in the investor-owned sector – that demonstrate a positive relationship between good governance (using diverse measures) and a variety of organizational performance metrics: Institutional Shareholders Services longitudinal study of 8,000 companies (May 2006) “More Rules, Higher Profits?” CFO (Aug. 2006) “Did New Regulations Target the Relevant Corporate Governance Attributes?” Aggarwal and Williamson (Nov. 2005) “Corporate Governance: Implications for Investors,” Deutsche Bank (April 2004) “Governance and Performance Revisited,” Bohren and Odegaard (Feb. 2004)

II. Basic Role and Duties of Nonprofit Healthcare Boards Basic Role: The governing board of a nonprofit hospital or healthcare system is legally and morally responsible for the organization, its operations, and the services it provides. The board serves as the steward of the organization – its mission, its assets, and its integrity.

Core Duties: Establishing, preserving, and – when needed – reshaping the organization’s mission. Appointing, setting expectations, and evaluating the CEO’s performance. Ensuring that the board has the collective knowledge, skills, and commitment to do its job properly. Setting the organization’s overall direction by assessing the environment, adopting a strategic plan, and monitoring the organization’s progress towards its goals.

5. Setting quality measures & standards and assessing the organization’s performance in relation to them. Adopting operating & capital budgets and exercising financial stewardship. Ensuring that the organization is well-managed and complies with applicable laws and regulations. Ensuring that the organization’s charitable and community benefit obligations are met.

III. Purpose and Phases of Our Current Study Purpose: To examine the structures, selected practices, and cultures of community health system governing boards and compare them to contemporary standards of good governance.

Definition of “Community Health Systems:” Nonprofit healthcare organizations that (1) operate two or more general-acute and/or critical access hospitals and other healthcare programs in a single contiguous geographic area and (2) have a CEO and a system-level board of directors who provide governance oversight over all of these institutions and programs.

Phases of the Study • Phase I. Identify a set of nonprofit community health systems that meet this definition and build a “Community Health System Database” • Phase II. Conduct a survey of system CEOs to: Verify that their system meet our definition; Obtain CEO perspectives on several aspects of their board’s structure, practices, and culture; and Compare the findings to current benchmarks of good governance and prepare a summary report [http://www.public-health.uiowa.edu/news/pdf/021508-release.pdf] • Phase III. Make on-site visits to a sub-set of high-performing systems and conduct in-depth interviews with their CEOs and board leaders [May-July, 2008] • Analyze interview data and prepare a summary report [By January, 2009]

Profile of the Study Population No. of Systems No. of Hospitals in the Systems Average No. of Hospitals in the Systems Independent Systems 131 485 3.7 Systems that are part of (16) larger regional or national systems 70 227 3.2 Total Population: 201 712 3.5

CEO Survey Methods and Response: Survey form pre-tested with several CEOs First mailing in February, 2007, with individualized cover letters sent via U.S. Priority Mail Follow-up mailing in March to non-respondents, again with individualized letters sent via U.S. Priority Mail Follow-up phone calls to non-respondents during May - July 123 usable responses (61 percent) with almost no missing data

Systems that are Part of Larger Parent Organizations IV. Selected Findings Board Size & Composition: Systems that are Part of Larger Parent Organizations (n=44) Independent Systems (n=79) Total Respondents (n=123) Average Number of Voting Members 16.5 16.7 16.6 % of Physician Board Members 25.2% 20.5% 22.1% % of Nurse Board Members* 3.7% 1.6% 2.4% *Statistically Significant Difference

Systems that are Part of Larger Parent Organizations Independent Systems (n=79) Total Respondents (n=123) % of Female Board Members* 33.4% 18.7% 24.0% % of Non-Caucasian Board Members* 14.0% 10.7% 11.9% % of CEOs who are Voting Members of the Board 90.9% 79.7% 83.7% * Statistically Significant Difference

Systems that are Part of Larger Parent Organizations “Does the Board have standing committee with oversight responsibility for the following governance functions?” Systems that are Part of Larger Parent Organizations (n=44) Independent Systems (n=79) Total Respondents (n=123) External Audit* 63.6% 94.9% 83.7% Internal Audit* 72.7% 88.6% 82.9% Executive Compensation* 59.1% 97.5% Board Education and Development 43.2% 53.2% 49.6% Patient Safety and Quality 86.4% 87.8% Community Benefit Program 52.3% 38.0% 43.1% * Statistically Significant Difference

“For the Community Health System Boards that do establish written performance expectations for the CEO (n=88), do they regularly include the following?” Systems that are Part of Larger Parent Organizations (n=20) Independent Systems (n=68) Total Respondents to this Question (n=88) Financial Targets 100.0% Patient Safety and Quality Targets 98.5% 98.9% Leadership Team Building 60.0% 70.6% 68.2% Community Benefit Targets* 90.0% 48.5% 58.0% *Statistically Significant Difference

Community Health System Engagement in the area of Community Benefit and Services The Community Health System Board: Systems that are Part of Larger Parent Organizations (n=44) Independent Systems (n=79) Total Respondents to these Questions (n=123) Has regular, formal discussions about the System’s community benefit responsibilities* 93.2% 58.2% 70.7% Has adopted a formal, written policy that defines overall guidelines for the benefit program* 81.8% 49.4% 61.0% *Statistically Significant Difference

The Community Health System Board: Systems that are Part of Larger Parent Organizations (n=44) Independent Systems (n=79) Total Respondents to these Questions (n=123) Has adopted a formal community benefit plan that spells out measurable system- wide objectives for the System’s community benefit programs* 54.5% 25.3% 35.8% Regularly receives performance data on programs* 86.4% 58.2% 68.3% *Statistically Significant Difference

“Over the past 12 months, what is your best estimate of how the meeting time of your system’s Board (not board committees) has been allocated among the following?” Engagement in and Oversight of: Systems that are Part of Larger Parent Organizations (n=44) Independent Systems (n=79) Total Respondents to this Question (n=123) Strategic Planning 26.5% 27.6% 27.2% Patient quality care and safety 24.1% 22.3% 23.0% Financial performance 23.9% 25.9% 25.2% CEO performance 7.6% 6.6% 6.9% Board education, development, and oversight 10.2% 10.7% 10.5% Community benefit programs 7.7% 7.2%

V. Some Conclusions and Next Steps The performance of community health system boards in relation to contemporary benchmarks of good governance is uneven. Community health system boards would be well-advised to put greater attention on their responsibilities with respect to community benefit. One of the six recommendations set forth in our first report (“Governance in Nonprofit Community Health Systems,” pp 28-29 is:

“All community health system boards and their CEOs should devote concerted attention and resources to meeting the emerging benchmarks of good governance with respect to their systems’ community benefit responsibilities. The boards are urged to: adopt a systemwide policy regarding their systems’ roles and obligations in providing community benefit, collaborate actively with other organizations in ongoing community needs assessment,

(c) adopt a formal community benefit plan that states the systems’ objectives in clear, measurable terms, (d) ensure that reporting and accountability mechanisms to monitor progress are in place, and (e) provide thorough reports to the communities served on a regular basis, at least annually.” Governance in Nonprofit Community Health Systems: An Initial Report on CEO Perspectives, http://www.public-health.uiowa.edu/news/pdf/021508-release.pdf, pg 29.

© 2008 Lawrence D. Prybil PhD All rights reserved. Phase III of this study – on-site visits to a subset of the systems – were conducted during May –July, 2008. Analysis of the survey and interview findings along with the systems’ three-year operating performance data is underway. A final report on this study will be published late in 2008 or early in 2009. © 2008 Lawrence D. Prybil PhD All rights reserved.