Strip­ping the lay­ers: Ex­perts praise cen­tral­iz­ing health sys­tem con­trol

Modern Healthcare - - News - By Tara Ban­now

When it comes to health sys­tem gov­ern­ing boards, for the most part, ex­perts agree: Less is more. It’s an im­por­tant mes­sage for the hos­pi­tal in­dus­try, which has been slow to shed its bu­reau­cratic lay­ers.

In­dus­try gu­rus praised St. Joseph Health’s re­cent move to strip key de­ci­sion­mak­ing author­ity from four Cal­i­for­nia hos­pi­tal boards and shift that con­trol to a re­gional board, say­ing it aligns with a gov­er­nance style that keeps health sys­tems nim­ble and ef­fi­cient, even as they add new hos­pi­tals.

“In gen­eral, the more boards you have and the more lay­ers of gov­er­nance, the more chal­leng­ing the gov­er­nance model is and the more likely it is to add cost rather than adding value,” said Jamie Or­likoff, pres­i­dent of Chicago-based Or­likoff & As­so­ciates and the Amer­i­can Hos­pi­tal As­so­ci­a­tion’s na­tional ad­viser on gov­er­nance and lead­er­ship.

In­creas­ingly health sys­tems—ever-striv­ing to cut ex­penses, stan­dard­ize qual­ity and lower time spent mak­ing de­ci­sions—are dump­ing de­cen­tral­ized gov­er­nance struc­tures in fa­vor of cen­tral­ized ones where ap­provals pass through fewer hoops.

But it’s not an easy evo­lu­tion. Con­vinc­ing a hos­pi­tal to join an or­ga­ni­za­tion is a del­i­cate ne­go­ti­a­tion, one that of­ten re­quires the prom­ise that boards will not only re­main in­tact, but in con­trol. The real prob­lems en­ter, ex­perts say, when health sys­tems are in­ten­tion­ally or un­in­ten­tion­ally vague about the del­e­ga­tion of du­ties be­tween par­ent and lo­cal boards.

“Vir­tu­ally ev­ery­one I know of falls into that cat­e­gory,” said Jack Glea­son, an at­tor­ney spe­cial­iz­ing in health­care with the New York law firm Ep­stein Becker & Green. “This is not a se­cret sauce em­ployed by one or two sys­tems. This is very typ­i­cally how it’s done.”

It was dif­fi­cult to glean specifics on how ex­actly over­sight would be split be­tween St. Joseph Health’s North­ern Cal­i­for­nia re­gional board and its hos­pi­tal-level coun­ter­parts. A spokes­woman ini­tially said the hos­pi­tal boards would have “no fidu­ciary over­sight,” then re­tracted that state­ment. She also said the hos­pi­tal boards would not over­see hir­ing or fir­ing of chief ex­ec­u­tives, but walked that back as well.

The re­gional board will have ul­ti­mate say over big de­ci­sions like bud­get ap­proval, cap­i­tal plan­ning and joint ven­tures. Mean­while, so-called “com­mu­nity boards” at the four North­ern Cal­i­for­nia hos- pitals—Santa Rosa Me­mo­rial Hos­pi­tal, Queen of the Val­ley Med­i­cal Cen­ter in Napa, St. Joseph Hos­pi­tal in Eureka and Red­wood Me­mo­rial Hos­pi­tal in For­tuna—will han­dle things like med­i­cal staff cre­den­tial­ing, fundrais­ing, com­mu­nity ben­e­fit and qual­ity.

As a gov­er­nance con­sul­tant, Or­likoff fre­quently asks health sys­tem lead­ers about the role of their hos­pi­tal board. Later, he asks board mem­bers the same ques­tion. He rarely gets the same an­swer.

“We have a say­ing that is cru­cially im­por­tant: Where there is mys­tery, there is no mas­tery,” he said. “If you have a gov­er­nance model and it’s not clear ex­actly why it’s set up or what it’s de­signed to achieve, there’s go­ing to be en­tropy as­so­ci­ated with it.”

Con­rad “Con” He­witt, for­merly the board chair­man of his lo­cal hos­pi­tal, Queen of the Val­ley Med­i­cal Cen­ter, said at first there was uncer­tainty around what would hap­pen when the re­gional board was cre­ated.

“Ini­tially we didn’t have a lot of in­for­ma­tion,” he said. “So we didn’t know what was go­ing to hap­pen.” Once He­witt and his fel­low di­rec­tors learned more, they wel­comed the change. He­witt is a di­rec­tor on the newly formed re­gional board and chair of its fi­nance com­mit­tee.

“It’s been a good thing be­cause we’re slen­der­iz­ing some of the ac­count­ing pro­ce­dures to make it eas­ier for every­body, try­ing to cen­tral­ize our pur­chas­ing in the re­gion,” said He­witt, who served as chief ac­coun­tant for the U.S. Se­cu­ri­ties and Ex­change Com­mis­sion be­tween 2006 and 2009.

There’s a nat­u­ral ten­dency to want to re­tain lo­cal con­trol when hos­pi­tals are

“We’re slen­der­iz­ing some of the ac­count­ing pro­ce­dures to make it eas­ier for every­body, try­ing to cen­tral­ize our pur­chas­ing in the re­gion.” Con­rad “Con” He­witt For­mer board chair­man of Queen of the Val­ley Med­i­cal Cen­ter

ac­quired by sys­tems, but some ex­perts say that can sti­fle the ef­fi­cien­cies such deals are ex­pected to achieve.

Lo­cal res­i­dents ar­gue that no one un­der­stands health­care bet­ter in their com­mu­ni­ties. But Or­likoff said that’s not nec­es­sar­ily true. The move­ment to­ward pop­u­la­tion health means us­ing health dis­par­ity and dis­ease data to drive de­ci­sion­mak­ing, rather than geo­graphic and po­lit­i­cal bound­aries, he said.

For merg­ers to work, there must be align­ment on the sys­tem’s goals, said David Wilde­brandt, man­ag­ing di­rec­tor of the Berke­ley Re­search Group.

“What we’ve seen time and time again is failed in­te­gra­tions, where it’s a loose fed­er­a­tion of hos­pi­tals that re­ally are do­ing their own thing in each mar­ket re­gard­less of the sys­tem ob­jec­tives, and re­ally not op­er­at­ing to­gether as a sys­tem,” he said. “A lot of that is be­cause it’s de­cen­tral­ized points of con­trol.”

Pam Knecht, CEO of the Chicago-based gov­er­nance con­sult­ing firm Ac­cord Lim­ited, said there is no one-size-fits-all ap­proach to health sys­tem gov­er­nance; lead­ers should con­sider their strate­gic plan and core val­ues. If the or­ga­ni­za­tion is pri­or­i­tiz­ing cost-cut­ting, then sys­tem-level gov­er­nance could work best. But if the sys­tem wants to en­sure max­i­mum lo­cal re­spon­si­bil­ity and in­put, then a lo­cal or re­gional board model might work bet­ter.

“The move­ment is to­ward more of the hy­brid model or more of the cen­tral­ized model be­cause we’re try­ing to lower costs and im­prove qual­ity, and we’re try­ing to do so in a con­sis­tent way,” she said.

Hart­ford (Conn.) Health­Care col­lapsed up to 18 boards through­out its health sys­tem, in­clud­ing five hos­pi­tal boards, into three re­gional boards in 2015, a move CEO El­liot Joseph said brought the sys­tem from 96 gov­er­nance meet­ings per year to 16. The sys­tem added a fourth board in Jan­uary when it af­fil­i­ated with Char­lotte Hunger­ford Hos­pi­tal. “It’s of­ten a dif­fi­cult set of con­ver­sa­tions, but typ­i­cally you have many board mem­bers who put the needs of their com­mu­nity in front of their egos,” Joseph said.

Ex­perts also high­lighted Kaiser Per­ma­nente as a large sys­tem that uses cen­tral­ized gov­er­nance. Kaiser op­er­ates a sin­gle gov­ern­ing board for its hos­pi­tals in Cal­i­for­nia, Ore­gon and Hawaii.

An­a­lysts with Moody’s In­vestors Ser­vice and Fitch Rat­ings said gov­er­nance struc­ture alone won’t tip a sys­tem’s bond rat­ing one way or another, but it can be among fac­tors that in­flu­ence a rat­ing. A high-func­tion­ing board gen­er­ally yields bet­ter fi­nan­cial re­sults, which means the or­ga­ni­za­tion is more likely to re­pay its debt on time and in full, said Kevin Hol­lo­ran, a se­nior di­rec­tor with Fitch.

“An ef­fec­tive board means ef­fec­tive num­bers, which means ef­fec­tive pay­ment, which means a good bond rat­ing,” he said. “In­ef­fec­tive boards

● usu­ally mean the op­po­site of that.”

CHARLIE GESELL

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