This article appears in the May issue of HealthLeaders magazine.
For decades, healthcare has been a complex, highly regulated enterprise. However, senior leaders and the boards that supervise their work could at least count on an industry of relative stability and predictability. In 2013, that's no longer the case. With unprecedented upheaval in reimbursement and changes in quality and safety standards already under way, with more to come, organizations are under pressure to either remake their business and clinical processes themselves or find a willing partner that can help. As the industry consolidates around them and as dance partners for the future are chosen, proactive boards are starting to realize where they are falling short. And falling short they are. The HealthLeaders Media Industry Survey 2013 finds that while 66% of CEO respondents say their boards are strong or very strong, 11% say their boards are weak or very weak. While that latter figure may not seem like a high percentage, only 2% of CEOs have the same low opinion of their leadership team and only 5% give such weak ratings to their physician, nursing, and finance staffs.
Whether boards are too large, too unwieldy, or in some cases have members who are underqualified to effectively provide strategic direction in conjunction with executive leadership, many of them need help to deal with the new realities of healthcare.
Uncertainty and a declining future revenue picture have a funny way of kick-starting action. Many healthcare boards, realizing they may have a deficit of skills and savvy, are now running at top speed to gain the knowledge and depth of expertise necessary to help lead their organizations.
"We're all going into a new world here that is really not well defined," says David Goldsmith, board chair at John Muir Health in Walnut Creek, Calif.
A crisis situation?
Gary Ahlquist is a senior partner at the Chicago location of Booz & Co., a global management consulting firm, and specializes in healthcare strategy and organization development. He says the level of uncertainty surrounding future reimbursement and quality and safety standards has pushed boards to seek to work directly with his team, where in the past, most of that work was done with senior management exclusively.
"Generally you would do strategy with the CEO and the executive team, but boards are apoplectic," he says. "It's not that they distrust management, but they feel such a level of uncertainty that they want us to help assess strategy together with management."
Ahlquist says his research shows that the healthcare sector, especially hospitals, could see a 20%–25% net revenue decline in the next five to 10 years.
"One result of that, plus other factors, is that we expect somewhere around 1,000 hospitals to be realigned or reaffiliated," he says.
That number represents about a fifth of the current number of now-independent entities, mostly hospitals, that Ahlquist says will no longer be so, depending on the posture of the federal government surrounding consolidation. That's a lot of hospital boards facing the possibility of their dissolution and considering a very different future for their organizations.
But first, many boards have to get educated to be equipped to thoughtfully consider the long-term viability of their organization. In addition to owning and leasing hospitals, Community Hospital Corp., based in Plano, Texas, runs a consulting arm that spends about half its time with boards considering strategic alternatives to independence. Mike Williams, the company's president and CEO, says getting to the point of understanding the forces acting upon those hospitals related to the Patient Protection and Affordable Care Act requires some remedial work with board members. When they or their CEOs hear about big systems merging for protection, offering as an example the Baylor and Scott & White Healthcare merger in Texas that was announced recently, Williams says boards are wondering what the big organizations know that they don't.
"We're spending a lot of time educating them as to the impact of the ACA, the impact of bundled payments and alignment with medical staffs, and we're challenging them to test factually and quantitatively the viability of their organization on a standalone basis."
Williams says changes to the way boards conduct their business are myriad, but that in many cases, the changes aren't happening fast enough. For example, nominating committees are looking at competencies and asking whether certain individuals are capable of understanding this complex industry, whether they are willing to make tough decisions, whether they are able to invest the vast amount of time that being a hospital board member takes, "because the one-and-a-half-hour lunch board meeting is history."