Over the past several years, we have seen a spike in comments to the effect that board members are struggling to keep up with the rising difficulty level of hospital and health system governance. Problems include the ever-widening array of external opportunities and threats, as well as the increasing size and complexity of hospitals and health systems themselves.
So we spent the last year (and counting) taking a hard look at health system governance—and what a learning journey it was. Bottom line upfront: Hospital and health system governance is falling short of delivering on its full potential, but it doesn't have to be that way.
In this post, I will outline the state of hospital and health system boards today—what we actually heard and saw. In the next post, I'll share a vision of what more boards could do if their full potential were realized, along with the three specific governance changes needed to close the gap.
First, take a tour of the research with me: What did we see and hear?
Let's warm up today by walking through the issues we saw and heard in our research—starting with the good news and then turning to the problems.
Our research into hospital and health system governance entailed reviewing the cannon of governance effectiveness literature, fielding a survey for hospital and system executives, and, most importantly, conducting confidential interviews with management teams, board members, attorneys, and other stakeholders.
Here's what we found:
- Most organizations deserve an A for effort: A large number of smart, competent executives and community members are putting substantial good-faith effort into board-related activities and oversight. For board members, this is mostly volunteer time.
Importantly, many board members know they're working within a cumbersome governance system that probably is not hitting its full potential—and they still show up and get ready to do what they can. It's impressive.
- B+ on fiduciary oversight and compliance: Boards—and committees, which typically include a blend of board and non-board members—are putting their work into the best-established of the governance work streams. That is, keeping the organization on the straight and narrow in terms of financial oversight, compliance risk, credentialing and privileging, and so on. There are a few specific ways that most boards could probably be more effective at this type of work, for example:
But at their core, these types of governance responsibilities are well understood and conscientiously done.
- Many boards are missing a complete, rolled-up pie-chart-type framework of all potential sources of risk to guide prioritization of effort and better connect to specific mitigation steps; and
- Few systems have been able to find economies of effort across board/committee quality and credentialing work, and are still working on, say, credentialing at each individual hospital. (More on the "systemness" problem in a moment.)
- Intense focus on process-oriented governance fundamentals: Many boards invest a ton of time on evergreen board effectiveness goals. These commonsense improvements include things such as:
- Making sure every committee has a written charter;
- Adopting consent agendas to spend more meeting time in discussion (versus passive listening to presentations);
- Winnowing down the number of people on the board to something in line with industry average;
- Weeding out members who do not routinely contribute in constructive ways; and
- Doubling down on recruiting people with relevant competencies to reshape the board in the long term.
There is an obvious progression of maturity in good governance fundamentals. Many systems put their basic governance house in order long ago and are now maintaining it. Others are just emerging from a major wave of cleanup and re-ordering. We didn't see anyone who hadn't yet begun to shore up fundamentals (but I'm sure they are out there).
Whether other fundamentals are in order or not, many executives and board members report wrestling with diversity, equity, and inclusion. Most acknowledge that there is a long way to go before boards are fully representative of the communities they serve.
- Where things start to get complicated: Inescapable ambiguity around board role: This issue set is politely referred to as "better differentiating the board's role from management's role," but management's role is not the one that is vague. It's the board's role—especially anywhere outside of quality and compliance-related workstreams, and especially when it comes to the board's role in strategy—that persistently needs revisiting and re-defining.
- Shifting from "fiduciary" to … something more ambitious: Beyond the basics, many management team and board members shared the belief that there must be a next echelon of board value beyond the foundational step of fulfilling fiduciary duties. Many believe there is a maturation curve—an arc toward boards becoming ever more capable of pushing the organization in creative, constructive ways. However, it was difficult for any board member or executive to define exactly what this would look like, or what steps would need to be taken to get there.
- Doubt about whether the board(s) of today can make that leap: Research participants expressed serious reservations about the ability of the boards of today to fulfill the vision of a more creative, strategic, savvy thought-partner to management. The skeptics included not just CEOs, but also board members who said it is difficult to be conversant enough in the complexities of the health care industry issues to give robust strategy guidance. They also said the job of constructively weighing in is becoming even more difficult as the market landscape, and each individual system, becomes more complex, with decisions having ever-higher stakes.
- The "systemness" problem: System consolidation is forcing the issue of governance redesign to the forefront. It's become a major headache to sort out what the system board does, versus legacy hospital boards (or community advisory boards), foundation boards, and other entity boards that may be in the mix. Several systems we interviewed have taken the plunge and actually restructured the whole governance structure; others are still in the assessment phase.
All are wrestling with ongoing issues—in particular, how to define and teach the new VALUE of the legacy hospital boards, or the community advisory boards that are often replacing them?
What could be: Discovering hints about the board's full potential
As we conducted the research, we consistently asked questions to try to ascertain the "so what" of governance effectiveness—or ineffectiveness. We asked questions such as, "What does the best board in the world get you? What does the worst board in the world cost you?"
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The challenge here is that a major component of the equation is opportunity cost. As one interviewee put it, "the worst board in the world costs you your organization, because if things are going off the rails, they're the last line of defense. But what the best board in the world can do for you is hard to measure. And so, the cost of falling short of whatever that could have been, of being just a so-so board, is hard to measure too."
To break through the murk and piece together the elements of full board potential, we asked research participants for anecdotes about times when boards made a big difference for the organization. We also asked for "missing contribution" anecdotes—times when, from the interviewee's perspective, specific types of board help would have made a big difference, even if that help never materialized.
The more examples we heard in these categories, the more we began to see a framework for generalizing the most game-changing contributions hospital and health system boards can make. Not just to keep problems at bay, but to actively boost the organization toward better results and right answers.
Next steps: Introducing 'top of license' governance—and the problems that need solving to get there
In subsequent posts, I will share the emerging picture of what we have begun to call "top of license" governance. Many of you will know that "practicing at top of license" is a key concept in clinical teams, referring to each member of the clinical team doing the most that they are qualified to do by training, skill, and experience.
In my view, the main element missing from today's approaches to governance effectiveness is a framework that does the same thing for boards—that is, assessing whether and where we are (or are not) consistently making the highest and best use of board time and effort. With a top-of-license framework for boards, we could much better position them to make the contributions boards are uniquely well positioned to make against the challenges that matter the most to the organization.
I will also share the three root-cause governance problems that stand between maintain the status quo and achieving this vision—as well as practices from hospitals and health systems that are approaching governance from new angles. In the meantime, you can email me directly to set up time to talk through current challenges, opportunities, and how we can help.
New: How your organization can sustainably control costs and grow revenue
In many ways, hospitals and health systems are comparable to stars. Take, for example, Antares, a red supergiant that shines brightly from far away, but faces a significant problem upon closer inspection: it is nearing the end of its life. It is rapidly devouring all its fuel to burn so brightly and will eventually collapse. Similar to Antares, many hospitals and health systems appear healthy from afar. But with their operating expenses now outpacing their operating revenue, they may be headed downhill.
Antares Health System, Advisory Board’s financial model of an average health system, illustrates the magnitude of this challenge. Absent intervention, Antares will have a –4.2% operating margin in 2025. Use this infographic to learn how Antares Health System (and your organization) can reverse course to ensure a bright and sustainable future.