Healthcare Boards in Conflict

September 2016

Allegations of ‘conflicts of interest’ are making news as people across the nation assess the tangled web of relationships of both major party candidates for president of the United States. The jury is still out as to what voters will make of the reports of possible conflicts of interests. But, for certain, the charges and countercharges by the candidates have shone a light on the risks of failing to manage or adequately disclose business conflicts.
A recent article in the Wall Street Journal shows that officers, directors, trustees and key employees of healthcare organizations should be especially alert to possible conflicts of interest. The Journal analyzed data from Form 990s filed with the Internal Revenue Service by nonprofit organizations.
The study revealed that hospitals by far had the greatest incidence of reported conflicts with directors and officers. More than 46 percent of over 2,300 hospitals surveyed had at least one trustee or officer with business ties to the organization. Colleges and universities, at 14 percent, came in a distant second.
The high rate of reported conflicts among hospital boards should ring alarm bells throughout the healthcare industry. First, it’s sobering to think that the incidence of board conflicts may actually be higher since conflicts are not always properly disclosed. But, even if disclosed, conflicts between trustees, officers and the hospitals they serve, can be debilitating to effective management, expose institutions to the risk of heightened compliance as well as adverse publicity and erode bonds of trust between institutions and the public they serve. We find this very concerning.
It would make sense for institutions to thoroughly vet prospective board members to pro-actively guard against bringing members with discoverable conflicts onto the board. The high incidence of conflict situations among hospital boards suggests that such scrutiny is not being undertaken and that institutions do not prioritize the issue of conflicts among board members as very high. Additionally, many boards may still harbor trustees and officers put in place prior to the wide spread adoption of “best practices” in board governance among charitable organizations. Weeding out old-fashioned views of conflicts among long-time directors and officers (‘you scratch my back, I’ll scratch yours’) may be needed, especially in the case of local hospital boards which ask trustees to devote substantial uncompensated time to govern institutions lacking the prestige or notoriety associated with higher profile charities.
Institutions can guard against perpetuating conflicts among board members by being more conscientious about outreach. Too often, new board members are culled from the social directories of existing members, including family members and friends as well as industry and professional acquaintances. Recruitment of trustees from within small social circles may promote the homogeneity of the board, but at what cost? Unfortunately, since the cost is often the loss of the Board’s professionalism and integrity, the organization and the community it serves suffers as well.
Diversifying the boards of healthcare institutions would be good medicine for the industry to self-administer as part of a wider plan of action to proactively reduce instances of conflicts among directors and officers. Across the country, there are regional, state and local organizations that can assist an organization in implementing strategies to aid this cause.
There are other very effective and appropriate methods to ameliorate the conflict of interest issues facing healthcare organizations. For example, continuous board education should be instituted and, perhaps, required as to board governance best practices. One such practice to protect the interests of the not-for-profit organization is to require board members’, officers’, and key employees’ strict and documented adherence to an explicit Conflict of Interest Policy. The Conflict of Interest Policy should extend to relationships board members may have with vendors, transactional parties and other potential conflicted parties. Should such conflicts be identified or arise for certain board members, those board members should be, at a minimum, recused from participating in or voting on related matters. If, however, a conflict of interest with a board member is discovered only after board action or revealed by other sources, such as whistleblowers or in a discoverable transaction process, the board should consider removing such member.

Without doubt, given the data presented by the recent study, concrete, deliberate steps will be required to reduce the incidence of conflicts on hospital boards. Conscientious leaders of nonprofit boards will take charge of this issue with the appropriate seriousness in order to minimize the harsh negative impact undue or improper influence by trustees or officers can have upon the fair administration of the business of hospitals and other healthcare organizations.
While they may not have investors or shareholders like for-profit providers (which have different, and in many ways more stringent, governance protocols), non-profit healthcare organizations still have a wide range of stakeholders. A conflict of interest at a non-profit hospital may not have the immediately visible impact of a stock price drop, but the impact of loss of trust damages all concerned, including readers of this publication who may face unwanted challenges brought on by directors or officers with conflicting allegiances.