Conflict-of-interest threats grow as hospitals diversify revenue

When it comes to internal board service, high-profile health system executives often serve on at least five, according to Modern Healthcare’s analysis. They range from individual hospital boards across the organization and subcommittees related to quality and safety to insurance subsidiaries.

But some are strictly an advisory board and do not have a fiduciary role, experts noted.

“The days of serving on 11 different boards are over. If you are running a business or employed, you can’t be expected to serve on more than three boards and be a good board member,” said Orlikoff, adding that he chairs a health system board and doesn’t have time to serve on others. “It takes more time, especially coming out of the pandemic.

“Strategically, in terms of market and regulatory challenges, there is an unprecedented amount of pressure on boards, calling into question the voluntary model of governance,” he said.

Paid or unpaid?

Not-for-profit hospital board positions are often unpaid, limiting their recruitment efforts.

Around 11% to 13% of board members in not-for-profit healthcare organizations received compensation as of 2018, according to the AHA survey. While that share has increased in recent years, it does not compare with investor-owned hospitals, where pay is more commonplace and substantially higher.

“Not-for-profit hospitals and health systems are beginning to change that,” Orlikoff said, noting that not-for-profit hospital boards compete with publicly traded companies and venture capital boards. “Probably around 20% to 30% now are compensated, and that number is growing rapidly.”

Some healthcare leaders are paid to serve on the boards of large banks, pharmacy chains and fast-food chains. Paying board members can boost accountability and weed out the poor performers, experts said.

“Compensation in the not-for-profit healthcare field tends to be far lower than the general business sector,” Prybil said.

Federal regulations regarding compensation and board service are relatively lenient. The Internal Revenue Service requires that the majority of not-for-profit hospital boards members are independent, meaning they aren’t directly employed by the organization. Some hospitals and health systems have run into trouble regarding employed physicians serving on boards.

While not-for-profit hospitals are advised to assess what types of experience would best serve their organization, there are no legal requirements.

“Clearly the need for expertise has not been met, not just in rural areas but in urban economic centers too,” Orlikoff said.

Time management

Time commitments for board members vary wildly based on the organization.

Some not-for-profit hospital boards can require as little as 40 to 60 hours of service a year. The bigger organizations may require up to 200 hours, Keckley said.

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