MHA 520 Case Study 1: Reliance Hospital Please access and

MHA 520 Case Study 1: Reliance Hospital Please access and Analyze the case below, Be analytical and thorough in your assessment of the problems and creative in your proposed solutions. The following guidelines should be addressed in your analysis: (1) Problem identification: Determine what you believe to be the primary problems the organization is facing. Although the problems may be broader than the weekly topic (organizational culture or clinical staff management), focus your attention on aspects of the problems that pertain to those weekly topics; (2) Implications: Explain why the identified problems are indeed problematic. Discuss the ramifications for the organization if the problems are not resolved; (3) Solutions: Develop a set of recommended strategies/actions that might help to solve the key problems (two to four should be sufficient). Provide sound rationales for your proposed strategies—for example, by drawing on concepts from the readings or course activities. Managing Governance at Reliance Hospital PH9-0066 the board is fairly quiet. It may have to do with their personalities. The chair doesn’t force contribution, but there is opportunity to speak up.” Some board members suggested that the size of the board played a role in determining the level of participation, with the large number of board members “cutting down on the level of discussion.” Davis believed that the mixed participation may have additionally been influenced by organizational culture: “I think this board has had a culture that includes conflict avoidance; but they have recognized it. Nevertheless, when you have a certain style, you play into that.” Lynch agreed that the culture and processes of the board could use improvement. A recent internal governance survey of board members had confirmed a number of areas of concern. The responses to several survey items related to individual board member involvement and participation fell well below national averages. These areas included (with percent saying always or most of the time in parentheses): • Board member participation in meetings (65% versus 82% nationally) • Communication with the CEO (60% versus 84% nationally) • Willingness to voice concerns regardless of issue sensitivity (55% versus 82% nationally) • Involvement in new member identification (35% versus 67% nationally) • Participation in educational opportunities related to issues of importance to the board (30% versus 60% nationally) With respect to the entire board and its processes, other areas of concern revealed by the survey included (with percent saying always or most of the time in parentheses): • Discussion of strategic issues during board meetings (30% versus 58% nationally) • Willingness to challenge recommendations of the medical executive committee (15% versus 48% nationally) • Comprehension of the hospital’s financing options (20% versus 68% nationally). Despite these areas of concern, the survey also revealed that the board believed it was actively involved in establishing the organization’s strategic direction and that it was providing appropriate financial oversight for the organization. Role of the Board in Strategic Planning Formal responsibility for strategic planning was vested in the board’s Strategic Planning Committee. Although it was a committee of the board, the committee’s membership included representation from many stakeholders in the organization. The committee was among the hospital’s largest. Stephen Davis had previously served as the committee’s chair: I hired a good outside facilitator [for the Strategic Planning Committee], someone who could get the strategic data out of management and not just the tactical or operational stuff. So in that committee I think we were getting good data…We had about forty or fifty people. it as a way to have some fun. From this experience I think I was able to gain some of the board members’ trust. However, at least one board member felt that the board was not sufficiently involved in the implementation of the strategic plan: The board has been involved in the strategic planning process, but the implementation has been delegated, and the board has not provided the appropriate oversight…If the board is going to be involved in the strategic planning of the hospital they need to be providing some oversight. In terms of hospital performance evaluation there have not been a lot of metrics that the board looks at. They are just beginning to develop a dashboard, but that’s still more operationally-focused and not necessarily strategy- focused. Lynch was also concerned that some board members were too involved in operational details rather than focusing their attention at a strategic level. With this board, I feel like I have to ask permission to do things that I feel are within the purview of the CEO…I think that the CEO should be able to go out and hire VP’s. But the board believes that they should be involved at that level and be able to approve VP compensation. There are some venture capitalist types on the board who treat the hospital like a for-profit venture, like it’s their investment and they should be able to approve the use of their dollars…When I started in this job, I wanted to bring in a Chief Medical Officer (CMO) and so I asked the board chair at the time what the process for doing so was, and he said you just do it. So I did. Well, some members of the board complained about the process. Some Board members continued to complain about not being involved in other decisions Lynch had made, including the hiring of a director of marketing, replacing her own administrative assistant, and giving raises to her executive team. Role of Physicians in Hospital Governance The number of physicians actively serving on the board was reduced as part of the board’s overall size reduction. As of the end of 2007, there were four physicians serving on the board. 1 Some of the hospital’s board members recognized the complicated nature of physician-hospital relations. One board member commented: The biggest complication in health care is that a big part of your work force doesn’t work for you; that’s a complexity that corporations don’t face. The complexity is in the relationship with the medical staff. The problems arise not so much with the internists, but with the specialists, particularly when it comes to recruiting physicians. The specialists tend to resist that. Patricia Lynch elaborated on how these complexities manifested at Reliance: 1 Based on data from the 2005 Governance Survey, American Hospital Association/Health Research and Education Trust Part of the problem is that these physicians want the hospital to share any and all information with them, including service line profitability data, but then they just use it to further their private interests, and in some cases compete with the hospital. Physicians may have too much power here. We have only five general surgeons. We conducted a market analysis, the results of which said that in growing market share this hospital has room to add 12.7 surgeons. I looked into it and got major push back from the docs. The medical staff resisted several efforts to increase clinical staffing, including efforts to recruit additional cardiologists. In some cases physicians threatened to leave the hospital if staffing in their area was ramped up. This put Lynch in a tough position: “The reality is that I want this hospital to be around, and I realize that in order to do that I need to be aligned with the physicians; so I basically give them the right of first refusal.” However, recently she said to one surgeon that she would not honor his request to not recruit; that surgeon left the area soon after. In addition to positions on the hospital’s board, the hospital’s physicians had influence through the medical executive committee (MEC), which governed the medical staff. The president of the medical staff served ex-officio on the board. The CEO and CMO served on the MEC, which also included the chairs of each of the hospital’s clinical departments. Lynch saw the MEC as a potentially important vehicle for managing relations with physicians and for disseminating information to the hospital’s medical staff. However, she felt that the committee did not yet serve that purpose and was weighted too heavily toward specialists. At a recent medical executive committee (see Exhibit 5 for agenda), members discussed proposals for a reduction in the food budget for meetings, changes in the way medical staff dues were charged and paid, and whether the medical staff should make a contribution to the hospital’s medical library. The Governance Committee Meeting In the winter of 2007, the Governance Committee of Reliance met to review results of the recent internal governance survey, comparing their own board responses to those of boards nationally that participated in the Governance Institute 2 board survey. The meeting began with a review of the board’s evaluation of the Chair as an effective leader. Results were unanimously supportive of Davis’ leadership performance and especially noted his inclusive style. However, three board members expressed some dissatisfaction with the chair’s relationship with the CEO, with one writing that Davis “needed to think about the CEO as employee rather than as a peer.” Committee members went on to review the Governance Institute’s comparison of their board’s self-assessment to their national peers. One of the larger unfavorable differences between Reliance and its peers was the level of agreement with the statement, “Board members receive important background materials at least one week in advance of meetings.” Only 45% of 2 The Governance Institute, “Board Compass: The Governance Institute’s Board Self-Assessment”, 6333 Greenwich Drive, Suite 200, San Diego, CA 921220. Reliance participants strongly agreed or agreed with that statement, compared to 81% nationally. Lynch noted that this result appeared despite the fact that the board received materials in advance of the meeting and were satisfied with the timing of receiving them. One committee member noted that most Reliance board members did not agree that they received and reviewed copies of the hospital’s IRS Form 990 3 to insure its accuracy and completeness. One committee member remarked, “We never see a 990 at the board meeting.” Another responded, “But the Audit Committee does.” A third asked, “So should we be handing it out at the board meeting?” One member responded, “No, if we did that the physicians would be passing it around to the whole medical staff.” The committee decided that the Audit Committee should give the board a report on it. It wasn’t clear to committee members why the Governance Institute considered full board review of the IRS 990 as a best practice. The committee noted that only 25% of Reliance board members agreed to the statement, “The board has a written policy and/or procedure outlining the organization’s approach to physician competition/conflict of interest.” This issue was highlighted by the Governance Institute as an area where the Reliance board should improve. One group of specialists had recently set up a freestanding endoscopy unit that had taken $3 million out of hospital revenues in one year. In response to a committee member’s question of whether the move had affected patients, Lynch commented, “It is not an issue of quality of care; it is more the impact on the hospital and the bifurcation of the medical staff.” Another area of discussion focused on a survey question about the effectiveness of the board’s quality committee in providing oversight. Sixty-five percent (65%) of Reliance respondents agreed that the quality committee was effective, compared to 89% of their national peers. One committee member commented, “We need to get our Quality Committee to decide how to establish effective oversight. We need a more structured set of goals. We need to refocus on what the board needs to understand about our hospital’s quality.” The committee agreed that more effort needed to be paid to quality oversight by the board, but were concerned that issues of quality not become so dominant that they pushed the issues of finance and strategy off the board’s agenda. The committee wondered whether the board should be more involved in developing political relationships on behalf of the hospital. In the survey, only 40% of Reliance board members agreed that board members assist the organization in communicating with key external stakeholders, compared to 59% nationally. Ms. Lynch was hoping to get board members to attend a fundraiser for a local politician who had helped the hospital obtain state resources in the past. As it was getting late by this time, discussion on this topic was limited. The committee discussed how much board meeting time should be devoted to discussion versus reporting out at board meetings. The Governance Institute’s best practice recommendation was that 75% of board time be devoted to discussion. One member commented that it involved 3 The IRS 990 is a form that tax-exempt organizations are required to submit to the IRS. It provides information on the filing organization’s mission, governance, programs, compensation and finances. balancing how much education board members needed before they could effectively discuss a topic. Another commented that it was very difficult to get all of this information into a 1½ hour board meeting. A third asked, “How much information do we have to give to the Board? When should we just trust the CEO?” A discussion ensued about how many meetings, between board and committee, the members attended each week. One member commented, “I am worried about so many meetings and their impact on management. Maybe we should meet quarterly like [the other hospital where she was a board member].” The committee concluded that they needed to redefine the board’s role to be more strategic, to provide less day-to-day guidance. One member commented, “Some say all the board does is hire and fire the CEO.” The final item on the Governance Committee agenda was proposed changes in the board’s policy manual. Most of the changes were on what kind of behavior was expected of board members. The additions included “communicate effectively with the CEO,” “work well together as a team,” “exhibit a willingness to consider differing opinions of others,” and “build trusting relationships with one another and respect the confidentiality of all discussions, information, opinions, and attitudes.” One committee member commented that he’d never seen any disrespect at board meetings. Another mentioned that confidentiality issues were a problem, especially with physician board members. Looking Ahead Lynch looked to the future with a reserved, yet optimistic outlook. She described herself as a diligent woman—someone who had worked hard to get where she was. Despite the changes she and Davis had achieved in her first couple of years, and the encouraging discussion at the recent meeting of the Governance Committee, she still found engaging the board on strategic issues a challenge. She sensed that in the minds of some board members her role, relative to their role, was ill-defined. Nevertheless, she hoped that the board could properly define and carry out its role, provide constructive oversight of the hospital’s strategic direction, and help to bridge the divide between the hospital’s management and its physicians. She believed that an executive committee would help improve many of the problems but worried that the board was still not prepared to approve such an action. Looking forward, she envisioned a continued partnership with Stephen Davis in an effort to improve board performance, but wondered what changes she should prioritize and how to achieve them. Exhibit 1: Reliance Hospital’s Volume: Inpatient Days 2003 through 2006 2003 2004 2005 2006 Inpatient Days 46,822 45,437 43,897 45,884 Medical/Surgical 20,487 22,874 21,423 21,105 Pediatrics 744 529 598 599 Obstetrics 3,966 3,962 3,725 3,769 Psychiatry 7,493 7,154 7,589 8,161 Skilled Nursing 5,367 4,380 4,173 5,763 ICU 4,100 1,933 1,974 2,112 NICU 1,164 1,147 1,159 1,187 Newborn 3,501 3,458 3,256 3,188 Exhibit 2: Reliance Hospital’s Financial Performance 2004 through 2007 2004 2005 2006 2007 State Industry Median 2007 Operating Margin 3.5% 3.5% 2.2% 2.0% 1.7% Non-operating Margin 0.38% 0.07% 1.20% 2.20% 1.6% Total Margin 3.9% 3.6% 3.4% 4.2% 3.3% Current Ratio 1.6 2.11 1.71 1.69 1.55 Cash flow to Total Debt 28% 15% 14% 15.0% 20% Equity Financing 47.01% 37.96% 38.67% 38.45% 49% Exhibit 3: Summary of Reliance Hospital Board Membership by Profession Board Member Local Resident Years on Board Profession 1 Ex-Officio Yes <3 Physician; President, Medical staff 2 Ex-Officio Yes <3 Physician; President-Elect, Med Staff 3 Yes 7 Physician 4 Yes 8 Physician 5 CEO Yes 3 CEO, Reliance Hospital 6 Chair Yes 14 Professor, Local University 7 Yes <3 Retired Business Executive 8 Yes 17 Retired Business Executive 9 Yes 8 Business Executive 10 Yes 3 Business Executive 11 Yes 4 Business Executive 12 Yes 13 Retired Business Executive 13 Yes 8 Retired Business Executive 14 Yes 10 Business Executive/Owner 15 Yes 14 Business Executive 16 Yes <3 Investment Firm Executive 17 Yes 8 Retired Venture Capitalist 18 Yes 5 Investment Firm Executive 19 Yes 11 Retired Business Executive 20 Yes 5 Venture Capitalist 21 Yes 3 Mental Health Specialist 22 Yes 8 Retired Local Store Manager

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