February 24, 2020

February 24, 2020

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Mid-Year Top 10: Health Care Systems Governance Trends

Recent developments are reshaping perspectives on corporate health care governance. Learn how these top trends may impact your organization for the balance of 2019:

  1. Where Was The Board? There’s a new call to address the adequacy of the board decision-making process. As seen in media coverage of recent controversies involving patient, product and public safety, and consumer rights, the focus is on the board’s role, processes, diligence, reliance on executives and whether it caught the “red flags.” In times of corporate controversy, board conduct is increasingly under the microscope.

  2. Board Composition. The Conference Board’s new survey is impacting board nominating practices. According to the survey, the composition of many large company boards remains unchanged, despite widespread demand for greater refreshment and diversity. Many surveyed companies disclosed no change at all in their board composition. Board refreshment is further stymied by a lax approach to evaluating individual director performance.

  3. Conflicts Complexities. Highly visible boardroom conflicts of interest controversies in the health care industry have become increasing prevalent, arising from compromised CEOs weighing in on merger process, to director-as-vendor relationships, to dual loyalties and to inadequate disclosure. The duty of loyalty is seemingly under siege in an evolving and transformative health care economy.

  4. Director Engagement. Director engagement, attentiveness, and commitment has become areas of focus for courts, regulators, governance thought leaders and asset managers. “Overboarding” (serving on too many boards) and personal and professional distractions can impact director performance and should be key considerations.

  5. Nonprofit/Charitable Status. A series of state-level controversies reflect a new regulatory focus on the nonprofit, charitable status of health systems. These include one state attorney general’s challenge to a system’s charitable status based on access to care issues; “mission drift” concerns arising from new business initiatives of health systems allegedly outside of stated charitable purposes; and scrutiny of nonprofit funding of for-profit subsidiaries.

  6. Quality of Care & Governance. Health systems are confronting the confluence of quality of care and corporate governance on multiple levels, including enterprise-level risks arising from systemic quality issues; weak governance structures contributing to significant quality of care incidents; and the substantial “uptick” in medical staff “no confidence” votes in hospital/health system board and management.

  7. Revisiting Compliance. Compliance committees are evaluating the scope and effectiveness of their compliance programs following the release of two new guidance documents from the Department of Justice. The first focuses on compliance program effectiveness, and the factors prosecutors typically use in evaluating compliance programs. The second focuses on how cooperation credit in False Claims Act cases can be earned.

  8. Disruption Accelerates. From entertainment, to retail, to newspapers and certainly to health care disruption reigns—even the original disrupters are now themselves being disrupted! Oversight of disruptive developments is an essential board duty that cannot be punted to management due to concerns with complexity or the tendency to be deferential.

  9. Structural Challenges. The New York State Attorney General’s challenge to the corporate structure and intra-system business arrangements of Lutheran Care Network, Inc. continues through the New York State courts. Depending upon its ultimate disposition, the case could affect the rights of health care system parent companies to exercise governance and financial control over subsidiaries for which they serve as sole member.

  10. Governance and the M&A Process. Governance matters impacting post-closing corporate structure are a primary consideration in M&A transactions between nonprofit health systems. Such issues may include the authority of so-called “legacy” enforcement bodies, transition from initial board composition to final board size, director qualifications, and constituencies for committee membership and leadership, among others.

© 2020 McDermott Will & Emery


About this Author

Michael Peregrine Corporate Governance Lawyer McDermott

Michael W. Peregrine is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  He represents corporations (and their officers and directors) in connection with governance, corporate structure, fiduciary duties, officer-director liability issues and charitable trust law.  Michael is recognized as one of the leading national practitioners in corporate governance law.

Michael is outside governance counsel to many prominent corporations, including hospitals and health systems, voluntary health...