By: Nick Johnson, Governance Analyst; Erin Burggraff, Governance Assistant; James Rice, Managing Director Governance and Leadership
Tax-exempt governing boards of hospitals have a responsibility to continuously assess their capacity to provide high quality, affordable health care to their communities, and their ability act to protect and pursue the mission of the organization. While board self-assessments (BSAs) are expected to push board members to frequently evaluate their performance and effectiveness as exempt organizations, too often the assessment report sits unused in a desk drawer. To unleash the value and performance of the nonprofit, tax-exempt organization, we need to unleash the performance and perceived value of its board of directors/trustees/governors/commissioners. When carefully designed and used, Annual Board Self-Assessments (BSAs) can assist in such performance enhancement.
There are five actions boards can take to ensure the assessment is actually used as a roadmap to better board work:
- Discuss requirements for accreditation and tax-exemption
- Establish consistent set of assessment questions
- Expect results reporting by Governance Committee
- Ask for three levels of response: Full Board, Each Committee, Each Board Member
- Use BSA to guide board education.
1. Discuss Requirement for Accreditation and Tax-exemption:
Many pressures encourage health systems boards to do self-assessments. Boards exist to serve the interests of the community members their health system was organized to serve. They have a fiduciary duty to hold in trust and use wisely assets entrusted to the nonprofit, exempt organization to protect, promote and restore health gain, not just health care. Board self-assessments also allow members to analyze their decision-making work to see if they are meeting their fiduciary duties as defined by the IRS and The Joint Commission on Accreditation of Health Organizations.
Hospital boards face the perpetual strain of maintaining the corporation’s tax-exempt status which is one of the greatest assets a non-profit hospital possesses. This status allows them to provide charitable health services and pursue the promotion of public health in ways that might not be considered without the funds freed from being tax-exempt. In 2014, community hospitals saved an average of 3.1% of revenues due to their tax exempt status. Around 100 non-profits lose their tax exempt status each year, and it is becoming increasingly difficult to hold onto this luxury as more and more healthcare laws go into effect.
The government certainly does not turn a blind eye to hospitals because they are providing a service to the community and for the greater good. In 2015, the New Jersey Tax Court found that Morristown Medical Center was acting as a for-profit organization and was not exempt from property taxes. The medical center was forced to pay ten years of back taxes and faced other penalties on their for-profit activities. Board self-evaluations are key in forcing board members to ensure they are governing the organization in accordance with tax exemption regulations. Bookkeeping methods, compensation levels, audit reports, billing systems, charitable contributions, and subsidiaries must all be constantly reviewed to ensure they always stay within the guidelines of the law.
Hospitals boards must now also weave into their governance review commitments, an assessment of their work not just on restoring health, but protecting and promoting health. The Affordable Care Act requires that non-profit hospital facilities must conduct a Community Health Needs Assessment (CHNA) once every three years. These health needs surveys contain vital information that boards can use to ensure they are aligning their decisions with what the community wants and needs. This complicates the board’s self-assessment focus, however, as hospital board composition and strategies now need to address their community’s racial, ethnic and faith based characteristics, but also distance the patients travel for care, life style and behavior issues like smoking and drinking habits, income levels, etc.
2. Establish consistent set of assessment questions:
An effective board assessment should analyze group decision-making efficiency, ability to adapt to trends, productivity of meeting time, board structure, and monitor strategy pertaining to the organization’s mission. In a survey of 465 not-for-profit hospitals, it was found that an average of 24% of meeting time is spent discussing strategy and 66% is devoted to hearing reports. The Governance Institute suggests at least 50% of meeting time should be spent on strategy. Self-evaluations are meant to dig into the performance of the board and will only be useful if board members respond honestly. These evaluations can be comprised of board members evaluating other board members or evaluating the board as a whole. People tend to be more honest and open to criticism when it is directed at the team as a unit rather than on individuals. If one person is called out for being a weak link it can be seen as a personal attack and may hinder progress.
Hospital Board Chairpersons and CEOs understand that to increase the likelihood that the self-assessment will be completed by the vast majority of board members, the questions need to be sharply focused; easy to understand; linked to actions that get implemented and result in governance process improvements; and that contribute to an embrace of competency based governance. A simple illustration of such questions are shown in Appendix 1.
3. Expect results reporting by Governance Committee:
BSA results reported by the CEO or consultant are not as closely followed as those shared by fellow board members. Health systems boards are increasingly establishing and relying on a “Governance Committee” to sharpen the focus and receptivity to the assessments
The governance committee examines how the board is functioning, how board members communicate, and whether the board is fulfilling its responsibilities and living up to the objectives and aspirations set for itself and the organization. While all board members should understand the organization's mission and goals, the governance committee must consider them with an eye on the board's responsibility to guide the organization and what is required of the board to best accomplish that. The governance committee must also be able to articulate the board's vision and find the individuals who can execute it.
4. Ask for three levels of response: Full Board, Each Committee, Each Board Member:
The assessment results should unveil opportunities to take actions that are intended to improve the decision-making of the board and its committees. Following a review of the survey results by the Governance Committee, the Board Chairperson and CEO should help ensure that the board commits to take at least one action in the coming year to improve the quality, speed and effectiveness of the board’s work, meetings or decision-making process, as should each committee. Each board member should also rely on the honor system to commit to do at least one thing better, faster, smarter in the coming year.
The most effective champions for this form of self-assessment follow-through is the partnership between the Chairperson and the CEO. Communication between the board chairman and CEO is key for both groups to be successful in their own roles. The CEO provides the board with information regarding the organization’s performance and informs them of any imminent threats. The board must also be able to clearly explain to the CEO the direction the organization needs to go and the goals to be achieved. Self-assessment surveys, therefore are strongest when they invite input from both the board and the senior executives of the health system. CEOs and other executives can provide evaluations of the board in order to mutually find and improve the governance model’s strategies, structures, and systems. Illustrations of such governance enhancements are show in a recent collection of papers on Governance Innovation.
5. Use BSA to guide board education:
It is not enough to conduct a good board performance assessment. It needs to shape the recruitment, onboarding, and educational development of the board and its members. Often the survey may ask to prioritize topics of most importance to members. The survey results can then be used to guide a multi-faceted set of educational programs such as:
- Speakers from staff at board meetings,
- Special strategy and educational retreat with outside speakers,
- CEO briefing papers on hot topics most relevant to the organization, and
- Web based eLearning like the Gallagher GovernWell content now accessible through BoardEffect Board Portals.
Appendix 1: Illustrative Questions for a Board Self-Assessment
An annual poll of board members lets the board get a sense of how its members feel. There are many such surveys, but here's a short one you can try.
Give board members a scale to choose from for each answer, such as 1 - 5, with 1 being Not Confident and 5 being Very Confident. You might also ask your CEO (and other staff who frequently work with the board) to fill out a similar survey, and then use the results of both to kick off a discussion where people reflect on the survey results and establish objectives for the year about board activities.
BOARD SELF-ASSESSMENT SURVEY
Please rate your assessment of the Board of Directors’ performance on a scale of 1 – 5, with 1 = Not At All Confident, and 5 – Very Confident.
How confident are you that as an effective governing body, the board:
1. Monitors and evaluates the performance of the CEO on a regular basis?
2. Ensures legal compliance with federal, state, and local regulations?
3. Ensures that government contract obligations are fulfilled?
4. Monitors financial performance and projections on a regular basis?
5. Has a strategic vision for the organization?
6. Has adopted an income strategy (that combines contributions, earned income and other revenue) to ensure adequate resources?
7. Has a clear policy on the responsibilities of board members in fundraising?
8. Has adopted a conflict of interest policy that is discussed regularly?
9. Currently contains an appropriate range of expertise and diversity to make it an effective governing body?
10. Regularly assesses its own work?
How confident are you that most or all board members:
11. Understand the mission and purpose of the organization?
12. Are adequately knowledgeable about the organization’s programs?
13. Act as ambassadors to the community on behalf of the organization and its constituencies?
14. Follow through on commitments they have made as board members?
15. Understand the role that volunteers play in the organization?
16. Understand the respective roles of the board and staff?
17. Are appropriately involved in board activities?
18. What information—whether about the organization, the field (such as health care), nonprofit management or nonprofit boards—would you like to get to help you be a better board member?
19. When you joined the board, did you have ideas on how you would help the organization that haven’t happened? If so, what ideas?
20. What suggestions/questions do you have for the board chair or the CEO about the board, your own role, or any other aspect of the organization?
21. Would you like the board chair to contact you about getting together?
22. Would you like the CEO to contact you about getting together?
For more information:
Doing Board Self-Assessments That Acutally Matter
How Boards Should Evaluate Their Own Performance
Practical insights for Better Board Work can be found here:
Board Café Archives
 See: “Tax-exempt status of hospitals under the microscope”. Baker Tilly. February 22nd, 2016.
 Grube, Mark. “Bucking Tradition to Propel Progress with Strong Board Culture”. Biennial Survey of Hospitals and Healthcare Systems. 2017
 There is a greater shift in focus to social determinants of health and a value-based system of providing care to patients. The American Hospital Association recently reported that only 20% of a person’s health is related to access of care and quality of services while 80% of a person’s health is driven by physical environment, social determinants, and behavioral factors. See also insights into social determinants of health here: https://www.healthypeople.gov/2020/topics-objectives/topic/social-determinants-of-health
 The Governance Institute. “The Governance Evolution: Meeting New Industry Demands”. NRC Health. Published 2017