In 1995, 42 percent of Minnesota’s hospitals were publicly owned by cities, counties, or hospital districts. Today, only 24 percent of them are publicly owned. Attorney Tom Schroeder, who specializes in hospital health care at the Faegre Baker Daniels law firm in Minneapolis, spoke to the Cook County North Shore Hospital board on May 23, 2013 about how some hospitals have changed their governance models to increase effectiveness. Board member Tom Spence had suggested the presentation after hearing Schroeder speak on the topic at a Minnesota Hospital Association Trustee Conference in January.
Most Minnesota hospitals today are nonprofit organizations, and some district hospitals are being managed by nonprofits. North Shore Hospital is one of 11 district hospitals in the state, but that number is decreasing, Schroeder said.
The structure of a publicly owned hospital limits its flexibility in making decisions, Schroeder said. Meetings must be open to the public and notice must be given ahead of time when board members have a meeting. Compliance with Minnesota’s Open Meeting Law is important for taxing authorities, he said, but it can hinder a hospital’s competitiveness. Some processes are slower and some things are more costly in the public realm than in the private realm.
Arguments could be made for remaining publicly owned and for becoming a nonprofit. Schroeder presented a third option, a hybrid model in which an elected board would for a period of years oversee a private nonprofit that would be run by its own board of directors. Under this model, the district board would have representation on the nonprofit board and would reserve its control of the organization’s mission and the type of services it provided. The district could still levy taxes for the hospital, but the hospital would not be held to the Open Meeting Law.
Only a small percentage of North Shore Hospital’s revenue comes from the local levy, but one advantage of being publicly owned is that a publicly owned hospital can get reimbursement for bad debt through people’s tax returns. On the other hand, Schroeder said that hospitals that turn into nonprofit organizations sometimes see an increase in charitable giving.
Much of what the hospital does already involves nonpublic information such as patient records. The hospital board has recently been reserving some of its monthly meeting time to meet in closed session to discuss nonpublic information.
The board of directors of a nonprofit hospital would be selected and self-perpetuating rather than elected, and its meetings would not be open to the public. North Shore Hospital currently has a five-member elected board representing five districts in the county. A nonprofit board would be required to represent the community, Schroeder said, and over-representation by certain interest groups could be restricted.
Nonprofit boards often recruit board members with expertise in various areas that could benefit the hospital, such as accountants, bankers and community leaders as well as health care professionals such as doctors and nurses.
There are no “cookie cutter solutions,” Schroeder said. If a hospital wanted to stop being a district hospital and start being a nonprofit, the short-term goal would be “no perceptible change,” he said, with employees getting the same pay and benefits, for example. The current North Shore Hospital board has the power to decide to end the hospital district.
In response to some questions from the Cook County News-Herald, Schroeder said, “Whether or not the ‘hybrid nonprofit’ or any other model fits your community’s circumstances would require a great deal more analysis and input from all stakeholders, including the hospital’s employees, medical staff and the community at large. But the board would not be effective stewards of the hospital’s resources (including taxpayers’ levy support) if it did not evaluate the effectiveness of its governance and operating model from time to time – particularly given the radical changes in health care over the last decade.”
Hospital Administrator Kimber Wraalstad told the News-Herald, “I believe that it is imperative that all involved with our organization, including board members, continually educate ourselves about the health care environment, regulations, changes and opportunities.”
When asked whether he thought charitable donations could really be counted on to replace the levy in a community this small, Schroeder said, “Some community hospitals have privatized with the long-term goal of lowering or eliminating the levy. Others have been motivated by other goals. I think the question is whether there is a more effective and competitive governance model that can make the most of any taxpayer dollars that may need to be levied.”
When asked how a nonprofit model could make a difference, Schroeder responded by saying, “I think that remains the question – would it make a difference here? Would greater involvement by actual health care providers in governance made a difference? Would a different model allow us to draw other needed skills and perspectives to the board and its committees – such as financial, health care management, legal, consumer advocates, etc? Or design more market-competitive benefits for our employees? Or enter into partnerships, joint ventures, accountable care organizations and other kinds of collaborative ventures more nimbly? No one has the answers yet. I was only suggesting the questions that the board may wish to explore.”
Schroeder also said, “I do believe that including physicians and other health care providers at the governance table is one key: as payment systems increasingly reward quality and punish redundancies, we need to listen more closely to physicians and others who have the greatest influence over how the hospital expends its limited health care resources.”
Regarding how an appointed board of directors with various kinds of expertise could add to what North Shore Hospital already has, Schroeder said, “…Ask any good CEO what they want most from a board, and it’s the greatest possible expertise, vision, strategic thinking and diverse viewpoints. Good boards strengthen and leverage good management.”
Schroeder told the board that the people who had the vision to start North Shore Hospital were their era’s “giants of the future.” This hospital cannot stay with the status quo while ignoring the winds of change, he said. The people in charge of North Shore Hospital now need to be the “giants of the future” who set up an effective way to bring health care to the community into the future.
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