Nonprofit health system governance has largely been outpaced by the rising scale, speed and complexity of these organizations, and many organizations are doing little to ensure their board members have their fingers on the pulse.
So contends The Governance Institute (TGI), a membership organization within healthcare performance firm NRC Health. In a report released this week, the group noted that consolidation has concentrated governance responsibilities to approximately 1,500 fiduciary boards overseeing about $900 billion in annual revenue for nonprofit, state and local government health systems.
Bringing that authority to a smaller pool of individuals serves to amplify the threat of “weak agendas, stale board design and poor decision making,” according to the report. But so far, healthcare has been lagging other highly regulated, capital-intensive sectors in processes to ensure their boards remain up to the task, spurring calls from TGI for systems to make targeted, sustained investments in governance capability.
"This is not a critique of boards. It is a recognition that healthcare has advanced faster than the governance model supporting it,” Steve Kett, CEO of TGI, said in a statement accompanying the report. “Boards are deeply committed, but commitment alone is not enough. Governance must now be designed, developed and supported as a core enterprise capability."
One issue flagged in TGI’s report is that, for many systems, governance development is front-loaded rather than sustained. In other words, board members tend to receive substantial orientation and instruction when first coming on board, but little continued training on their roles or their organizations' needs.
“Only 32% of boards require continuing education for board service,” NGI wrote, citing 2023 survey data. “Thirty-one percent still lack formal job descriptions for board members, board chairs, or committee chairs. Nearly one-third have not used a board assessment tool in the prior three years, and individual board member evaluations remain rare.”
The report later estimates that less than 0.01% of hospital patient revenue is invested in board development. It also notes that financial strain, hitting many organizations or other crisis responses, has led to cuts in governance development.
What’s more, many nonprofit systems in the healthcare sector assembled their boards “through mergers, acquisitions and implicit bargains” rather than for the governance task at hand, the report notes. Nonprofit healthcare boards are “predominantly volunteer-based” and “too often treated as a charitable, community-service role,” TGI wrote, as opposed to other industries that proactively recruit directors with compensation packages that often exceed $200,000, “reflecting both the scale of the responsibility and the expectation of sustained engagement.”
Meanwhile, the responsibilities of a governing board have expanded substantially over the years. TGI noted that the layers of complexity of healthcare’s numerous moving parts and legal or mission-related obligations only continue to build, with new tools like AI in particular developing fast but requiring careful and unique consideration based on where in an organization it is deployed.
When a board finds itself outmatched by the moment, TGI warned it will often default to an outsized focus on finance. The common mantra “no margin, no mission” is sound on its face, the group said, but healthcare nonprofits are “cross-domain by nature” and fail when other domains, such as preserving access, aren’t weighed with equal discipline.
Additionally, poorly developed governance can particularly lead to a breakdown in signal flow throughout an organization, the group warned. Such an issue is worsened in multi-board systems. Again citing member survey data, TGI said that formal definitions allocating authority between system and local boards are common, but that fewer organizations report that those standards are understood and applied consistently. Such issues lead subsidiary boards to spend time on issues outside their authority, run into conflicts, more slowly escalate issues and generally sow confusion within management.
“The sector now faces a dual governance strain: weak decision integration at the board table and weak signal integration across the system,” TGI wrote in its report. “One undermines judgment. The other undermines learning. Together, they make not-for-profit healthcare less coherent and less adaptive than the environment it must navigate.”
The group closed its report by calling for “deliberate redesign” of legacy governance models and sustained commitment to governance capability. For TGI, that means a three-part “practical maturity framework” it released alongside the report that focuses on defined roles, authority and accountability; decision making that weighs multiple domains such as quality, mission and finance for tradeoffs; and ensuring a governance system is able to scale across groups and subsidiary boards.