Corporate Law & Governance Update

Health Policy Initiatives

Perhaps the most critical challenge facing the board as 2017 begins is the need for its members to gain both an awareness and an understanding of the health care policy initiatives currently under consideration in Washington. What are they and what are their implications—not only for the health care industry, but also for the health care system?

In order to be a meaningful sounding board to management; in order to render informed decision making and oversight, the health care director must be familiar with the answers to those questions. So much is in flux, but It appears that the most significant policy initiatives to arise in the short term will be those relating to Affordable Care Act repeal; Medicaid expansion and reform; Medicare reform; the continued implementation of various performance metrics and incentivizing risk-sharing models, including those contemplated by MACRA; and program payment cuts under traditional Medicare that could negatively impact institutional revenues. These policy issues have the potential to broadly affect the board agenda from the strategic to the transactional; from growth to contraction; from opportunities to risk; from financial posture to quality of care; and to all matters compensation.

The health system board, as well as certain of its key committees, will benefit from continuous briefings on these initiatives and their implications to both the health care industry and to the health system board's agenda in particular. The expected level of fiduciary diligence will be high.

Conflicts of Interest Management

Continued media scrutiny of President-elect Trump's plans to divest or otherwise address his vast business holdings upon assuming office is indirectly driving much closer scrutiny of how governing boards identify conflicts of interest, and manage conflict arrangements they approve as being in the best interests of the organization.

As most general counsel are aware, many states provide a specific statutory "rebuttable presumption" for conflict-of-interest arrangements approved in advance by the board (or a committee with board delegated powers) under specific types of circumstances that speak to fair value, diligent review and the organization's best interests. When satisfied, these circumstances serve to shift the burden of challenging the particular action to the individual or entity that seeks to mount a challenge. However, the extent to which boards subsequently monitor approved conflict of interest arrangements can often provide supportive evidence of the board's good faith in approving the arrangement, conflict notwithstanding. Many leading health system boards have formal templates they use to manage the continuing reasonableness of approved conflict of interest arrangements.

The coverage of the President-elect's divestiture proposals serves as a useful prompt to boards and their conflicts committees to revisit the various safeguards they apply to assure that approved conflicts arrangements serve the organization's best interests, consistent with the rebuttable presumption statute. This is particularly because, given the election and transition related backdrop, state charity officials may be more willing than in the past to evaluate the sufficiency of these conflicts management plans.

Compliance Oversight

The board's compliance committee will encounter a particularly challenging agenda in 2017. Its activity will be impacted by a series of recent corporate controversies, regulatory developments and judicial decisions. These combine to prompt a close committee review of its level of diligence, key...