The coronavirus pandemic has underscored the importance of the hospital board’s governance function relating to financial performance. But just how involved should boards be in the finances and operations of their hospitals?
Successful board members know it’s critical for them to focus on strategy and leave daily operations to hospital leadership. Yet as the pandemic made clear, it’s not only appropriate but also imperative that board members understand the finances and operations of their hospitals.
Community hospitals were already facing tight operating margins before COVID-19 struck. Those issues have now been exacerbated by substantial new costs associated with caring for COVID-19 patients; cancellations of elective surgeries; increased numbers of uninsured patients and uncompensated care; and a pandemic-induced recession.
In this environment, it’s still important for boards not to overstep into operations, which is the responsibility of hospital leadership. The board does play a critical oversight role that requires a thorough understanding of the hospital’s financial situation and operational landscape. That includes a firm grasp on how COVID-19 is affecting hospital revenues, treatment priorities and funding sources — and how those changes will affect strategic plans, operations and budgets moving forward.
While board members need not be finance specialists, education about the hospital’s finances is an essential part of the onboarding process for any new board members. Drawing from this knowledge base, the board’s core duties relating to finance and operations include:
- Assisting with strategic business planning
- Approving the hospital’s annual budget
- Establishing long-term financial targets
- Ensuring cost-effective use of resources and capital
Amid the pandemic, the board must review the hospital’s strategic and operational plans as well as its annual budget to ensure they account for the profound effects of COVID-19. The board should also help ensure that the hospital’s business continuity and legal compliance obligations are being met. These considerations include:
- Ensuring that management has a plan in place to keep the workforce sufficiently staffed, equipped with PPE and ready with a succession plan in case of infection of key frontline personnel.
- Determining whether sufficient measures are in place to counter revenue shortfalls and sustain operations throughout the pandemic.
- Helping to create an integrated strategy for securing any needed emergency funding from state, local, federal and philanthropic sources.
- Working with risk management and legal counsel to ensure adequate consideration of how liability exposure and legal compliance are affected by the realities of pandemic care.
The board should also define what success looks like when it comes to both financial performance and patient care throughout the pandemic’s duration. That means the board is instrumental in the strategy sessions that identify the steps for financial and operational survival through the pandemic.
At the same time, the board’s role in longer-term planning must carry on. Board members must still play their traditional role of helping create strategies for service line growth, operational efficiency, clinical quality and other initiatives that will endure beyond the pandemic.
The board should also be regularly informed of, but not deeply involved in, the operational implementation of strategy through routine reports. These should help board members monitor the hospital’s financial health, quality of care and performance against similar hospitals using key performance indicators.
CHC Consulting has helped many hospitals with new board member orientations designed to ensure that board members have the essential financial skills they need. In the COVID-19 environment, these competencies are more critical than ever for hospitals looking to survive the current crisis and to serve their communities successfully long after the pandemic ebbs.
