August 24, 2009
Building a Board — Governing Change as Your Group Grows
By David A. Myrice, CPA, MBA
Vol. 10 No. 15 P. 8
Radiology practice trends suggest industry consolidation, which translates into larger groups of 12 to 35 physicians or even more. Such growth means that many groups should reconsider their governance structures and how to build a better board of directors to suit such growth.
The board is responsible for the group’s governance and navigating the changes and demands in the healthcare marketplace. Whether elected or appointed, boards have a fiduciary duty to the entire group. Part of that accountability includes improving the delivery of coordinated healthcare, negotiating with health plans to improve benefit designs and healthcare delivery, and pinpointing strategies to strengthen the group.
Small practices are generally governed by all the partners, with each partner having a vote in virtually every aspect of the operation’s affairs. This can prove harmonious if the owners share common values and business goals and if they are willing to meet often and dedicate time to the practice administration. However, small groups are still best served by designating one partner to work with managers, consultants, and vendors to handle day-to-day operations. Some groups rotate managing partner responsibilities, while others delegate specific areas to specific physicians. Larger practices need a more formal management structure. Responsibility for areas such as finances or recruiting is critical. However, for both small and large groups, hiring or contracting a professional manager is recommended.
Governing a larger group or expanding group can be very different than running a smaller group, so planning for that growth is critical. The first step to building a board is determining how many members it should have. A group of 15 or 20 physicians could be effectively run with a five-member board, but a larger board is often needed when the group grows beyond that size. Many group dynamics studies indicate that communication and efficiencies begin to break down beyond seven board members, especially when timely decisions must be made.
Keeping an odd number of board members can prevent frequent split decisions on matters. It is also important that the board be representative of all the group members. For example, a group with both interventional and diagnostic radiologists would want representation from both subspecialties on its board. A board of all of one or the other could prove harmful and divisive.
Mapping It Out
Once the group decides that a board will be established or expanded, the partners should outline its goals and objectives before new members are selected and rules put in place. The board’s main objective should be driving progress across all practice areas, which is why group and board alignment is a critical function. For a group to function at its best, there has to be a shared vision for the future paired with the day-to-day work of the staff. The board, partners, administration, committees, and medical staff must work together to initiate and achieve quality and monetary improvements. Partners must also recognize at the outset that their board has a legal accountability to the group. Board members must understand their legal duties and learn how to oversee clinical issues and financial matters, as well as monitor quality. They need to be educated not only to understand fiduciary matters but also to ask questions about clinical processes within the group. Board members require time, training, and motivation to become adept at addressing these important duties.
Another goal to consider is board expertise across several areas so that board members are able to ask tough questions that will ultimately address issues surrounding the group’s cash flow, staffing, quality initiatives, and long-term goals. Even if a group is under financial duress, it isn’t necessarily ideal for the board to focus all its attention on the group’s financial matters.
Deciding Who Decides
Before selecting its members, the board’s powers must be clearly defined. There should be specific criteria among the group’s partners in regard to what they will vote on. For instance, from a human resources standpoint, will the board be in charge of hiring and firing physicians and administrative staff? From a financial perspective, the decision of whether the board will be charged with indebting the group beyond a certain dollar amount should be considered. If so, the group’s partners must also determine this financial threshold. Often, a group will empower its board to commit to new service locations based on rules that already exist. Some groups require partner approval before any new service location can be implemented.
Once the board’s limitations are formed, voting requirements need to be established in a code of regulations. For example, the organization must decide whether a simple majority of all partners or a super majority requiring between 67% and 75% of the partners is needed on specific decisions. This must be spelled out in advance. The partners may elect to require a simple majority for certain decisions and a super majority for others.
Detailing the ways partners can override the board’s decision is also necessary. Defining the parameters of the board’s authority will provide clarity and free the other physicians in the practice to concentrate on patient care. Clear parameters and established rules also allow managing partners to make decisions and act quickly on decisions. Examples include allowing the board to make capital purchases up to a certain dollar amount or add nonphysician staff within the limits of a budget that the managing partners approve annually.
Whatever rules are put in place, it should be understood that the board sets the tone and must constantly communicate a commitment to quality and financial revenue building to all levels of the group. Improvement initiatives probably won’t succeed if the board does not create momentum and build organizational desire to achieve them. While management and physician staff must adhere to the board’s decisions, they also play a pivotal role of engaging the board in all areas of the practice. Executive accountability is crucial in this regard.
If the practice grows to where it needs more than a seven-member board, the next consideration should be forming subcommittees. Common subcommittees include finance, staffing, recruiting, scheduling, and marketing/public relations. The responsibilities in these areas are often divided among board members, physician staff, and perhaps an administrator. Many practices establish that a multidisciplinary team addresses each area. Greater focus on individual areas can create a more cohesive group.
Once a board and subcommittees are put in place, groups should then begin to benchmark for improvements. Conducting an annual review of key services, stakeholder expectations, regulatory standards, and customer feedback are ways to set priorities for patient safety and quality improvement efforts. Comparing current performance with the previous year’s performance, as well as benchmarks and theoretical test performance measures, helps ensure ongoing success. Ongoing feedback on the practice’s success, whether quarterly or annually, is a crucial factor surrounding improved communication and practice success in any area.
If a radiology group uses an equal-share partner compensation approach, there are several ways to accommodate the time requirements of board members. One is to allot a certain amount of time to board duties each week and account for this in any productivity measures, such as relative value unit measures, used by the group to monitor physician efficiencies. Another approach, similar in nature, would be to assign a relative value unit to time spent on board duties. This approach would be more difficult to administer, so allowing a block of time is usually the most efficient option.
In an “eat-what-you-kill” compensation environment, some form of pay would have to be established to make up for the time the radiologist would not spend in the reading room or interventional suite. Without this compensation, it would be difficult to enlist the talent needed to serve on the board. A set salary makes sense because it defines the cost for the group and makes it easy for board members to know the dollars they would earn for these duties.
The key to success lies in a practice’s ability to plan ahead and develop rules and policies before problems arise. Clear, sound rules usually help resolve disagreements without permanent damage to the group. Executive accountability is also fundamental to board success and governance. Flexibility is also needed, so as circumstances change, the group can evolve and work changes into constant planning and forethought. Change is inevitable. For a board to be successful within a growing radiology group, establishing the rules for how to manage that change in advance is vital.
— David A. Myrice, CPA, MBA, is based out of Toledo, Ohio, and has specialized in business financial operations since 1981. He is currently a senior finance manager for CBIZ Medical Management Professionals, Inc.