Enhancing Practice Success with a Board of Directors
Larry Sophian, CPA, MBA
Physicians have all they can do to focus on providing excellent care to patients while maintaining practice profitability. But to really achieve a thriving medical practice, physicians may require the assistance of a governing board of directors who can focus on issues such as helping ensure the practice meets technological and regulatory goals, uses resources wisely and creates an achievable plan for future development. Sooner or later, many practices will need to consider establishing a governing board to take their practice to the next level.
What, Who, When, How and Why?
Before your practice forms a governing board, your group of physicians needs to address some specific questions.
For example, what is the reason for a board? How might a board help the practice address challenges currently facing it? Will it have a traditional structure — including formal responsibilities, terms of office and bylaws? What powers will it include? Will the board choose the practice’s chief executive officer? Will the owners and other physicians be willing to turn over control of the practice to the board?
Will the board consist of physicians already in the group with the skills and willingness to devote time to the management and oversight of the practice? Or will you bring in outside parties, or a mix of physicians and outside parties?
Perhaps most important, what authority will the board have? If the physicians who are not on the board do not comply with board directives, what, if anything, are the consequences? This should be, at least in broad terms, agreed to up front, so that everyone understands how things will work.
When first establishing a governing board, it is essential that the members understand that their decisions must represent the interests of the entire organization, not those of one individual or a single specialty. Similarly, the other physicians must feel that the Board is treating all the physicians equally.
After you decide to formalize the governance process, you must address a few basic issues, such as how frequently the board should meet, who should set the agenda and handle minute-taking, who will distribute notes to participants, and how to select a board chairperson. You will also need to consider compensation for the board or the managing member, recognizing that much of the administrative work will either be done outside of “office hours” or take time away during normal work hours that would otherwise be generating revenue. The question of compensation for board members will be particularly important if you are otherwise compensating physicians who are also on the Board on any kind of productivity method.
What Should We Prioritize?
When those items are out of the way, attention should turn to the board’s duties in these priority areas:
Management Oversight. If the board will evaluate management’s performance, it must have a process that objectively monitors and measures that performance against predetermined objectives. The board should have clear expectations for the chief executive that are expressed in his or her job description. The evaluation should cover how well that person makes decisions, accomplishes agreed-upon objectives, uses capital and other resources, drives human resources, and provides vision and direction to the entire organization.
Quality Assurance. A core fiduciary duty of a practice’s management is to provide quality care, equitable access and patient safety. To meet the practice’s quality measurement and reporting obligations, it must be capable of capturing and reporting data on the value that the practice is providing to patients. It is the job of the governing board to ensure that management fulfills this critical responsibility.
Financial Accountability. Financial management is another prime fiduciary duty of governing board members. Through interactions with management, they must maintain complete financial accountability. As the board approves proposed budgets, it must ensure that they are suited to the practice’s strategic plan, financial resources and financial objectives. To accomplish this, board members must have a solid understanding of financial statements and management.
Strategic Planning. The primary tool that the board should use to steer the practice into the future is a shared vision of the planning process. The process — which should include and may be led by practice management — will identify key challenges and develop goals to meet the challenges, action plans to reach those goals, and monitoring systems to observe their progress.
A well-thought-out strategic plan takes into account the organization’s strengths, weaknesses, opportunities and threats. It is founded on its mission, vision and values. A physician practice without a strategic plan will react impulsively to payer demands, government mandates and restrictions, operational calamities, and competitor threats.
What Are the Benefits?
A small medical practice may be content to stay small, asking its physicians to wear several hats to manage everything from patient care to strategic planning. But to prevent physician burnout and help ensure the practice stays solvent, turns a profit and grows over time, a board of directors can provide invaluable expertise.
Mitigating Risk with Insurance
For medical practices, malpractice insurance is essential but does not necessarily cover every potential problem that may arise. Physicians should familiarize themselves with the other various types of insurance available, be it medical or business-related. Once familiar, physicians should consider the related risks and determine if additional insurance is needed to protect the profitability of their practices.
Available Medical Insurances
Because employee allegations of discrimination, wrongful termination and sexual harassment do happen in the workplace, human resource malpractice insurance is provided to give coverage to physician owners of practices, human resource managers, and the employees accused of committing the offenses. The basic level of insurance covers damages awarded to employee-plaintiffs. Additional coverage is also obtainable to cover legal defense fees.
In today’s world, the theft or disclosure of sensitive patient data is a frequent occurrence. The release of private information can be the result of accidents, such as computer system failures, or intentional acts committed by either employees or non-employee hackers. In addition to the normal coverage for damages and legal fees, misappropriation of sensitive patient information insurance provides affected patients help recovering from the incidents by restoring impaired credit.
Available Business-Related Insurances
Misappropriation of assets occurs when an employee steals or embezzles property or money, often through accounts receivable or accounts payable. Employee theft insurance protects a practice against such times. Physicians are recommended to have $100,000 of coverage minimum. However, the insurance carrier and the physician should work together to determine what level of coverage is required to minimize the risk of misappropriation of assets by employees as this will differ from practice to practice.
Insurance protection is required for practice-engaged vehicles. Traditional insurance coverage is appropriate for when the practice owns vehicles specifically used by the physicians and employees to carry out business responsibilities. However, when employees use their own vehicles to run errands, pick up medications, etc. for the practice, non-owned auto insurance is necessary to protect against injury to an employee or third party. For non-owned auto insurance, the coverage limit is normally $1 million and covers only specific business use of personal vehicles. Physicians choosing to obtain such vehicle insurance should ensure their employees are familiar with the terms of coverage.
When practices are small and the physician is unable to work due to problems such as a disability, overhead expenses such as payroll, rent, and utilities continue to be incurred. Business overhead expense insurance is available to provide the needed cash flow to pay for said overhead expenses, usually for one to two years. This way, the practice is able to continue operating. Physicians should know though that these insurance policies typically have a 30- to 90-day waiting period between the start of the disability and the first benefit payment.
Some claims against a practice may possibly exceed the coverage limits provided by policies carried by said practice. Umbrella protection insurance specifically exists to protect a practice against such claims and may often fill in coverage gaps of other policies. Umbrella protection normally provides coverage ranging from five million to ten million dollars.
A practice would not be successful without the physicians and other employees who bring in significant revenue. To take care of these individuals, key employee coverage insurance is available. This consists of life insurance and disability insurance policies created to cover the lives and working abilities of essential personnel.