Corporate Responsibility and Health Care Quality: a Resource for Health Care Boards of Directors

Corporate Responsibility and Health Care Quality: A Resource for Health Care Boards of Directors

United States Department of Health and Human Services Office of Inspector General

American Health Lawyers Association Corporate Responsibility and Health Care Quality: A Resource for Health Care Boards of Directors

Arianne N. Callender Douglas A. Hastings Michael C. Hemsley Lewis Morris Michael W. Peregrine

I. Introduction becoming more clearly recognized as a climate. Embedded within the duty core fiduciary responsibility of health of care is the concept of reasonable This educational resource is the third in care organization directors. Health inquiry. In other words, directors are a series of co-sponsored documents by care organization boards have distinct expected to make inquiries to manage- the Office of Inspector General (OIG) responsibilities in this area because ment to obtain the information neces- of the U.S. Department of Health and promoting quality of care and preserv- sary to satisfy their duty of care. Human Services and the American ing patient safety are at the core of the Health Lawyers Association (AHLA), This educational resource is designed health care industry and the reputation the leading health law educational to help health care organization direc- of each health care organization. The organization.1 It seeks to assist directors ask knowledgeable and appropriate heightened attention being given to tors of health care organizations in questions related to health care quality health care quality measurement and carrying out their important oversight requirements, measurement tools, and reporting obligations also increasingly responsibilities in the current challeng- reporting requirements. The ques- impacts the responsibilities of corpo- ing health care environment. Improving tions raised in this document are not rate directors. Indeed, quality is also the knowledge base and effectiveness intended to set forth any specific stan- emerging as an enforcement priority for of those serving on health care organi- dard of care, nor to foreclose arguments health care regulators. zation boards will help to achieve the for a change in judicial interpretation important goal of continuously improv- The fiduciary duties of directors reflect of the law or resolution of any conflicts ing the U.S. health care system. the expectations of corporate stake- in interpretation among various courts. holders regarding oversight of corpo- Rather, this resource will help corporate The prior publications in this series rate affairs. The basic fiduciary duty of directors establish, and affirmatively addressed the unique fiduciary respon- care principle, which requires a direc- demonstrate, that they have followed a sibilities of directors of health care tor to act in good faith with the care reasonable quality oversight process. organizations in the corporate compli- an ordinarily prudent person would ance context. With a new era of focus Of course, the circumstances of each exercise under similar circumstances, on quality and patient safety rapidly organization differ and application is being tested in the current corporate emerging, oversight of quality also is of the duty of care and consequent

1 The other two co-sponsored documents in the series are Corporate Responsibility and Corporate Compliance: A Resource for Health Care Boards of Directors, The Office of Inspector General of the U.S. Department of Health and Human Services and The American Health Lawyers Association, 2003; and An Integrated Approach to Corporate Compliance: A Resource for Health Care Organization Boards of Directors, The Office of Inspector General of the U.S. Department of Health and Human Services and The American Health Lawyers Association, 2004. reasonable inquiry by boards will to be responsible for granting, restricting believe to be in the best interests of need to be tailored to each specific and revoking privileges of membership the corporation. In this regard, courts set of facts and circumstances. How- in the organized medical staff. typically evaluate the board member’s ever, compliance with standards and state of mind with respect to the issues Duty of Care regulations applicable to the quality at hand. The traditional and well-recognized of services delivered by health care duty of care refers to the obligation When evaluating the fiduciary obliga- organizations is essential for the lawful of corporate directors to exercise the tions of board members, it is important behavior and corporate success of such proper amount of care in their deci- to recognize that “perfection” is not the organizations. While these evolving sion-making process. State corpora- required standard of care. Directors are requirements can be complex, effective tion laws, as well as the common law, not required to know everything about compliance in the quality arena is an typically interpret the duty of care in an a topic they are asked to consider. They asset for both the organization and the almost identical manner, whether the may, where justified, rely on the advice health care delivery system. It is hoped organization is non-profit or for-profit. of executive leadership and outside that this educational resource is useful advisors. to health care organization directors in In most jurisdictions, the duty of care exercising their oversight responsibili- requires directors to act (1) in “good In addition, many courts apply the ties and supports their ongoing efforts faith,” (2) with the care an ordinarily “business judgment rule” to determine to promote effective corporate compli- prudent person would exercise in like whether a director’s duty of care has ance as it relates to health care quality. circumstances, and (3) in a manner that been met with respect to corporate de- they reasonably believe to be in the best cisions. The rule provides, in essence, interests of the corporation.2 In analyz- that a director will not be held liable for II. Board Fiduciary Duty and ing compliance with the duty of care, a decision made in good faith, where Quality in the Health Care courts typically address each of these the director is disinterested, reasonably informed under the circumstances, and Setting elements individually. In addition, in recent years, the duty of care has taken rationally believes the decision to be in Governing boards of health care on a richer meaning, requiring direc- the best interests of the corporation. In organizations increasingly are called tors to actively inquire into aspects of other words, courts will not “second to respond to important new devel- corporate operations where appropriate guess” the board members’ decision opments—clinical, operational and – the “reasonable inquiry” standard. when these criteria are met. regulatory—associated with quality of Thus, the “good faith” analysis nor- Director obligations with respect to care. Important new policy issues are mally focuses upon whether the matter quality of care may arise in two distinct arising with respect to how quality of or transaction at hand involves any contexts: care affects matters of reimbursement improper financial benefit to an indi- and payment, efficiency, cost controls, • The Decision-Making Function: The vidual and/or whether any intent exists collaboration between organizational application of duty of care principles to take advantage of the corporation. providers and individual and group as to a specific decision or a particu- The “prudent person” analysis focuses practitioners. These new issues are so lar board action, and upon whether directors conducted critical to the operation of health care the appropriate level of due diligence • The Oversight Function: The applica- organizations that they require attention to allow them to render an informed tion of duty of care principles with and oversight, as a matter of fiduciary decision. In other words, directors are respect to the general activity of the obligation, by the governing board. expected to be aware of what is going board in overseeing the operations of This oversight obligation is based upon on around them in the corporate busi- the corporation (i.e., acting in good the application of the fiduciary duty of ness and must in appropriate circum- faith to assure that a reasonable infor- 3 care board members owe the organiza- stances make such reasonable inquiry mation and reporting system exists). tion and, for non-profit organizations, as would an ordinarily prudent person Board members’ obligations with the duty of obedience to charitable mis- under similar circumstances. The final respect to supervising medical staff sion. It is additive to the traditional duty criterion focuses on whether directors credentialing decisions arise within of board members in the hospital setting act in a manner that they reasonably the context of the decision-making

2 American Bar Association, Section of Business Law, Revised Model Nonprofit Corporation Act, Section 8.30 (1987). 3 In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996). function. These are discrete decisions staff to provide periodic briefings to the residents in the community.” Given that periodically made by the board and board with respect to quality of care the board is responsible for reasonably relate to specific recommendations and developments so that the directors may inquiring whether there are practices in a particular process. establish a proper “tone at the top” in place to address the quality of patient terms of related legal compliance. In care, it is fair to state that the concept The emerging quality of care issues other words, it is the role of the execu- of quality of care is inseparable from, discussed in this resource arise in the tive staff to brief the board concerning and is essentially subsumed by, the mis- context of the oversight function—the new developments in the law and re- sion of the organization. obligation of the director to “keep a lated legal implications, and it should be finger on the pulse” of the activities of In the hospital setting, various pro- the ongoing obligation of the board to the organization. visions of the law dealing with the reasonably inquire whether the organi- relationship to the medical staff also The basic governance obligation to zation’s compliance program and other provide a link to the duty of obedience guide and support executive leadership legal control mechanisms are in place to to corporate purpose. These include, in the maintenance of quality of care monitor the associated legal risks. for example, traditional provisions that and patient safety is an ongoing task. confirm the responsibility of the board Board members are increasingly expect- for (a) the conduct of the hospital as an ed to assess organizational performance Duty of Obedience to Corporate institution, (b) ensuring that the medi- on emerging quality of care concepts Purpose and Mission cal staff is accountable to the governing and arrangements as they implicate is- Oversight obligations with respect to board for the quality of care provided sues of patient safety, appropriate levels quality of care initiatives also arise—for to patients, and (c) the maintenance of of care, cost reduction, reimbursement, non-profit boards—in the context of standards of professional care within and collaboration among providers and what is generally referred to as the the facility and requiring that the practitioners. These are all components fiduciary duty of obedience to the cor- 5 medical staff function competently. The of the oversight function. porate purpose and mission of health care organizations. Non-profit corpora- “duty of obedience” concept with re- This duty of care with respect to qual- tions are formed to achieve a specific spect to assuring compliance with law ity of care also is implicated by the goal or objective (e.g., the promotion also might be considered to incorporate related duty to oversee the compli- of health), as recognized under state a duty to assure compliance with those ance program.4 Many new financial non-profit corporation laws. This is in state laws (and perhaps accreditation relationships address quality of care contrast to the typical business corpo- principles as well) that require the issues, including pay-for-performance ration, which often is formed to pursue governing board to assume ultimate programs, gainsharing, and outcomes a general corporate purpose. It is often responsibility for organizational perfor- management arrangements, among said of non-profits that “the means and mance, which includes the quality of others. State and federal law closely the mission are inseparable.”6 the provider’s medical care. regulate many of these arrangements. Given that directors have an obligation The fundamental nature of the duty of Summary to assure that the organization has an obedience to corporate purpose is that In exercising his/her duty of care (and, “effective” compliance program in place the non-profit director is charged with as appropriate, duty of obedience to to detect and deter legal violations, the obligation to further the purposes corporate purpose and mission), the they may fairly be regarded as having a of the organization as set forth in its governing board member may be concomitant duty to make reasonable articles of incorporation or bylaws.7 For expected to exercise general supervi- inquiry regarding the emerging legal example, the articles of incorporation sion and oversight of quality of care and compliance issues associated with of a non-profit health care provider and patient safety issues. This is likely quality of care initiatives, and to direct might describe its principal purpose as to include (a) being sensitive to the executive leadership to address those “the promotion of health through the emergence of quality of care issues, issues. The board may direct executive provision of inpatient and outpatient challenges and opportunities, (b) be- hospital and health care services to ing attentive to the development of

4 Id. 5 In some states, this duty is subsumed within the definition of the broader duty of loyalty. 6 Daniel L. Kurtz, Board Liability: Guide for Nonprofit Directors 84 (Moyer Bell Limited, New York, 1988), citing Commonwealth of Pennsylvania v. The Barnes Foundation, 398 Pa. 458, 159 A.2d 500, 505 (1960); In re Manhattan Eye, Ear & Throat Hosp., 715 N.Y.S.2d 575 (1999). 7 Kurtz, supra. specific quality of care measurement knowledge to all who could benefit raise legal compliance issues that health and reporting requirements (including and refraining from providing services care organization boards of directors asking the executive staff for periodic to those not likely to benefit (avoiding will need to understand in exercising education), and (c) requesting periodic underuse and overuse, respectively); their oversight function. updates from the executive staff on – providing care that is patient-centered A scorecard on the U.S. health care sys- organizational quality of care initia- respectful of and responsive to indi- tem developed by the Commonwealth tives and how the organization intends vidual patient preferences, needs, and Fund in 2006 showed the following to address legal issues associated with values and ensuring that patient values results, among others:11 those initiatives. Board members are guide all clinical decisions; timely – re- expected to make reasonable further ducing waits and sometimes harmful • For 37 key indicators for five health inquiry when concerns are aroused or delays for both those who receive and care system dimensions (quality, ac- should be aroused. These expectations those who give care; efficient– avoid- cess, equity, outcomes and efficien- increasingly are becoming more sig- ing waste, including waste of equip- cies), the overall U.S. score was 66 nificant with the increased attention to ment, supplies, ideas, and energy; and out of a possible 100. quality of care issues from policy mak- equitable – providing care that does • Efficiency was the single worst score ers, providers and practitioners, payors not vary in quality because of personal among the five dimensions. For and regulators. Board members must characteristics such as gender, ethnicity, example, in 2000/2001, the U.S. be, and must be perceived as, respon- geographic location, and socio-eco- ranked 16th out of 20 countries in 9 sive to this changing environment. nomic status. Because this definition of use of electronic health records. quality increasingly is being adopted by payors, providers and regulators, health • The U.S. is the worldwide leader in III. Defining Quality of Care and care organizations and their boards will costs. the Critical Need to Imple- need to be mindful of its implications. • The U.S. scored 15th out of 19 ment Quality Initiatives The U.S. health care system is at a countries in mortality attributable to challenging point in its history. It is, health care services. “The American health care deliv- for many important historical reasons, ery system is in need of funda- • Basic tools (i.e., Health IT) are miss- a mixed public-private system, and mental change. Many patients, ing to track patients through their there is no foreseeable dynamic on the doctors, nurses and health care lives. horizon suggesting a major change to leaders are concerned that the • We do poorly at transition stages this reality. The health care system also care delivered is not, essentially, —hospital readmission rates from arguably is driving the U.S. economy. the care we should receive … nursing homes are high; our re- A recent federal forecast predicts that Quality problems are everywhere imbursement system encourages over the next decade, U.S. health care affecting many patients. Between “churning.” spending will double from today’s the healthcare we have and the level to $4.1 trillion and will represent • Improving performance in key areas care we could have lies not just a 20% of the gross domestic product.10 would save 100,000 to 150,000 lives and gap, but a chasm.”8 We have a health care system that is $50 billion to $100 billion annually. In Crossing the Quality Chasm, the extraordinarily advanced, yet is inef- The report makes several key recom- Institute of Medicine (IOM) provided ficient, uneven and too often unsafe. mendations. The U.S. should expand a six-part definition of health care A consensus is forming that improve- health insurance coverage; implement quality that some view as the emerg- ment in the system will require better major quality and safety improvements; ing standard. According to the IOM, collaboration and cooperation among work toward a more organized delivery health care should be: safe – avoid- independent providers, payors and system that emphasizes primary and ing injuries to patients from the care purchasers, more integrated care and preventive care that is patient-centered; that is intended to help them; effective better aligned incentives. Such collabo- increase transparency and reporting on – providing services based on scientific ration and cooperation inevitably will quality and costs; reward performance

8 Crossing the Quality Chasm, Institute of Medicine, 2001, p.1 9 Id. at 6. 10 “Health Care Spending Projected to Pass $4 Trillion Mark by 2016,” Health Affairs, February 21, 2007. 11 The Commonwealth Fund Commission on a High Performance Health System, “Why Not the Best? Results from a National Scorecard on U.S. Health System Performance,” The Commonwealth Fund, September 2006. for quality and efficiency; expand the Indeed, the National Quality Forum, initiatives, electronic health record use of interoperable information tech- perhaps the most well known source of implementation efforts, outpatient care nology; and encourage collaboration nationally approved quality measures, centers, service line joint ventures and among stakeholders. has issued a paper entitled “Hospital management and leasing arrangements. Governing Boards and Quality of Care: In a similar vein, the IOM recently Evidence-based medicine reasonably A Call to Responsibility.”15 stated in one of several follow-up can define proper use and increasingly reports to Crossing the Quality Chasm Perhaps one of the most critical—and is relied upon to do so. It is expected that the Medicare payment system does often misunderstood—components that the public sector will continue to not reward efficiency and provides few of health care quality is the relation- seek to balance its role as both pur- disincentives for overuse, underuse ship between overall quality and cost chaser and regulator in the search for or misuse of care.12 Furthermore, the efficiency. Increasingly, it is becoming quality improvement in health care. IOM proposed that incentives should more widely understood that quality The private sector at times may have to encourage delivery of high-quality care and efficiency are complementary, not initiate change before the payment sys- efficiently, require providers to assume contradictory, elements of an effec- tem and regulations catch up, but the shared accountability for transitions tive health care system. Efficiency, by rewards are potentially very high—in between care settings and require definition, means avoidance of unnec- terms of organizational success as well coordination of care for patients with essary, and often harmful, care. As Don as social benefit. At the same time, chronic disease. Berwick, a recognized national quality however, legal compliance issues likely expert, stated in in 2005: will arise in connection with efforts to We are entering a new era of thinking Health Affairs “Right from the start it has been one of implement these changes. Health care about health care quality and collabo- the great illusions in the reign of qual- organizations, with oversight by their ration among health care providers. ity that quality and cost go in opposite boards of directors, will be required in Numerous new measures of health care directions. There remains very little this regard to be mindful of the anti- quality are becoming public every day. evidence of that.”16 kickback statute, the physician self-re- Purchasers, payors, state governments, ferral (Stark) law, civil money penalty the Joint Commission and others are Because it is coming from the federal statutes, the Health Insurance Portabil- requiring reporting, particularly by government, state government and ity and Accountability Act (HIPAA), hospitals, of outcomes pursuant to such private purchasers and payors, the em- federal tax-exemption standards and measures. Pay-for-performance pro- phasis on collaborative arrangements antitrust law, among other legal areas. grams are becoming common among and cooperation in care giving across both public and private payors. A new independent providers, aggregate There is an opportunity for the best generation of “gainsharing” proposals payment pools and aligned incen- performers in the industry to create and demonstrations are emerging.13 tives will require providers to look for profound change—and then open up In late February 2007, HHS Secretary legal ways to collaborate and, indeed, these best practices through transpar- Leavitt unveiled a new quality-improve- align incentives through new financial ency of data and the promotion of ment plan, called “Value Exchanges,” relationships. In particular, innovative collaboration to spread change. Health that would establish local quality- hospital-physician financial relation- care boards of directors have the improvement collaborations with an ships, including a variety of formal and unique opportunity to take leadership eye toward a national link-up in a few informal partnering arrangements, are in implementing quality systems that years.14 All of this puts increasing focus critical to the achievement of all six of will advance their organizations’ respec- and scrutiny on health care organiza- the aims set forth in Crossing the Quality tive missions and the nation’s health. tions, and their boards of directors, Chasm. Examples include pay-for-per- They also have the responsibility to do in connection with the quality issue. formance demonstrations, gainsharing so in a legally compliant manner.

12 Rewarding Provider Performance: Aligning Incentives in Medicine, Institute of Medicine, 2007. 13 OIG reviews gainsharing and pay-for-performance programs on a case-by-case basis, and CMS’ position on applicability of the Stark Law to such programs is still evolving. 14 Press Release, U.S. Department of Health & Human Services, HHS Secretary Leavitt Unveils Plan for “Value Exchanges” to Report on Health Care Quality and Cost at Local Level (February 28, 2007). 15 “Hospital Governing Boards and Quality of Care: A Call to Responsibility,” The National Quality Forum, December 2, 2004. 16 Robert Galvin, “‘A Deficiency of Will and Ambition’: A Conversation with Donald Berwick,” Health Affairs Web Exclusive, January 12, 2005. IV. The Government’s Role in of care. Even individuals who are not liability relied upon by the government. Enforcing Health Care Quality direct care providers, such as hospi- The predominant criminal and civil tal administrators and nursing home fraud theories—medically unneces- An extensive federal and state regula- owners, may be subject to exclusion if sary services and “failure of care”—rely tory scheme governs the care delivered they cause others to provide substan- on the submission of a claim for by health care providers. Designed to dard care. Consequently, all levels of reimbursement to the government to promote quality of care, these standards a health care organization, from the establish jurisdiction over the provider. provide a baseline for assessing the lev- direct caregiver to the governing body Medicare and Medicaid only cover el of care provided to the patient and, of an institutional provider, could face costs that are reasonable and necessary as discussed previously, increasingly liability for failing to meet the quality for the diagnosis or treatment of illness determine the health care provider’s of care obligations applicable to gov- or injury. When medically unnecessary reimbursement. For example, Medicare ernment program providers. services are provided, the patient is un- and Medicaid conditions of participa- necessarily exposed to risks of a medi- As part of these enforcement efforts, tion require hospitals to monitor qual- cal procedure and the federal health authorities are closely evaluating ity through credentialing of medical care programs incur needless costs. quality-reporting data. For example, staff and maintaining effective quality Hospitals have been subject to prosecu- government authorities are increasingly assessment and performance improve- tion under this theory. For example, a scrutinizing quality data submitted ment programs. These conditions of grand jury indicted a Michigan hospital by health care providers to identify participation specify that the medi- based on its failure properly to in- inconsistencies and evidence of ongo- cal staff is accountable to a hospital’s vestigate medically unnecessary pain ing quality problems that providers fail governing body for the quality of care management procedures performed to address. Sources of quality-reporting provided to patients. Long-term care by a physician on its medical staff. data include, for example, the hospital providers must meet specific quality of In another case, a California hospital quality data for the annual payment care standards, undergo state surveys, recently paid $59.5 million to settle updates, physician quality-reporting and pass state certifications to par- civil False Claims Act allegations that data reported to CMS, medical error ticipate in government programs. The the hospital inadequately performed and “sentinel event” data reported to regulatory framework includes a range credentialing and peer review of car- the Joint Commission, and quality of progressive administrative sanctions, diologists on its staff who performed reporting required under state law. including heightened oversight and medically unnecessary invasive cardiac The accuracy of the data submitted to monetary penalties that may be imposed procedures. against providers that fail to comply government agencies and third party with the regulatory requirements. payors is vital. In addition to relying The second theory of liability involves on such information for monitoring the provision of care that is so defi- In addition to these administrative quality and patient safety issues, the cient that it amounts to no care at all. remedies, the government enforcement federal health care programs increas- This theory derives from the concept authorities are increasingly focus- ingly use this data for determining commonly applied in the financial ing on the quality of care provided to reimbursement, as in the case of the fraud context, which subjects provid- beneficiaries of the federal health care Minimum Data Set in the nursing ers to liability for billing government programs. The OIG, the U.S. Depart- home setting. Consequently, inaccurate programs for services that were not ment of Justice, and state Attorneys reporting of quality data could result in actually rendered. These cases fre- General are working collaboratively the misrepresentation of the status of quently involve providers, such as with the health care regulatory agencies patients and residents, the submission nursing homes, that receive “per diem” to address the provision of substandard of false claims, and potential enforce- payments for providing all necessary care by individuals and institutions. ment action. As authorities continue treatment to patients. For example, a Sanctions may range from monetary to scrutinize quality-reporting data, Colorado rehabilitation center entered penalties to exclusion from federal boards will benefit from ensuring that into a $1.9 million civil False Claims and state health care programs and structures and processes exist within Act settlement to resolve allegations even incarceration for the most serious their institution to carefully review this that it provided worthless services to offenses. For example, a health care data for accuracy and address potential patients, resulting from systemic under- provider can be subject to exclusion quality of care issues. staffing at the facility, where deficient from the federal health care programs services and abuse caused six patient To evaluate the potential risk to the if it provides medically unnecessary deaths. Federal prosecutors in Mis- organization, it is important that board services or services that fail to meet souri charged a long-term care facility members understand the theories of professionally recognized standards management company, its CEO, and three nursing homes with conspiracy As part of global settlements of civil V. Health Care Board Fiduciary and health care fraud based on the health care fraud matters, OIG may Duty and Quality contention that the defendants imposed negotiate a waiver of the permissive budgetary constraints that they knew exclusion in exchange for a provider’s Health care is unique in representing or should have known would prevent agreement to enter into a corporate both a social good and an economic facilities from providing adequate care integrity agreement (CIA). In cases commodity. Boards of directors of many to residents. The CEO was sentenced involving substandard care, these health care organizations have been to pay $29,000 in criminal fines and to agreements can involve comprehen- called upon to see that their organi- serve an 18-month period of incarcera- sive monitoring provisions designed zations approach those realities in tion. The management company and to assess the provider’s internal quality concert, not in competition, with each nursing homes were each sentenced improvement infrastructure. Currently, other. These boards understand that to pay $182,250 in criminal fines. thirteen nursing homes and psychiat- the quality of the products and services In a related civil case, the defendants ric facilities, including eight regional their organizations provide can have paid $1.25 million to resolve False and national chains, are under quality life or death implications. Health care Claims Act allegations, and agreed to of care CIAs. A list of the health care organizations generally view themselves be excluded from federal health care providers currently subject to CIAs as mission-driven and health care qual- programs. is found at OIG’s website, http://hhs. ity is a key component of that mission. gov/fraud/cias.html. This fraud theory also is applied in Yet, the Institute of Medicine’s recogni- cases involving violations of regula- A CIA also might entail board-level ob- tion in 1999 that medical errors lead tory requirements related to quality ligations to help ensure that the organi- to as many as 100,000 deaths per of care. For example, a Pennsylvania zation embraces a commitment to the year served as a wake-up call. Evolv- hospital entered into a $200,000 civil delivery of quality care. For example, ing evidence and research into best False Claims Act settlement to resolve the Tenet Healthcare Corporation practices and outcomes measures have substandard care allegations related to board of directors has specific obliga- provided the impetus to today’s rapidly the improper use of restraints. tions under the organization’s current growing “quality movement,” which is CIA. OIG has required the board to (1) triggering a whole variety of mandatory In addition to substantial civil penal- review and oversee the performance and voluntary activities by health care ties and criminal fines, health care of the compliance staff, (2) annually organizations to improve quality and providers that systematically fail to review the effectiveness of the compli- reduce costs. provide care of an acceptable quality ance program, (3) engage an indepen- can be excluded from federal health These new programs and requirements dent compliance consultant to assist care programs, meaning Medicare raise the stakes for health care organiza- the board in its review and oversight of and Medicaid will not pay for items tions, both financially and legally. Poor Tenet’s compliance activities, and (4) or services furnished by the provider. quality and value—or the failure to submit to OIG a resolution summariz- The provision of care that fails to demonstrate good quality and value— ing its review of Tenet’s compliance meet accepted standards of care is an increasingly may affect the viability of with the CIA and federal health care enforcement priority for OIG, which health care providers, products manu- program requirements. These obliga- is actively pursuing these cases under facturers and others. Law enforcement tions reflect a growing recognition of administrative sanction authorities that agencies are increasing their scrutiny of the critical role that boards of directors explicitly address quality of care. OIG providers that deliver substandard care play in ensuring that their organiza- can impose exclusion from the federal to federal health care beneficiaries. On tions promote quality, ensure patient health care programs against anyone the other hand, demonstrated qual- safety, and are in compliance with the who furnishes or causes to be furnished ity and value likely will have a posi- obligations of government health care medically unnecessary services or tive mission as well as financial effect. programs. services that fail to meet professionally Accurate measurement and report- recognized standards of health care.17 ing—indeed, effective compliance with Additionally, OIG is required by law an evolving set of obligations—will be to exclude anyone convicted of patient required. neglect or abuse.18

17 42 U.S.C. § 1320a-7(b)(6)(B). 18 42 U.S.C. § 1320a-7(a)(2).

Directors will need to understand this are defined, the board can more read- institution’s quality agenda, to identify evolving reality and, if they have not ily hold management accountable systemic deficiencies and to make ap- already done so, elevate quality—as for meeting the organization’s quality propriate recommendations for action. newly defined—to the same level performance goals. Periodic reviews with management of of focus that financial viability and the quality of care provided to pa- 2. How does the organization measure and regulatory compliance currently com- tients and evaluations of the adequacy improve the quality of patient/resident mand. The next section of this resource of these policies in light of evolving care? Who are the key management provides directors with certain ques- standards, clinical practices and claims and clinical leaders responsible for these tions that may assist them in exercising experience or trends are consistent with quality and safety programs? their oversight responsibilities in this board responsibilities. increasingly important area. As a threshold matter, the board may wish to confirm its understanding 4. Does the board have a formal orienta- of the structures and processes the tion and continuing education process organization relies upon to oversee and that helps members appreciate external VI. Suggested Questions for quality and patient safety requirements? Directors improve clinical quality and patient safety. Only after it has a complete un- Does the board include members with Boards of Directors can play a critical derstanding of how the organization’s expertise in patient safety and quality role in advancing the clinical improve- quality assurance functions operate improvement issues? ment initiatives in their organizations. can the board evaluate the breadth and In an era of increasing governance To realize its full potential, a board effectiveness of a quality improvement accountability, the boards of health needs to develop an understanding of program. The organizational assess- care organizations are expected to the relevant quality and patient safety ment also can provide a common basis understand and be involved in the issues and then focus on performance from which management and the board assessment of performance on qual- goals that drive the organization to pro- can evaluate these processes against ity and patient safety initiatives of vide the best quality and most efficient current and emerging regulatory re- their organizations. An understand- care. The following series of suggested quirements. ing of clinical quality measurements, questions may be helpful as the board the ability to read quality scorecards 3. How are the organization’s quality examines the scope and operation of and spot red flags, and an apprecia- assessment and improvement processes the organization’s quality and safety tion of quality of care as a corporate integrated into overall corporate poli- initiatives. governance issue may be critical to cies and operations? Are clinical quality an effective board. Equally important, 1. What are the goals of the organization’s standards supported by operational board members need a general under- quality improvement program? What policies? How does management imple- standing of national trends in health metrics and benchmarks are used to ment and enforce these policies? What care quality. Collectively, these skills measure progress towards each of these internal controls exist to monitor and will enable the board to appreciate performance goals? How is each goal report on quality metrics? specifically linked to management ac- the interrelationship of patient safety, countability? Consistent with the fundamental health care quality and performance fiduciary responsibility of oversight, the measurement, as well as the business There are a growing number of national board has responsibility for institution- case for quality. For the same reasons a public and private initiatives directed al policies and procedures relative to board has financial experts on its audit at promoting quality of care, patient quality of care. Increasingly, common committee, health care organizations safety and the corresponding reduction law recognizes among a board’s non- that provide or arrange for goods or in medical errors. These initiatives rely delegable duties the duty to formulate, services need members with competen- on clinical care benchmarks to facili- adopt and enforce adequate rules and cies in quality and patient safety issues. tate oversight and promote improved policies to ensure quality care for all of With such resources, the board is better quality outcomes. Such benchmarks, the organization’s patients and resi- positioned to call for and evaluate used in conjunction with industry-wide dents. Although boards appropriately meaningful quality information using reported data, can provide a context for may utilize the expertise of the medical recognized performance metrics from creating quality of care goals, aligning staff and other professionals to address which to evaluate the organization’s organizational incentives and providing professional competency and quality clinical quality performance. a framework for management’s reports issues, these professionals should work to the board. Once these parameters actively with the board to advance the 5. What information is essential to the A Resource for Health Care Boards of 8. Are human and other resources ad- board’s ability to understand and Directors,” an effective corporate com- equate to support patient safety and evaluate the organization’s quality pliance program can be instrumental in clinical quality? How are proposed assessment and performance improve- the board’s exercise of its fiduciary duty changes in resource allocation evalu- ment programs? Once these perfor- of care. Increasingly, monitoring quality ated from the perspective of clinical mance metrics and benchmarks are and patient safety issues is recognized quality and patient care? Are systems in established, how frequently does the as integral to promoting corporate place to provide adequate resources to board receive reports about the quality compliance, as well as to risk manage- account for differences in patient acuity improvement efforts? ment and organizational reputation. and care needs? The board should consider the nature Use of regulatory compliance processes Participation in the federal health care and level of information it needs to to continually assess the organization’s programs requires that the health care oversee the quality of care in the orga- quality performance can assist in ex- organization deliver care of a quality nization. If there are too many qual- posing deficiency patterns, which if not that meets professionally recognized recognized and addressed in a timely ity indicators, the data may become standards of care. When investigating and effective manner, may expose the overwhelming and the critical measures allegations of substandard quality of organization to enforcement action. of success may be overlooked. The care, the government will scrutinize Accordingly, as quality improvement board may want to work with manage- whether the health care provider de- takes on increased significance in the ment and the organization’s medical voted sufficient resources to ensure that organization’s compliance program, the leadership to identify a focused number the care provided to patients or resi- board may want to assure itself that the of vital indicators that are probative dents met basic quality requirements. compliance officer is collaborating with of quality or indicative of changes in Inadequate levels of professional and the organization’s clinical leadership. quality of patient care. In determin- support staff, for example, may result ing which performance measures to 7. What processes are in place to promote in a pattern of substandard care. As include in its “dashboard,” the board the reporting of quality concerns and part of its annual review of the orga- may want to consider the quality data medical errors and to protect those who nization’s operating plans and budget, reviewed by government agencies, ask questions and report problems? the board should consider the impact the information subject to mandatory What guidelines exist for reporting of these resource allocation decisions reporting requirements and relevant quality and patient safety concerns to on the quality of care and patient safety. 10 industry benchmarks. the board? For the same reason, the board should ensure that management has assessed As part of its oversight of the quality of A lack of transparency in the organi- the impact of staff reductions or other care delivered by subsidiaries, parent zation’s response to concerns about budget constraints on quality of care. or system boards may have different quality and patient safety can contrib- information needs. While a grounding ute to a culture where problems are A companion area for oversight relates in quality and patient safety initiatives not addressed and are therefore likely to approvals of new services and remains important, the parent board to reoccur. Improving the effectiveness significant technology acquisitions. appropriately may rely on local boards and safety of services and quality of Inquiry regarding the scientific bases to oversee clinical quality of the local care requires participation by clinical supporting the efficacy and safety of facilities under its purview. In large staff at all levels. In fulfilling its duty of new services and the identification of health care systems, the parent board care, the board should consider verify- supportive processes to ensure qual- may exercise its governance responsi- ing that the organization has a mecha- ity and safety of new technology and bilities by focusing on the effectiveness nism to encourage constructive criti- services may serve to protect financial of the local boards. cism and reporting of errors. Effective resources as well as patient safety. compliance programs are structured to 6. How are the organization’s quality 9. Do the organization’s competency as- address “whistleblower” reporting and assessment and improvement processes sessment and training, credentialing, protections and the organization should coordinated with its corporate compli- and peer review processes adequately consider incorporating the reporting of ance program? How are quality of care recognize the necessary focus on clinical quality and patient safety concerns into and patient safety issues addressed in quality and patient safety issues? both existing compliance procedures the organization’s risk assessment and and general operating practices. Boards rely heavily on the expertise of corrective action plans? their medical staff and the integrity and As discussed in “Corporate Respon- comprehensiveness of its competency sibility and Corporate Compliance: assessment and training, credentialing, and peer review processes to ensure the confidentiality provisions of the Patient competency of clinical staff. Alignment Safety and Quality Improvement Act of of professional staff credentialing stan- 2005. Although the application of these dards with quality data can advance a statutes to medical staff credentialing, quality-driven model for the profes- peer review and broader quality report- sional staff and allows the organization ing and improvement activities may be to take appropriate action when signifi- challenging, greater organizational risks cant quality deficiencies are identified. may lie in the failure to address known or foreseeable quality deficiencies. 10. How are “adverse patient events” and other medical errors identified, Obviously, corporate boards and manag- analyzed, reported, and incorporated ers need to evaluate and address quality into the organization’s performance and patient safety issues but without improvement activities? How do man- unnecessarily increasing organizational agement and the board address quality exposure to liability resulting from the deficiencies without unnecessarily provision of deficient care. It is therefore increasing the organization’s liability important for the board to understand exposure? the scope of federal and state statutory protections given certain quality-re- Providers operate under significant lated activities and to make reasonable federal and state requirements relating inquiry to assure that management and to quality reporting and improvement. the medical staff effectively manage this Hospitals, for example, are required to issue. A discussion with legal counsel on maintain an effective, data-driven qual- this topic may be helpful. ity assessment and improvement program as a condition of participation in the Medicare program. These programs must track quality indicators, including VII. Conclusion adverse patient events, and set per- Contemporary health care quality, formance improvement priorities that patient safety and cost efficiency initia- 11 focus on high-risk or problem-prone tives provide an opportunity for health areas. A growing number of states care organizations to make a positive have mandatory reporting systems for difference to society while promoting at least some forms of adverse events their missions and enhancing their occurring in acute care hospitals. For financial success. However, health care example, some states are mandating the boards of directors will need to exercise reporting of “never events,” those errors their oversight responsibilities in this in medical care that are clearly identifi- area diligently and assure that their able, preventable and serious in their organizations are pursuing these op- consequences for patients. Examples portunities in compliance with evolving of “never events” include surgery on legal requirements. The comments and the wrong body part, a mismatched perspectives shared in this educational blood transfusion, and severe “pres- resource will, it is hoped, assist health sure ulcers” acquired in the hospital. In care organization boards in exercising addition, there are other reporting re- their duty of care as it relates to health quirements, including the peer review care quality effectively and efficiently reporting provisions of the Health Care and in a manner that will help improve Quality Improvement Act, state peer the nation’s health care system. review statutes, and the privilege and

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