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Effective Governance

A team is only as good as its ownership. This is especially true in times of great change, stress, cultural transformation, and innovation. Geisinger’s board structure over the years serves as a good case study for the importance of effective governance, adapting to major changes in the organization and in the healthcare industry. Geisinger’s evolution from a regional provider to a nationally recognized, vertically integrated health services delivery and payer model could not have happened without a simultaneous evolution in board composition, structure, and aspiration.

The fundamental Geisinger governance structure and function was first set up in 1981 with the creation of a single functional governing board, which became the Geisinger Health System Foundation (now Geisinger Health Foundation) Board, a self-replicating, single fiduciary that serves as the parent for the entire organization. Under this structure, all other Geisinger boards were controlled by the foundation board. This straightforward, single fiduciary ensured that there would be no silo thinking at the top of the organization. What mattered most was what would enable Geisinger as a holistic system to deliver the best quality and best value care. At least at the governance level, it mattered less how the various components of the system—hospitals, doctor group, and insurance company—stacked up against each other in the annual budgeting and capital allocation processes. This single, all-inclusive fiduciary integration remained our core bellwether of “system-ness” until the 2014 merger with Holy Spirit Health System in Harrisburg, and subsequently the merger with AtlantiCare in New Jersey, when the foundation board needed to delegate some components of its fiduciary responsibility to local market system boards and became, to an extent, a holding corporation.¹

During the unsuccessful three-year merger (1997–2000) between Geisinger and Penn State Hershey Medical Center, the merged-entity board, although a single unified fiduciary, was constituent-based with a 50-50 split between appointments from Penn State Hershey and appointments from Geisinger. Unfortunately, the cultural disparity of the two systems, plus the constituent governance model with 50-50 participation, quickly led to polarization.

Two conclusions can be drawn from this brief, unhappy episode. First, the Geisinger board could take major chances on fundamental transformation. Second, when failure became obvious, the board wisely and quickly unwound the merger before mortal damage was done to either institution. While the Geisinger board felt seared by this merger experiment and avoided complex new fiduciary structures in the near term,² the merger and its interim constituency governance did not fundamentally change the unique integrated fiduciary structure that had been in place since 1981. Simple, straightforward governance remained a core strength that helped bring Geisinger back to operational health and to its core mission.

Sustained, effective board leadership started at the top with a well-respected chairman, whose credibility was so great that he remained the chairman before, during, and after the unsuccessful merger. At the time of the demerger, and with an interim CEO holding down the fort, the Geisinger board found itself in the unenviable position of serving in a much more operational role than intended or appropriate. Board committees were involved with granular management issues that are important functions, but not true fiduciary responsibilities.

During the immediate postmerger malaise, the board met monthly, focused on details such as the number of charts that remained to be dictated by the discharging physicians, and typically ended the meetings with a review of medical malpractice cases, which was not an inspiring way to move forward. During the three-year dysfunctional marriage, the only strategic goal had been to get divorced as soon as possible. Management was focused only on preparing for each month’s board meeting, rather than attempting to develop a new strategic vision or looking at the fundamentals necessary to turn the operations around. Changing the board meeting frequency first to every other month, then quickly to a quarterly schedule was a function of increased management credibility as a positive operational performance trajectory became evident.

More important than the change in board meeting frequency were changes in committee structure and functions, board culture, composition, and agendas. All of this was intended to conform to what was becoming a much more strategic management and board alignment. The key to the transformation was a unified stance in the critical leadership partnering between board chairman and CEO. In any complex organization, but particularly in a nonprofit entity undergoing a massive transformation, there can be no space between the chair and the CEO. Strategic agreement, confidence in each other’s tasks, and response to setbacks all demand leadership unity. Not once in the almost 15 years Dr. Steele shared with two board chairs was he ever distracted from the fundamental work to improve healthcare value. At the CEO transition to Dr. Feinberg, it was up to the board to determine the direction of the next leg of the system’s journey.

Within one year post-demerger, Geisinger had expanded the audit, management and compensation, and nominating and governance committees; created a medical affairs committee; and changed the function of the investment committee from hiring and firing fund managers to creating and monitoring the rules for and hiring of an outsourced chief investment officer. The finance committee assumed responsibility not only for annual budgets, but also extensive long-range financial modeling and planning.³ The new strategic plan was linked to this rolling three-year financial model as the organization stretched to meet aspirational, innovative goals ensuring that we would maintain a sufficient annual operating margin and rebuild the balance sheet overall.

The management and compensation committee, along with senior management, instituted fundamental change in how we paid doctors and how we held all Geisinger employees accountable for achieving strategic goals, not just increasing units of work. The link between board-level supervision of the new incentive plan and management’s ability to transact the new strategic aim of innovating healthcare delivery became critical.

Through our medical affairs committee agenda, we ended each board meeting with data and examples reminding everyone what we actually were most dedicated to: caring for patients and improving the health status of insurance company members. This routinely brought all of us, including the board members, back home to the meaning of all of the fiduciary tasks. Most important, we ended each board session with a presentation by clinical caregivers about something innovative, high-quality, challenging, or new related to one of our strategic aims. Most often, these vignettes exemplified the new cooperative interaction we were struggling to affirm between the payer and the provider sides of the Geisinger system.

In addition to focusing on our core mission of caring for people, these presentations exposed providers and sometimes even patients to the board directors, which was remarkably gratifying to all involved. Those who presented were celebrated, and board members could see the incredible dedication, quality, and accomplishments of our team members, as well as the success of our recruitment efforts.⁴

Geisinger governance, of course, is blessed (or further complicated) by the fact that the health system includes not only a clinical enterprise, but also an insurance company. As Geisinger Health Plan grew in membership and expanded its product offerings, it soon became apparent that the fiduciary of the foundation board and the fiduciary of the insurance company board needed to be redesigned.

In addition, the Allina Health System legal challenge in 2002 brought the matter of potential conflict in all vertically integrated health organizations to a head when the Minnesota attorney general indicted Allina for having insufficient fiduciary separation between the insurance and provider sides of its fiduciary structure and insufficient oversight of purported or real conflicts of interest.⁵ While our situation and structure was quite different, we sought outside legal advice to optimize our fiduciary template, which led to significant changes in the composition and function of the Geisinger Health Plan board.

The balancing act was to ensure independence of the insurance board while building a functional interaction that would permit Geisinger’s payer and provider components to work together in the best interests of their mutual constituents. This was accomplished by creating more of an independent Geisinger Health Plan board of directors and establishing a robust committee structure within that insurance board, including nominating and governance, management and compensation, finance, and audit, all independent of the overall Geisinger foundation board committee structure. Thus, the best practice governance we established for our insurance operations became separate from the big board, but still linked by overlapping board membership and by the Geisinger CEO assuming the chairmanship of the insurance board. From the top down, this allowed us to develop a systematic payer/provider “sweet spot” encompassing a commitment to the patients we both cared for and insured and becoming the engine for most of our innovation in caregiving and in how we were reimbursed for it.⁶

There was still a good deal of meshing in the senior management responsibilities between payer and provider and in the specific organizational structures and titles. For instance, the CEO of the insurance operations also was an executive vice president of the entire Geisinger organization. He or she not only reported directly to the Geisinger CEO but also to the Geisinger Health Plan board with the Geisinger CEO sitting as the insurance board chair. This governance solution was critical in terms of ensuring that payer and provider components within Geisinger would no longer be polarized, but would work together without perceived or actual conflict of interest. This most fundamental transformation between the insurance company and the provider group is what enabled our subsequent care innovation and now is being modeled in many real and virtual vertically integrated system experiments throughout the country.

As our aspirations grew from being an excellent regional health model to becoming a national example for healthcare reform, it became apparent that we needed to change the expertise and national visibility of both our foundation and insurance boards. Although the change in board composition hit some speed bumps, we were successful over time and consistent in adding directors with national credibility, special expertise, and admirable personal values.

Quite simply, without this board reconstruction, our innovation journey would not have happened. We ended up with an incredibly aspirational group of directors, who backed management’s commitment to change healthcare delivery and payment fundamentally. Our directors once again became risk-takers.

Adding national representation also helped the board become more diverse, both in gender and in politics. Karen Davis, the first woman appointed to lead a U.S. public health service agency as deputy assistant secretary for health policy in the U.S. Department of Health and Human Services, also was the first female to be appointed to the Geisinger board since Abigail Geisinger founded the system in 1915! Gail Wilensky, who directed the Medicare and Medicaid programs in the early nineties and served in the White House as a senior health and welfare adviser to President George H. W. Bush, provided added perspective and great healthcare policy knowledge. Over time, we also added expertise in insurance operations, integrated health system leadership, medical group leadership, and significant entrepreneurial success. All of these individuals were well-recognized regional or national leaders.

Matching our new structure and board composition with significant changes in the board agenda, influenced by repetitive and straightforward presentations of our system-wide strategic vision, resulted in a steady-state, optimally functioning board. And integrating every aspect of our strategy into each of our committee and full board meetings was integral to management’s strategic aspirations and absolutely critical in achieving innovation, growth, and continued risk-taking that put our positive operational margins to their appropriate use providing better care to a demography older, sicker, and poorer than anywhere else outside the Deep South. As it should, the board always asks tough questions and often pushes back when our answers are less than crisp. But it has never prevented us from doing what we felt best to grow the organization or distracted us from our real work of making things better for our patients and insurance company members.

Until recently, the Geisinger board did follow a number of traditional governance practices including strict age limits, strict term limits, and regularly scheduled and intrusive external board assessments. The amount of functional demographic and aspirational change managed by the board over 16 years was proof that these external devices did not need to be in place in order for the board to make tough political decisions. In addition, board compensation was limited to travel expense reimbursement. To be part of the governance of a nonprofit organization with such transformative clout was perceived a privilege.

The key leadership relationship in any nonprofit fiduciary is between the CEO and the board chair, and this has been the case throughout Geisinger’s history. Mrs. Geisinger, who founded Geisinger Medical Center over a century ago, worked closely with Geisinger’s first chief executive, Harold Foss, to ensure that patients were being cared for properly. Mrs. Geisinger visited the hospital regularly, talked with patients, and worried not just about their care, but also about its cost. At the end of each day, she would meet with Dr. Foss and discuss everything that happened in her hospital. A hundred years later, Dr. Steele partnered throughout much of his tenure at Geisinger with Frank Henry as board chair as Geisinger grew in national stature. The ability to focus almost solely on the critical aspects of improving care, not being diverted by the usual political issues in governance, was a blessing. Dr. Feinberg partnered with William Alexander as board chair for the first 18 months of his tenure, and now partners with John Bravman as new treatments, research initiatives, educational programs, and patient experience enhancements are pioneered. Shared vision, good chemistry, and longstanding fiduciary and management relationships allow clear-cut governance and management alignment that has been foundational for Geisinger’s operational and strategic achievements.

In the most recent phase of the Geisinger evolution, the system entered into a frenzy of merger and acquisition activity. This has led to significant changes in governance structure, with the foundation board delegating some primary responsibility for operating performance, regional strategic growth, and administrative leadership to local market boards.

LESSONS LEARNED

•   Effective governance is integral to organizational risk-taking and success.

•   Alignment between management aspiration and board aspiration is critical.

•   The most important relationship in any nonprofit organization is that between the board chairman and the CEO.

•   Vertical integration between insurance payer and care provider is best accomplished with both components in the same fiduciary.

•   Simple, straightforward governance is best.

•   As systems get larger and more complex, governance structures most often become larger and more complex.

•   Scaling innovation into larger and more complex systems will become a more difficult management and governance challenge.