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Do Boards Matter? The Links Between Governance,
Organizational Monitoring and Alignment Capacity and Hospital performance
By
A. Paula Neves
A thesis submitted in conformity with the requirements for the degree of
Doctor of Philosophy (PhD)
Department of Health Policy, Management and Evaluation
University of Toronto
© Copyright by A. Paula Neves 2012
ii
Do Boards Matter? The Links Between Governance, Organizational Monitoring and
Alignment Capacity and Hospital performance
A. Paula Neves
Doctor of Philosophy
Department of Health Policy, Management and Evaluation
University of Toronto
2012
Abstract No systematic research has been undertaken in Canada on the relationship between hospital
performance, organizational monitoring capacity and board governance. This three-part
dissertation aims to fill that gap. The conceptual framework elaborated in a theoretical paper and
tested in two exploratory empirical studies proposes that boards reflect their institutions, with
high performers exhibiting greater capacity to harmonize accountability needs and align
governance decision-making and monitoring systems with external performance measurement
and reporting requirements. Top team (board and management) characteristics, and governance
practices, both proposed elements of “governance capacity,” are hypothesized to reflect and
reinforce “organizational monitoring and alignment capacity” thereby contributing directly and
indirectly to key aspects of hospital performance including quality of care, financial health and
patient satisfaction.
Using hierarchical regression analyses, six hypotheses were tested on a sample of 101 acute
hospital corporations that participated in the 2005, 2006 and 2007 Ontario Hospital Report
Research Collaborative. After controlling for hospital size, evidence of a statistically significant
relationship was detected between organizational monitoring and alignment capacity and quality
iii
performance, and between one element of governance capacity, governance practices, and
financial performance. A relationship was also detected between governance practices and top
team characteristics, including diversity, education and turnover.
These findings suggest that the relationship between hospital governance and performance is
tenuous and that some aspects of performance may be more amenable to governance influence
than others. In highly-regulated environments governance space is circumscribed and myriad
stakeholders have a stronger pulse on singular aspects of organizational performance than the
board. This study argues that the role of boards in environments of distributed governance is to
mine the „accountability web‟ for timely, multivariate intelligence on performance and use it to
drive alignment, integration and performance improvement. The contribution of this research,
its limitations, and implications for researchers, policymakers and hospital leaders are discussed.
iv
Acknowledgements
I would like to thank my advisor, Dr. Louise Lemieux-Charles, and my committee members, Dr.
G. Ross Baker and Dr. Rhonda Cockerill, for their patience and guidance.
Special thanks to Carey Levington for his assistance with data clean up and linkage, and to Brian
Hyndman and Julia Monakova for their helpful comments on earlier versions of this document.
Thanks also to the Hospital Report Research Collaborative, Ministry of Health and Long Term
Care, Joint Policy and Planning Committee, Canadian College of Health Services Executives,
Canada Revenue Agency, Ontario Hospital Association and the many hospitals that provided
data and background materials for this study.
This dissertation is dedicated to my parents, Armando and Estela Neves, who have shown me
the value of hard work and perseverance, and to John and my sister, Isabel, who continue to
show me that there is more to life than a dissertation.
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TABLE OF CONTENTS
List of Tables .................................................................................................................. viii
List of Figures .................................................................................................................. ix
List of Appendices ............................................................................................................ x
CHAPTER 1 Introduction ................................................................................................. 1
1.0 Overview ........................................................................................................................1
1.1 Theoretical Framework ..................................................................................................2
1.2 Model Summary and Hypotheses .................................................................................4
1.3 Key Concepts.................................................................................................................5
1.4 Data Sources ...............................................................................................................11
Board Governance Survey, Hospital Report Research Collaborative ..........................................................12
System Integration and Change Survey, Hospital Report Research Collaborative ..........................................13
NRC+Picker Canada Inpatient Patient Satisfaction Survey, Hospital Report Research Collabora ...................14
Public Sector Salary Disclosure Dataset, Ontario Ministry of Finance.......................................................15
Canadian College of Health Services Executives Professional Designation Database ......................................16
Charities Listings Dataset, Canada Revenue Agency ...........................................................................17
Ontario Hospital Bylaw Collection, Canada Revenue Agency and Ontario Hospitals ....................................18
Healthcare Indicator Tool (HIT), Ontario Ministry of Health and Long-Term Care ....................................20
Funding and Accountability Indicators, Ontario Joint Policy and Planning Committee ...................................20
1.5 Data Preparation ..........................................................................................................22
1.6 Final Data Set ..............................................................................................................23
1.7 Methods .......................................................................................................................25
1.8 Contribution of Study ...................................................................................................26
CHAPTER 2 Rethinking the Role of Hospital Boards in the Era of Distributed Governance ................................................................................................. 40
2.0 Introduction ..................................................................................................................40
2.1 Theoretical Drivers of Governance Research .............................................................40
Agency Theory..........................................................................................................................42
Resource Dependence Theory .........................................................................................................43
Institutional Theory ...................................................................................................................44
Strategic Choice and Upper Echelons Perspectives................................................................................45
Stakeholder and Stewardship Theories .............................................................................................46
vi
2.2 Governance Research Findings and Limitations ........................................................49
2.3 Implications for the Study of Hospital Governance .....................................................52
2.4 Conclusion ...................................................................................................................57
CHAPTER 3 Governance Capacity: The Link between Governance Practices and Top Team Characteristics ..................................................................... 77
3.0 Introduction ..................................................................................................................77
3.1 Literature Review .........................................................................................................78
3.2 Conceptual Model and Hypotheses ............................................................................85
3.3 Research Methods.......................................................................................................86
3.4 Results .........................................................................................................................92
3.5 Model Testing ............................................................................................................105
Relationship between Governance Practices and Board Characteristics......................................................105
Relationship between Governance Practices and Top Management Team Characteristics................................106
Relationship between Governance Capacity and Hospital Performance .....................................................107
3.6 Discussion ..................................................................................................................108
3.7 Conclusion .................................................................................................................112
CHAPTER 4 Linking Organizational Monitoring and Alignment Capacity and Hospital Performance....................................................................................................138
4.0 Introduction ................................................................................................................138
4.1 Literature Review .......................................................................................................138
4.2 Conceptual Model and Hypotheses ..........................................................................140
4.3 Research Methods.....................................................................................................141
Hospital Performance ...............................................................................................................141
Organizational Monitoring and Alignment Capacity .........................................................................148
Governance Capacity ................................................................................................................150
4.4 Results .......................................................................................................................153
Organizational Monitoring & Alignment Capacity............................................................154
Hospital Performance ......................................................................................................159
Relationship between Organizational Monitoring & Alignment Capacity and Governance Practices.................165
Relationship between Organizational Monitoring and Alignment Capacity and Governance Capacity ...............165
Relationship between Organizational Monitoring and Alignment Capacity and Hospital Performance ..............166
4.6 Discussion ..................................................................................................................169
4.7 Conclusion .................................................................................................................170
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CHAPTER 5 Conclusion ................................................................................................190
5.0 Overview ....................................................................................................................190
5.1 Summary of Research Findings ................................................................................190
Research Question 1: Do Boards Matter to Hospital Performance? ........................................................190
Research Question 2: Do Existing Datasets Address Governance Research Needs? ....................................194
5.2 Limitations ..................................................................................................................195
5.3 Contribution................................................................................................................198
5.4 Implications and Directions for Future Research ......................................................200
Bibliography .................................................................................................................. 204
viii
List of Tables
1.1 Data Sources and Measures ...................................................................................11
1.2 Prototype Bylaw Contents (OHA and OMA, 2006) ...................................................19
2.1 Theoretical Drivers of Governance Research ..........................................................41
2.2 Theoretical Approaches to the Study of Organizational Performance.......................47
2.3 The Changing Logic of Organizations ......................................................................58
3.1 Governance Practices .............................................................................................89
3.2 Sample Hospital Characteristics (Study 1) ...............................................................92
3.3 Least Frequently Reported Governance Practices Reported by Ontario Hospitals, 2005 .......................................................................................................94
3.4 Correlations Among Components of Governance Oversight Practices Measure ......97
3.5 Board Size and Elected and Ex Officio Members (Hospital Bylaws) .........................98
3.6 Ontario Hospital Board Size, 1999/00-2007/08 ........................................................99
3.7 Women on Ontario Hospital Boards, 2002/04 ........................................................ 100
3.8 Hospital Top Team Characteristics ........................................................................ 103
4.1 Rationale for Proposed Measures of Hospital Performance ................................... 141
4.2 Operationalization of Total Margin and Current Ratio in Ontario Hospital Service
Accountability Agreements .................................................................................... 147
4.2.1 Governance Practices by Hospital Peer Group ...................................................... 175
4.2.2 Clinical Integration by Hospital Peer Group ........................................................... 176
4.2.3 Utilization Management Practices by Hospital Peer Group .................................... 176
4.2.4 Clinical Data Use by Hospital Peer Group ............................................................. 176
4.2.5 Protocol Use by Hospital Peer Group .................................................................... 177
4.2.6 Ontario Hospital Operational Efficiency, 2005-2007 ............................................... 178
4.2.7a Patient Satisfaction Scores, Hospital Report Measures, 2005/07 ........................... 179
4.2.7b Patient Satisfaction Scores, NRC+Picker Measures, 2005/07 ................................ 179
4.2.8 Unplanned Readmissions to Any Ontario Hospital for Selected CMGs, 2005/07.... 180
4.3 Governance Practices ........................................................................................... 150
4.4 Data and Sources.................................................................................................. 152
4.5 Sample Hospital Characteristics (Study 2) ............................................................. 153
4.6 Correlations among Organizational Capacity Components .................................... 158
4.7 Pearson Product Moment Correlations, Hospital Report Patient Satisfaction Measures .............................................................................................................. 160
4.8 Patient Satisfaction Peer Group Mean Ranks ........................................................ 161
ix
List of Figures
1.1 Model Summary and Hypotheses ..............................................................................4
1.2 Overview of Measures .............................................................................................21
2.1 Competing Values Governance Framework ............................................................49
2.2 Theoretical Framework Linking Hospital Governance and Performance ..................52
2.3 Contingency/Multiple Perspectives on Performance: The Hospital Accountability Web ..................................................................................................54
3.1 Conceptual Model: Governance Capacity and Performance ....................................86
3.2 Governance Oversight Practices by Ontario Hospital Peer Group ...........................97
4.1 Conceptual Model: Organizational Monitoring and Alignment Capacity..................141
4.2 Relationship between Hospital Quality and Accountability Performance ................163
4.5 Model Testing........................................................................................................164
4.3 Relationship between Organizational Capacity and Peer Group Performance .......167
4.4 Relationship between Organizational Capacity and Financial Accountability Performance..........................................................................................................168
5.1 Summary of Research Findings.............................................................................191
x
List of Appendices
1.1 Board Governance Survey, Hospital Report Research Collaborative .......................28
1.2 Selected Questions, System Integration and Change Survey, Hospital Report Research Collaborative ...........................................................................................33
a. Governance Capacity Measure ...........................................................................33
b. Organizational Capacity Measure ........................................................................35
1.3 Ontario Hospital Alliances........................................................................................38
2.1 Summary of Selected Empirical Studies of Hospital, Non-Profit and Corporate Governance ............................................................................................60
2.2 Selected Governance Reviews, Codes and Guidelines: US, UK and Canada..........68
2.3 Operational Reviews and Governance Facilitator and Supervisor Appointments, Ontario, Canada: 1997-2008 ............................................................70
2.4 Sample Approaches to Performance Measurement in Hospital and Non-Profit Governance Studies ................................................................................................75
3.1 Highlights of Recent Governance Reports and Regulatory Initiatives: US, UK and Canada...........................................................................................................115
3.2 Key Recommendations from Canadian Healthcare Accreditation Reports, 2002-2008 .............................................................................................................122
3.3 Highlights from Operational Reviews of Ontario Hospitals, 1997-2008...................123
3.4 Operationalization of Board and Top Team Variables in Hospital/Governance Studies: Examples .................................................................................................125
3.5 Most Frequently Reported Governance Practices Reported by Ontario Hospitals, 2005 .....................................................................................................128
3.6 Relationship between Governance Practices and Board Characteristics ...............129
3.7 Relationship between Governance Practices and Top Management Team Characteristics ......................................................................................................132
3.8 Relationship between Governance Practices and Hospital Performance ...............135
4.1 Dimensions of Organizational Alignment Capacity Captured in Hospital Report System Integration and Change Survey, 2006 ...........................................173
4.2 Descriptive Statistics: Governance Practices and Organizational Monitoring
and Alignment Capacity.........................................................................................175
4.3 Relationship between Governance Oversight Practices and Organizational
Capacity Detailed Results......................................................................................181
4.4 Relationship between Governance Capacity and Organizational Capacity
Detailed Results ....................................................................................................184
4.5 Relationship between Performance and Organizational Capacity Detailed Results ..................................................................................................................187
1
CHAPTER 1
Introduction
1.0 Overview
There are 2.5 million admissions to Canadian acute care hospitals annually. Some 7.5% of these
admissions are associated with an adverse event and close to 70,000 are preventable (Baker et
al.., 2004). Growing concern over patient safety and public accountability has prompted the
introduction of myriad regulatory, accreditation and reporting requirements. Yet little is known
about the extent to which hospital boards are monitoring performance, what aspects of
performance they pay attention to and whether it matters. This dissertation aims to address that
gap by using existing survey and administrative data to explore the relationship between hospital
performance, „organizational monitoring and alignment capacity‟ and „governance capacity.‟
More specifically it seeks to answer two questions, one theoretical, the other methodological:
Do boards matter to hospital performance?
Do existing datasets address governance research needs?
This dissertation consists of three complementary papers, each in a self-contained chapter.
Chapter 2 delves into the multi-theoretic underpinnings of the conceptual framework guiding
this dissertation. It explores the role of boards operating in environments characterized by
„distributed governance‟ and discusses the role of the hospital accountability web as a source of
multi-factorial performance information not immediately discernable from singular measures
typically used in empirical research studies.
Chapter 3 describes and tests the concept of „governance capacity.‟ Chapter 4 describes and
tests the concept of „organizational monitoring and alignment capacity.‟ Both empirical studies
use a similar format, beginning with a literature review, conceptual model and hypotheses,
followed by a discussion of the research methods, including information on the sample and
measures, and exploratory results. Descriptive statistics and additional tables and reference
materials are contained
2
in the appendices. Both chapters conclude with a discussion of the findings and their
implications for research and practice.
Chapter 5 summarizes the key findings from these three papers and their contribution to theory
and practice. It also highlights gaps and weaknesses of the data, and methodologies used. It
concludes with implications of this research for hospital leaders, policymakers and researchers.
Consistent with the requirements for a multi-paper thesis of the Department of Health Policy,
Management and Evaluation, University of Toronto (2004), this introductory chapter provides a
brief summary of the theoretical framework that guided the research, along with the concepts
and hypotheses developed and tested in the two exploratory empirical studies that follow. It also
includes a complementary discussion of data elements and sources. For further clarity, excerpts
from the Board Governance Survey and System Integration and Change Survey, both developed by
Hospital Report Research Collaborative, are also appended. Questions from these tools were
used to construct measures of „governance capacity‟ and „organizational monitoring and
alignment capacity,‟ two concepts developed further in subsequent chapters. The chapter ends
with a discussion of the potential contribution of this research.
1.1 Theoretical Framework
The theoretical framework guiding this study and elaborated in Chapter 2 draws on multiple
organizational and governance theories, including institutional theory, resource dependence
theory and agency theory. Institutional theory (Meyer & Rowan, 1977; DiMaggio & Powell,
1983; Scott, 1995) suggests that much of what hospitals and their leaders do is environmentally -
determined and institutionally constrained. Nevertheless, within a limited repertoire of action,
hospital boards and their top management teams do make strategic choices related to how they
spend their time, organize their work, allocate resources, monitor outcomes and link to the
broader environment that can contribute to (or detract from) hospital performance.
According to resource dependence theory (Pfeffer, 1973; Pfeffer & Salancik, 1978), a key role of
hospital boards is to minimize external dependencies, link to powerful stakeholders and acquire
resources from the broader environment. It is not enough for leaders to attract or retain scarce
resources, however. Increasingly, they must also prove to funders, regulatory bodies and their
3
own communities that hospital services are cost-effective, evidence-based, safe, timely, and
meeting or exceeding consumer expectations.
Boards accountable for competing demands must carefully balance of their control and service
roles.
From an agency theory (Fama, 1980; Fama & Jensen, 1983) perspective it is particularly
important that they monitor management and align incentives so as to achieve high levels of
performance in areas of value to their „owners,‟ traditionally defined as stockholders, but more
commonly interpreted, in the nonprofit governance literature at least, to mean stakeholders.
In contrast to institutional theory, both agency and resource dependence theories maintain that
individual actors matter to organizational performance. This is consistent with the strategic
choice and contingency perspectives (Child, 1972, 1997; Miles & Snow, 1978; Pearce & Zahra,
1991, 1992) which argue that managerial choices and actions can influence the fit between
organizations and their environment, thereby contributing to organizational performance.
These theories have been tested widely in the empirical literature, with mixed results. Appendix
2.1 summarizes key findings from a cross-section of studies of corporate, nonprofit and hospital
governance. Despite conceptual and methodological weaknesses, the literature does hint at a
modest relationship between board and executive team variables (e.g., board size, turnover and
composition; CEO and physician participation, voting status); decisions related to organizational
strategy, monitoring and/or incentive alignment; and mostly financial indicators of
organizational performance. More recently, studies linking board oversight practices and broader
measures of performance have begun to emerge. Some of these studies (Vaughn et al.., 2006;
Kroch et al.., 2006; Jiang et al.., 2009; Weiner et al.., 1997) suggest that high performing hospitals
are better able to align resources in response to emerging evidence or best practice; have highly
engaged medical staff and boards focused on goal-setting and performance measurement; and
have robust internal monitoring and external benchmarking systems.
Building on this research, the present three-part study argues that boards reflect their
institutions, with high performers exhibiting greater capacity to harmonize accountability needs
and align governance decision-making and decision-monitoring systems with various external
performance measurement and reporting requirements. Top team (board and top management)
4
characteristics, and governance practices (both proposed elements of “governance capacity”) are
hypothesized to contribute to “organizational monitoring and alignment capacity” and multiple
domains of hospital performance, including quality of care, financial health and patient
satisfaction.
1.2 Model Summary and Hypotheses
Below is a summary of the model and hypotheses tested in the exploratory studies described in
Chapters 3 and 4. An overview of key concepts and data sources follows.
Figure 1.1 Model Summary and Hypotheses
Exploratory Study 1 (Chapter 3)
H1a: Governance practices will be positively related to board characteristics.
H1b: Governance practices will be positively related to top management team characteristics.
H1c: Governance capacity will be positively related to hospital performance.
5
Exploratory Study 2 (Chapter 4)
H2a: Organizational monitoring and alignment capacity will be positively related to governance
practices.
H2b: Organizational monitoring and alignment capacity will be positively related to governance
capacity.
H2c: Organizational monitoring and alignment capacity will be positively related to hospital
performance, including financial health, patient satisfaction and quality of care.
In Study 1, top team (board and management) attributes and governance practices are
hypothesized to influence one another, and over time, contribute to governance capacity. Thus
the relationships are depicted as bi-directional. Informed in part by institutional theory, Study 2
proposes that Organizational Monitoring and Alignment Capacity will predict both governance
practices and organizational performance. Consistent with agency, upper echelons and strategic
choice theories, the model also predicts that Governance Capacity will contribute to
Organizational Monitoring and Alignment Capacity, as well as organizational performance.
1.3 Key Concepts
Governance Capacity
For the purposes of this dissertation, governance capacity is defined as “the overall ability of
boards and executive teams to work together, develop strategy, allocate resources, structure
work and monitor organizational performance.” It is hypothesized to encompass two distinct
elements: 1) governance practices, and 2) board and top management team (TMT)
characteristics including size, turnover, gender diversity, and knowledge and skills.
Board and Top Management Team Characteristics
Size: Board size is one of the most frequently studied board characteristics. From an
agency theory perspective, a small board facilitates decision-making and management
oversight because it requires focused effort and active engagement by all group
members. From a resource dependence perspective, a large board facilitates access to
external resources, and ensures that various stakeholders are represented in
organizational decision-making (Pfeffer, 1973). Evidence of a relationship between board
6
size and organizational performance is mixed, with some studies noting a positive effect
(e.g., Dalton et al., 1999; Ostrower, 2007), others finding a negative effect (e.g., Conyon
& Peck, 1998), others pointing to a curvilinear relationship (e.g., Golden & Zajac, 2001).
A number of studies also found mixed results depending on performance measures used,
or jurisdictions or sectors studied (Kiel & Nicholson, 2003). For this study, average
hospital board size in Ontario in 2002/03 and 2003/04 was calculated based on lists
obtained from the Canada Revenue Agency.
Turnover: According to agency theory, a core duty of boards is to evaluate performance -
their own and that of the executive team - and take action when one or both is found
wanting. In the literature, both board and CEO turnover have been linked to poor
financial performance (Eldenberg et al.., 2004), and both declines, and improvements in
performance (Kesner & Sebora, 1994). For this study, board turnover was calculated by
averaging the sum of Ontario hospital board members who left in 2002/03 or joined in
2003/04 and dividing by the average board size in 2002/2004. Annual turnover in
hospital CEO and board chair positions were also calculated. Data were drawn from lists
obtained from the Canada Revenue Agency, Salary Disclosure Data collected by the
Ontario Ministry of Finance and lists obtained from the Joint Policy and Planning
Committee or posted online.
Diversity: Pressure to make hospital boards more reflective of their communities has
mounted in recent years. Studies of Fortune 500 and large US companies between 1993
and 2002 suggest that gender diversity has a positive effect on financial performance
(Erhardt, Werbel & Shrader, 2003; Carter, D‟Souza, Simkins & Simpson, 2007).
Research by the Conference Board of Canada found that boards with higher proportions
of women tend to pay more attention to audit, risk oversight and control, and ethical
conduct (Brown, Brown & Anastasopoulos, 2002). A 2007 US study of nonprofit
accountability, however, found mixed results, with gender diversity positively associated
with having a conflict of interest policy but negatively associated with having an
independent audit committee, two practices recommended by the Sarbanes-Oxley Act in
the United States (Ostrower, 2007). For the purposes of this study, board gender
diversity was calculated as the average percentage women on sample Ontario hospital
boards in 2002/3 and 2003/04. Also calculated were the percentage of sample hospital
7
leaders (i.e., CEOs, Board Chairs) who were women in 2003/04. Data were derived from
board lists submitted to the Canada Revenue Agency and annual salary disclosure lists
published by the Ontario government.
Knowledge and Skills: Resource dependence theory argues that boards have a crucial role to
play in providing advice and counsel to the senior management team, particularly the
CEO. Similarly, agency theory sees boards as having important oversight responsibilities.
A 2005 US hospital leadership survey found significant differences in the educational,
functional and career profiles of CEOs of top and median-ranked hospitals (Westphal &
Chenoweth, 2005). Thus, hospital boards may be able to contribute to organizational
performance through their choice of CEO and indirectly, other members of the top
management team such as the Chief of Staff, the Chief Nursing Executive or the Chief
Financial Officer. For this study, dichotomous measures reflecting top management
knowledge and skills were derived from board occupational data reported to Canada
Revenue Agency, health services executive designation data from the Canadian College
of Health Services Executives and an analysis of representational and skill and education
requirements in the bylaws of 76 hospital corporations.
Governance Practices
Prescriptions for good governance have evolved over time to address legal1, ethical and
operational considerations. Many of these practices attempt to clarify board and executive roles,
board member duties, and accountability requirements. Some emphasize practices that promote
effective group functioning and decision-making. Others focus on processes and structures that
help the board make a value-added contribution to the organization through the provision of
advice and counsel to the senior team, or by bringing a measure of transparency and legitimacy
to organizational actions or decisions.
Research on the efficacy of governance practices is generally lacking. Where it does exist, the
results sometimes conflict depending on what measures are used and whose opinion is asked
1 Board stru ctures and roles and responsibilities vary by jurisdiction. For example, Canadian, US and UK boards
tend to have a unitary stru cture with corporate liability shared among all board members. In Germany and France
two tier board stru ctures characterized by separate executive and supervisory committees, predominate. Under
Canadian law the role of the board is to oversee the affairs of organization with care and in the best interests of the
organization (Broder and McClintock, 2002).
8
(Herman & Renz, 2000). In recent years, healthcare researchers have begun to uncover evidence
of a relationship between oversight practices and hospital quality, efficiency and other domains
of performance (McDonagh, 2006; Vaughn et al., 2006; Jiang et al., 2008).
For the purposes of this study, governance practices in Ontario hospitals were derived from two
surveys undertaken in 2005 by the Hospital Report Research Collaborative: the Board Governance
Survey and the System Integration and Change Survey. Responses to selected questions were summed
to create theory-driven indices of Board Transparency and Decision-Making, Board Monitoring
and Independence, Board Membership Management and Overall Oversight.
Organizational Monitoring and Alignment Capacity
A core tenet of this study is that boards are a reflection of the unique capacities of their
organizations and executive teams. Institutional factors such as size, age and urban/rural
location are typically controlled for in governance studies (e.g., Brown, 2005). Such factors may
be characterized as elements of organizational capacity that have evolved over time and may
affect the mix and volume of services an organization is able to provide given the competitive
environment or broader economic conditions. In Ontario, the Hospital Report Research
Collaborative has used peer groups (e.g., Small, Community, Teaching Hospital) as a proxy for
some of these differences. The provincial ministry of health uses similar categories although it
distinguishes between larger and smaller community hospitals.
More recently, the healthcare literature has begun to examine other aspects of organizational
capacity that may affect performance such as how care is managed and delivered, and the degree
of staff, clinician and senior management involvement (e.g., Werner, Bradlow & Asch, 2008;
Weiner et, 2006; West, 2001; Weiner, 1997). In this study, use of data, use of standardized
protocols, use of utilization management practices, and involvement of physicians and nurses in
organizational decision-making are hypothesized to reflect a historical orientation to
performance monitoring, benchmarking and alignment to evidence-based practice. Consistent
with institutional theory, these elements are also thought to both reflect and inform hospital
governance. For the purposes of this study, a summary measure of organizational monitoring
and alignment capacity was developed based on responses to four questions in the 2005 System
Integration and Change survey.
9
Hospital Performance
The links between governance and performance have been well explored in the corporate,
nonprofit and hospital literature. Corporate governance studies have tended to emphasize
market and accounting-based financial measures (e.g., Daily & Dalton, 1994; Pearce & Zahra,
1991). Nonprofit studies have tended to focus on multi-stakeholder qualitative constructs of
perceived effectiveness, in some cases complemented by measures related to the ability to attract
resources or achieve a balanced budget (e.g., Herman & Renz, 2000; Bradshaw, Murray &
Wolpin, 1992; Brown, 2005). Hospital studies have tended to use objective peer group rankings
or quantitative measures relevant to their corporate structure and mission (e.g., McDonagh,
2006; Molinari et al., 1993; Prybill et al., 2005, Vaughn et al., 2006). Appendix 2.4 highlights
approaches to performance measurement in key hospital and nonprofit studies.
A consistent characteristic of these studies is the use of multiple measures of performance.
In 1992, Kaplan and Norton proposed a strategic approach to reconciling and achieving high
levels of performance in four key areas: financial management, customer perspective, business
processes, and learning and growth. The approach was adopted by the Hospital Report Research
Collaborative to publicly report on hospital performance in Ontario and, with minor variations,
by the provincial ministry of health in the development of hospital service accountability
agreements. Implicit in the approach is that stakeholders are interested in multiple aspects of
performance, organizations may excel in one another area but not in others, and balance is
important. Below is a summary of the measures of financial performance, quality of care and
patient satisfaction used in this study.
Operational Efficiency: Cost per weighted case is an important marker of relative hospital
efficiency. In Ontario, operational efficiency based on a comparison of actual and
expected cost per equivalent weighted case has been used in the hospital funding
formula for several years. This same measure has also been included in annual
comparative reports produced by the Hospital Report Research Collaborative and used
by the provincial ministry of health to allocate over $1 billion in hospita l growth funding
(JPPC, 2006). Annual hospital level costs per weighted case were obtained from the
Ontario Joint Policy and Planning Committee. For the purposes of this study,
Operational Efficiency was calculated as a rate by subtracting actual unit costs from
10
expected unit costs, dividing by expected unit costs, and multiplying by 100. Data were
averaged over two fiscal years (2005/06 and 2006/07) to improve the stability of the
results particularly for small hospitals.
Quality: Readmission rates are an important indicator of avoidable cost, and quality of
hospital and community care. In Canada, readmission rates have been used as a marker
of hospital quality and outcomes for several years and were included as performance
indicators in the hospital accountability agreement process in Ontario in 2005.
Readmissions to All Hospitals Within 30 Days for Selected CMGs, a monitoring
indicator calculated annually by the ministry of health using province-wide data, was
used as a marker of hospital quality. Risk adjusted hospital-level data on observed and
expected readmissions in 2005, 2006 and 2007 were obtained from the Ontario Joint
Policy and Planning Committee. For consistency with other performance measures in
this study, calendar year data were converted to fiscal year data. To improve reliability of
the measure, readmissions were averaged over two years (2005/06 and 2006/07) and a
rate calculated by subtracting actual readmissions from expected readmissions, dividing
by expected readmissions, and multiplying by 100.
Patient Satisfaction: Both the Institute of Medicine and the Ontario Health Quality Council
consider patient-centredness to be an attribute of a high-performing health system. In
Ontario, the Hospital Report Research Collaborative has published publicly comparable
patient satisfaction data for several years. While no patient experience indicators have
been included in hospital service accountability agreements to date, they are expected to
be added in future iterations. Hospital-level summary measures of patient satisfaction
were obtained from the Hospital Report Research Collaborative. For the purposes of
this study, all patient satisfaction measures, including Overall Satisfaction, were averaged
over two years (2005/06 and 2006/07).
Overall Performance: Overall performance encompasses performance across domains. For
the purposes of this study, two summary measures were calculated. Top performer was a
dichotomous variable encompassing peer group average or top tertile performance in
patient satisfaction, quality performance and financial performance in 2005/07.
11
Accountability performance was a dichotomous variable indicated by hospital
compliance with funder minimum accountability agreement requirements to maintain a
balanced budget (i.e., total margin >0) and maintain a current ratio equal to or greater
than 0.8 in 2005/06 and 2006/07. Hospital-level Total Margin and Current Ratio data
used to construct the accountability measure were obtained from the Ontario ministry of
health.
1.4 Data Sources
The two exploratory empirical studies that follow draw on survey and administrative data, largely
in the public domain, obtained from the Ontario Hospital Report Research Collaborative,
Canada Revenue Agency, Canadian College of Health Services Executives, Ontario Joint Policy
and Planning Committee, Ontario Ministry of Finance and the Ontario Ministry of Health and
Long Term Care (see Table 1). Below is a description of each data source. Consistent with
research question 2, data were acquired for all years and hospital entities available to enable a
comprehensive assessment of the quality of the sources and build a comprehensive repository
that could be tapped by other researchers.
Table 1.1 Data Sources and Measures
Organization Data (Measures)
Canada Revenue Agency www.cra-arc.gc.ca/tax/charities/online_listings/menu-e.html
Charities Listings dataset (board characteristics) Hospital Bylaws (board size, structure)
Canadian College of Health Services Executives Membership/Certification Database (TMT characteristics)
Ontario Hospital Report Research Collaborative www.hospitalreport.ca
Board Governance Survey (governance capacity) System Integration and Change Survey (governance
capacity; organizational monitoring and alignment capacity)
NRC+Picker Patient Satisfaction Survey (hospital performance)
Ontario Hospitals / Ontario Hospital Association Hospital Bylaws (board measures)
Ontario hospital list Ontario Joint Policy and Planning Committee Readmissions Within 30 Days (hospital performance)
Operational Efficiency (hospital performance)
Ontario Ministry of Finance www.fin.gov.on.ca
Public Sector Salary Disclosure Dataset (TMT measures)
Ontario Ministry of Health and Long-Term Care www.mohltcfim.com
Hospital Indicator Tool (hospital activity/size, financial measures)
Master Number
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Board Governance Survey, Hospital Report Research Collaborative
In November 2005, researchers with the Hospital Report Research Collaborative - an
independent group of staff and faculty from six universities and five research institutes that
published comparative data on hospital performance in Ontario between 1997 and 2008 -
conducted a survey of governance practices in Ontario acute care hospitals. Through a review of
the peer-reviewed and grey literature, they identified 80 board policies and practices related to
core areas of board responsibility including: organizational ends, executive management
performance, quality, finances and board self-management. Corporate governance advisors
knowledgeable about Ontario hospitals ranked the 80 measures in relation to three criteria: 1)
actionability and board control, 2) indicator of governance quality, and 3) benchmarking utility.
This process yielded 34 binary (yes/no) questions “reflective of potential best practices as
determined by a consensus among experts” in eight domains: board composition, nomination
and succession; responsibilities and processes of the board and board committees; audit
committee characteristics; responsibilities and activities of the board chair and directors; code of
conduct and board ethics; board orientation and professional development; director assessment
and board information and communication (Wagg, Tse, Seeman, Baker, Flintoff and Paul,
2006:6). A copy of the survey is included in Appendix 1.1.
Hospital Report conducted the survey using Survey Monkey. One hundred and twenty two (122)
board chairs were invited to participate. Hospital CEOs were notified of the survey aims in a
separate email. Board chairs had four weeks to complete the survey online or to return a hard
copy version. Non-respondents were contacted by phone and email one week after the deadline
and given an additional one to two weeks to complete the survey. Hospitals with multiple boards
had the choice of submitting a corporate or individual board response. One hundred and ten
(110) board chairs or officer designates representing 106 acute care entities completed the
survey, for a response rate of 86.8%. Provincial, LHIN and peer-group aggregate scores were
published in Hospital Report 2006 and a subsequent journal article (Seeman, Baker and Brown,
2008).
Hospital-level Board Governance Survey data were obtained from the Hospital Report Research
Collaborative. For this study, these data were combined with data from selected board-related
13
questions in the System Integration and Change Survey (see below) to develop a measure of
governance capacity.
System Integration and Change Survey, Hospital Report Research Collaborative
The Hospital Report Research Collaborative has relied on the System Integration and Change (SIC)
Survey to track progress on many of the indicators in the system integration and change domain
since the first report was issued in 1998. The survey tool has undergone a number of
refinements over the years based on reviews of the literature, feedback from the field and
analyses of established questionnaires including the Ontario Hospital Association Patient Safety
Questionnaire, the Canadian Adverse Events Hospital Survey and the national accreditation
agency survey. Hospital Report researchers used an expert panel and a modified Delphi
approach to guide indicator selection. The 2006 iteration of the SIC survey underwent
substantial revisions with the final version featuring a total of 77 questions related to eight areas
of interest: Human Resources Management, Investments in Intellectual and Information
Resources, Use and Dissemination of Information for Decision-Making, Internal and External
Integration of Care, Healthy Work Environment (revised), Patient Safety (new), Access to Care
(new) and Ambulatory Care Services (new) (Wagg, Tse, Seeman, Baker, Flintoft & Paul, 2006).
Hospital Report administered the survey in paper format in Fall 2005; the Healthy Work
Environment section was also administered via Survey Monkey following a pilot test with 22
hospital contacts. One hundred and nine (109) of 122 Ontario acute hospitals completed and
returned the SIC survey for an 89% response rate (Wagg et al., 2007). Surveys were submitted to
CIHI, with data entry undertaken by two individuals. Discrepancies were corrected through a
review of the original paper survey. CIHI contacted hospital respondents in cases where data
were missing or responses were contradictory.
Responses to selected SIC survey questions (see Appendix 1.2), aggregated at the hospital and
corporation levels, were obtained from the Hospital Report Research Collaborative. This study
used these data to construct measures of organizational monitoring and alignment capacity and
governance capacity.
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NRC+Picker Canada Inpatient Patient Satisfaction Survey, Hospital Report Research
Collaborative
The NRC+Picker Canada Adult Inpatient Satisfaction Survey is based on the Picker Acute Care
Survey developed and validated with American acute hospital inpatients in the 1980s and further
refined in the early 1990s. Hospital Report adapted it for use in Canada based on feedback from
a task force of health care experts, and a pilot study involving in a random sample of patients
aged 18 and older discharged from seven health care corporations between August and
September 2002, including ten hospitals in Ontario and three in British Columbia. Response
rates and reliability and content, criterion and discriminant validity were similar to those in the
US (Zhang and Murray, 2008).
The Hospital Report Research Collaborative has published annual patient satisfaction results
based on the NRC+Picker Canada survey since 2004/05. Participating hospitals have exclusive
access to their own performance values on two functional and eight Picker-based indicators,2
while the public reports, posted until recently on www.hospitalreport.ca, feature corporation-
level results for four broad indicators developed by Hospital Report researchers: overall
impressions, communication, consideration and responsiveness.
The Patient Satisfaction results published in Hospital Report 2006 were based on a sample of
147,000 individuals discharged form 93 participating hospital entities between April 1, 2004 and
March 31, 2005. Approximately 61,068 surveys (86.6% of all valid returns and 4l.4% of all
surveys) met all the inclusion criteria and were retained for analysis (Loretti & Murray, 2006).
The 2007 results were based on a sample of 145,400 inpatients discharged from 87 participating
hospital entities between April 1, 2005 and March 31, 2006 (Loretti, Tse & Murray, 2007).
Approximately 38.7% of returned questionnaires (n= 56,607) were retained for final analysis.
The 2008 patient satisfaction results were based on a sample3 of 130,400 general medical and
2 The Picker indicators are: Overall Satisfaction, Coordination of Care and Access, Physical Comfort, Respect for
Patient Preferences and Courtesy, Information and Education, Continuity and Transition, Involvement of Family
and Emotional Support. The two functional indicators developed by Hospital Report researchers assess satisfaction
with quality of care provided by physicians and nurses. 3 Excluded from the sample were deceased patients, psychiatric patients, infants less than 10 days old, patients who
did not have an overnight stay, women who had stillbirths and patients with no fixed address. Sampling plans were
established annually by the participating hospital corporation and NRC+Picker Canada based upon budget, desired
response rate (minimum 100 valid responses) and other factors. Some hospitals used a simple random sample.
Others used stratified sampling techniques to survey proportionately from various units, program areas or sites
(Zhang and Murray, 2008).
15
surgical adult inpatients discharged from 83 participating hospital entities between April 1 2006
and March 31, 2007 (Zhang and Murray, 2008). Approximately 47% of those sampled returned a
questionnaire. Surveys with valid responses to less than half of the 39 questions, or from patients
in obstetrics, psychiatry or under the age of 18 were excluded from the analyses, resulting in an
effective response rate of 41.3% (n= 54,760).
A minimum of 100 valid responses from each hospital corporation was required for the results
to be included in the annual Hospital Reports. Hospital Report researchers risk-adjusted
published patient satisfaction scores using hierarchical modeling to take into account differences
in patient characteristics known to influence satisfaction scores and vary systematically across
hospitals. These include: age, gender, self-assessed health status and number of times the patient
was hospitalized in the previous six months. A separate risk-adjustment procedure was applied
to surveys completed by persons other than the patient, for example, family members. Hospital
Report researchers used both proxy and patient responses for indicator calculations. Due to
differences in sampling strategies, responses were also weighted at the hospital site and
corporation levels to facilitate comparisons at the peer group, region and provincial levels
(Loretti & Murray, 2006; Loretti, Tse & Murray, 2007; Zhang & Murray, 2008).
Adjusted hospital-level measures of patient satisfaction developed by Hospital Report and NRC
Picker were obtained from the Hospital Report Research Collaborative. This study averaged
patient satisfaction scores over two years (2005/06 and 2006/07) to obtain more reliable
measures of performance.
Public Sector Salary Disclosure Dataset, Ontario Ministry of Finance
Since the passage of the Public Sector Salary Disclosure Act in 1996, broader public sector
organizations that receive at least 10% of their funding from the Ontario government, including
hospitals, have been required to disclose annually the first and last names, positions, salaries and
taxable benefits of employees paid $100,000 or more in a calendar year. Organizations with no
eligible salaries must also submit a form indicating such. The data are submitted to the Ontario
government by March 31st of each year and published on the website of the ministry of finance
(www.fin.gov.on.ca). Organizations that fail to comply may see all or a portion of their transfer
payments withheld. The data are organized by year in sector-specific reports (e.g. Hospitals and
16
Boards of Health), with late submissions or corrections included in an annual addendum also
published on the ministry of finance website. The list excludes chiefs of staff and executive
teams of many smaller hospitals who receive stipends or salaries below the public reporting
threshold.
This study developed a consolidated dataset extracted from the ministry of finance website, and
supplemented by hospital and other online sources. The dataset contains 5,170 Ontario hospital
leaders with the title of Vice President, Administrator, President, Executive Director, Chief
Executive Officer, Chief Financial Officer, Chief Operations Officer, Chief Nursing
Officer/Executive or Chief of Staff reported to the ministry of finance from 1999-2008.
Ministry data were supplemented by career-related announcements on www.longwoods.com,
www.oha.com and www.linkedin.com and www.pipl.com. For the purposes of this research,
data were cleaned to ensure year-over-year consistency in hospital nomenclature and spelling of
first and last names so as to facilitate summary analyses. The final dataset was used to calculate
annual turnover rates and gender breakdown of the top management team, defined in this study
as the CEO, the chief financial officer, chief nursing officer4 and the chief medical officer.
Canadian College of Health Services Executives Professional Designation Database
The Canadian College of Health Services Executives (CCHSE) is a national nonprofit
organization of healthcare professionals. It offers two professional designations: Certified Health
Executive (CHE) and Fellow of the Canadian College of Health Services Executives (FCCHSE).
To obtain the CHE designation, applicants must demonstrate competency in key areas
including: leadership, communication, community and public relations, management, resources
management and ethics and standards. In addition to a CHE designation, the Fellowship
program requires a record of educational and professional achievement, completion of a project
that contributes to healthcare leadership theory, and an oral examination. Ongoing membership
in the College and professional development is required to maintain the designations. The
CCHSE database contains information on individuals who have acquired a CHE or FCCHSE
4 The chief nursing executive was excluded from most analyses due to the difficulty in identifying CNEs based on title alone,
missing data prior to 2006 (few hospital nursing executives appear to have earned more than $100,000 before that year), and inability to cross-reference the list with other sources, including board lists (most hospitals do not include nursing representatives
on their board).
17
designation, including name, gender, location, sector, employment category, certification status,
education and date joined CCHSE.
For this study, data were obtained for 1,235 individuals with a CHE/FCCHSE designation as of
December 2008. Of the 743 individuals residing in Ontario, 309 worked in the hospital sector.
These data were cross-referenced with the Salary Disclosure List to identify hospital top team
members with professional designations and obtain additional information on their educational
background. This study used these data to construct a dichotomous measure of CCHSE
designation, indicative of top management team knowledge and skills.
Charities Listings Dataset, Canada Revenue Agency
The Canada Revenue Agency (CRA) maintains a registry of organizations across the country
awarded a charitable registration number, including most public hospital corporations. The
online database (www.cra-arc.gc.ca/tax/charities/online_listings/menu-e.html) contains the
charity name, address, category and date of registration as well as annual Registered Charity
Information Returns since 1999-2000. Among other things, the annual returns include: 1)
audited financial information such as assets and liabilities, and 2) a list of hospital trustees,
including director names and board position, number of individuals who served during the
fiscal year (1999-2002 only), and usual occupation or line of business (1999-2002 only). These
returns must be filed annually with CRA. Charities are subject to periodic audits and loss of their
charitable registration if found to be in contravention of the Income Tax Act. Complete data on
all charities across the country for the years 1999/00 to 2006/07 were obtained directly from the
Canada Revenue Agency in eight separate Access Databases. Data for 2007/08 were taken from
the CRA website.
For the purposes of this study, annual trustee and financial information were extracted from the
CRA data for all charities in Ontario designated as Charitable Organizations (Designation C) and
Public Hospitals (Category 10). All data were merged into a single file and cleaned to eliminate
duplicate records or records of merged hospitals and miscategorized corporate entities, and
ensure consistency in hospital and trustee naming conventions across years. Preliminary analyses
also revealed data inconsistencies between the Access files obtained directly from CRA and the
online listings, as well as incomplete board lists reported by some hospitals (e.g., some reported
18
only officers rather than the full board lists as required). Missing data were supplemented with
information from mailing lists obtained from the Joint Policy and Planning Committee, hospital
annual reports and websites, as well as other online resources where available. The final trustee
data file contains approximately 23,000 records for 166 Ontario hospital corporations in
existence between 1999 and 2007. Data were used to construct indicators of board size, annual
turnover and gender breakdown. Gender was assigned based on first name. In the case of
gender neutral names (e.g., Pat), initials only, or names of indeterminate origin, searches were
conducted on hospital, baby name and WebMD websites to assist with gender identification.
Less than 2% of the records have missing gender data.
Approximately two thirds of CRA hospitals also submitted some occupational data for their
board between 2000 and 2003. These data were manually recoded into categories as follows:
1=physician, 2=other health or social care, 3=hospital CEO, 4=religious, 5=lawyer, 6=educator,
7=accountant/finance, 8=independent business, 9=corporate executive, 10=farmer,
11=government official/politician, 12=labour, 13=homemaker, 14=other. Retired board
members were also flagged where this information was provided either in lieu of, or in addition
to occupation.
Ontario Hospital Bylaw Collection, Canada Revenue Agency and Ontario Hospitals
Charitable organizations are required to file corporate documents with the Canada Revenue
Agency at the time of registration and submit updates when changes to bylaws and other
corporate documents are made. These documents provide data on hospital membership, CEO
voting status and board and committee structure, roles, responsibilities, membership and other
information related to how the governance function is carried out. For the purposes of this
study, corporate documents obtained from CRA were supplemented by materials posted on
corporate websites or obtained directly from hospitals.
The final collection includes administrative bylaws for 93 hospitals and three alliances.
Administrative bylaws dated prior to 1997 from a further 17 hospitals were judged to be too old
and excluded from the analyses. Prototype bylaws published jointly by the provincial hospital
and medical associations in 2003 and updated in December 2006, were also obtained to provide
19
context and inform the discussion of the results. The table below provides a summary of the
content of the prototype bylaws.
Table 1.2 Prototype Bylaw Contents
Topic
Contents
Corporation Membership Categories and Privileges Meetings
Board of Directors Board Composition Qualifications of Directors
Nominations Meeting Attendance
Term Limits, Resignation, Removal and Vacancies
Board Responsibilities Director Responsibilities
Confidentiality and conflict of interes t Board Meetings, including frequency, notice, attendees, quorum, voting,
minutes
Board Committees, including terms of reference, membership, quorum and voting
Officers List
Terms and Duties Appointment and Duties of CEO
Medical Staff Purpose
Appointment and Re-appointment, including application procedure, criteria, term and privileges
Medical Staff duties, including duties of Chief of Staff
Medical Departments and Programs
Meetings and Elected Officers Medical Advisory Committee Membership and Duties
Dental Staff, Midwifery Staff, Extended Class Nursing
Appointment, Re-appointment and Privileges Staff Groups
Duties, including duties of respective leaders Meetings and officers
MAC and Board Processes for Applications, Changes, Mid-Term Action
Preliminary Steps Meetings
Board Hearing Participation of Nurses Participation on committees
Election of staff nurses Election/Appointment of managers
Voluntary Associations Purpose Control; Representation on Board
Auditor Other Programs (e.g., occupational health and safety, health surveillance)
Organ donation Recordkeeping
Insurance
Investments, Endowments Auditor
Rules of Order Bylaw Amendments
Source: Ontario Hospital Association and Ontario Medical Association (2006)
20
Healthcare Indicator Tool (HIT), Ontario Ministry of Health and Long-Term Care
HIT is a tool on the Ontario Ministry of Health and Long-Term Care‟s Finance and Information
Management Branch (FIM) website (www.mohltcfim.com) that enables hospitals to trend,
compare and benchmark performance on a wide range of financial (e.g., current ratio, total
margin) and activity indicators (e.g., weighted cases, FTEs, average beds staffed and in
operation). The data are drawn from quarterly/annual submissions to the Ontario Healthcare
Reporting System (OHRS), Ontario Cost Distribution Method (OCDM) and Canadian Institute
for Health Information (CIHI). These data are subject to a variety of data quality checks and
data blitz processes, with reports and other information available on the FIM and CIHI
websites. Hospitals are subject to fines for submission of late or inaccurate data. Also on the site
is the Ministry of Health and Long-Term Care Master Numbering System, a document updated
annually since 1993 with information on organizational mergers, closures, program transfers,
name changes and updates to master and facility numbers used for reporting purposes. It is
therefore a useful source of information about organizational events often taken into account in
governance research. The FIM website is password-protected but widely accessed with a generic
user name and password. Users may view and download material for non-commercial purposes
as long as all copyright and other proprietary notices are retained in copied or original materials.
Equivalent Weighted Case data were available for 147 entities, staffing and bed data for 153,
Current Ratio and Total Margin data for 146 hospital entities. These data were downloaded from
the FIM website and used to develop measures of hospital size and performance used in this
study.
Funding and Accountability Indicators, Ontario Joint Policy and Planning Committee
(JPPC)
The JPPC was a partnership of the Ontario Hospital Association and the Ontario Ministry of
Health and Long-Term Care established in 1991 to recommend and facilitate hospital reform
within the context of health system reform. Much of its work focused on developing an
equitable funding formula for Ontario hospitals. The JPPC developed the Rate Model, an
indicator of Operational Efficiency which, along with the Volumes model, was used by the
ministry of health to allocate new funding to hospitals. The Rate Model uses total weighted cases
(inpatient and day surgery) to calculate actual cost per weighted case and expected cost per
weighted case. The last publicly available calculations were based on 2005/06 and 2006/07 data,
21
the CIHI CMG/Plx 2003 inpatient grouping methodology and PAC 10 weights provided by the
Ontario Ministry of Health and Long-Term Care. The data, organized by hospital name, peer
group and facility number, were available on www.jppc.org until the organization was shut down
in December 2008.
In addition, the JPPC calculated the Readmissions indicators based on 2005, 2006 and 2007 data
for inclusion in the hospital accountability process. Data on Observed and Expected
Readmissions to Own and to All Hospitals were available for 127 hospitals; Operational
Efficiency data were available for 139 hospitals. Both data sets, adjusted for various individual
and organizational factors, were obtained from the JPPC prior to its closure and used in the
studies that follow as measures of quality and financial performance.
Below is a summary of the measures used to operationalize and test the conceptual model.
Figure 1.2 Overview of Measures
22
1.5 Data Preparation
Data were aggregated and linked in MS Excel or MS Access and analysed in SPSS 18.0 for
Windows. Linking data across years, sources and platforms posed a huge challenge. No single
unique identifier, including organization name, was used by all sources. In some cases, unique
identifiers changed due to mergers or corporate restructuring. Thus an index of organizations
was created for each source. A master list containing various unique identifiers was then created
and used to link/merge organization-level data. This list was cross-referenced with a hospital list
obtained from the Ontario Hospital Association.
During the due diligence process anomalies surfaced related to the definition of hospital
corporation and, for the purposes of this study, level of analysis. In some cases, merged hospitals
retained separate charitable status and continued to report as distinct corporate entities to the
Canada Revenue Agency (CRA).5 In other cases, groups of organizations have chosen to be
treated as a single entity for the purposes of public performance reporting (i.e., Hospital Report),
although they continue to be individual corporations for the purposes of the Canada Revenue
Agency, the ministry of health and/or the local health integration networks which fund them.
Eleven partnerships/alliances involving 26 hospital corporations were uncovered during the data
due diligence process. Appendix 1.3 provides further information on their membership and
governance structure as well as the impact on data availability of the different approaches to
reporting. For the purposes of this study, one alliance which is governed by a single board that
also serves as the board of individual hospital corporations, and a second alliance, which is
governed by a tri-board composed of members of the individual hospital corporations but
reports to the ministry as a single entity and signs one funding and service agreement, were
treated as single corporate entities. Consistent with the organizational level of analysis in this
study, and to maximize the number of cases in the final data set, all other alliance members that
continue to exist as individual corporations and for which disaggregated data were available,
were treated as separate entities.6 For clarity and ease of reference, merged or alliance hospital
corporations retained for this study are asterisked (*) in Appendix 1.3.
5 Examples include: St Mary‟s of the Lake and St Vincent de Paul which were variously part of Providence Care
Kingston and Brockville Hospital . 6 Arguably, Middlesex Hospital Alliance, which is composed of two hospital corporations each reporting separately
for the purposes of Hospital Report and the ministry, but governed by a single board, could also be treated as single
23
1.6 Final Data Set
The merged data file contained most of the following elements for 159 Ontario hospital entities,
including corporations, alliances and affiliated reporting entities:
Hospital unique identifiers: Organization Name, Hospital Report OrgID, Ontario
Ministry of Health Facility Number.
Hospital characteristics: Hospital peer group,7 local health planning and provincial
hospital association regions, number of sites, corporate status (corporation, alliance,
merged entity/other), alliance affiliation, and various measures of size including: beds
staffed and in operation, full time equivalents, equivalent weighted cases and audited
revenues and expenses reported to the Canada Revenue Agency in 2005/06 and
2006/07.
Financial Performance: Operational efficiency for 2005/06 and 2006/07 and Current
Ratio and Total Margin for 2005/06 and 2006/07.
Quality Performance: Readmissions within 30 Days to Own and All Hospitals 2005,
2006 and 2007.
Patient Satisfaction: 6 Hospital Report indicators (overall impressions; consideration;
responsiveness; communication; physician care; nursing care) plus NRC+Picker
Indicators for 2005/06 and 2006/07.
Organizational Monitoring and Alignment Capacity: raw values for selected 2006 SIC
questions, plus calculated measures as described in Chapter 4.
Governance Practices: raw values for Board Governance Survey questions and selected 2006
SIC survey questions, as described in Chapter 3.
Board Size: number of board members reported to Canada Revenue Agency in 2000,
2001 and 2002; calculated annual board size based on CRA trustee database, 2000-2008;
average and median board size 2000-2006, number of elected and appointed/ex officio
board members as per hospital bylaws.
corporate entity. However, some performance and organizational capacity data are only available Strathroy
Middlesex Hospital, therefore only the latter was retained for analysis. 7 Hospital peer groups in the JPPC data include: Chronic hospitals, Large Community Hospitals, Teaching
Hospitals (excluding specialty hospitals that are members of the Council of Academic Hospitals of Ontario) and
Small Hospitals defined by the JPPC as single community providers with less than 2,700 acute, day surgery and
complex continuing care equivalent weighted cases. The provincial ministry of health classifies hospitals as Small,
Specialty, Chronic/Rehab, Teaching, Community, Large Community and Other. Hospital Report uses three peer
groups: Small, Teaching and Community. The Hospital Report Research Collaborative classifies hospitals as Small,
Community or Teaching.
24
Board Tenure: median and average years served on the board 2000-2006.
Turnover: Number and percentage of board members who joined/left in 2004, 2005,
2006 and 2007, annual turnover in CEO, Chair, CFO and COS positions, 2004-2007.
Diversity: number of female board members, 2000-2008, Chair female; CEO female;
CFO female; COS female.
Board Structure and Composition: Committee structure and stakeholder representation
as per hospital bylaws.
CEO Education: Hospital CEO has CCHSE designation, 2004, 2005, 2006.
CEO Voting Status: CEO voting board member as per hospital bylaws.
To facilitate appropriate case selection and analyses, two additional data elements were created:
Sample 1: 1 if Governance, Organizational Capacity and Performance data were available
in at least 2 domains, 0 otherwise.
Sample 2: 1 if Governance, Organizational Capacity and Performance data were available
for all 3 domains, 0 otherwise.
Two samples were retained for analyses, sample one consisting of 101 hospital corporations,
sample two consisting of 83 hospital corporations. These samples are described in greater detail
in Chapters 3 and 4.
As noted in the previous section, performance variables were calculated based on two years of
data to maximize reliability and ensure the model was robust. Consistent with other governance
studies (see Appendix 2.1.) it was hypothesized that a slight lag would exist between various
elements of the model, with hospital performance in 2005/07 reflecting decisions, actions or
events occurring earlier. Organizational Monitoring and Alignment Capacity and governance
practices are based on data collected in Fall 2005. Board and top management team
characteristics are based on 2002-2005 data.
25
1.7 Methods
Descriptive statistics were produced for all variables in the merged data set to check for errors,
anomalies and missing values. Detailed tables appended to Chapters 3 and 4 contain the results.
To maximize the number of cases, pairwise exclusion was used in most analyses.
One of the challenges of this study was to develop valid measures based upon administrative
data. Nunally and Bernstein (1994) propose three steps to achieve construct valid measures (in
Carpenter and Reilly, 2006). The first step is to theorize about the potential observable elements
that could represent a construct and be used for testing purposes. This was done in the thesis
proposal development stage, prior to obtaining data. It was informed by the literature review
(see Appendices 2.1, 2.4 and 3.4.) and refined based upon a review of data collection tools
publicly available in Ontario, and discussion with experts, including members of the dissertation
advisory committee. The second step is to analyze the extent to which multiple measures of a
single construct go together by assessing correlations between measures of the same construct
(i.e., convergent validity). The final step is to examine relationships between focal measures and
measures of other constructs already widely used in the literature. Both these steps were
attempted or completed once the data were linked and cleaned. Chapters 3 and 4 contain more
details.
Factor analytic techniques are frequently used to develop and evaluate scales, assess the extent to
which items that purport to measure the same construct „hang together‟, and reduce many
related variables to a more manageable parsimonious number. Tabachnick and Fidell (1996)
suggest at least 300 cases for factor analysis to maximize the generalizability of the findings,
although a smaller sample size (e.g., 100-200) may suffice if correlations are strong and the
number of factors is limited (Pallant, 2001; Munro, 2001). Other researchers focus more on the
ratio of cases to variables (e.g. 5:1) with a consensus yet to emerge on the ideal number (Garson,
2010). The relatively small sample size and type of data available (e.g., dichotomous variables,
severely skewed data) precluded the use of factor analysis and the Cronbach‟s alpha coefficient
to refine the organizational and governance capacity measures. Correlational analyses or
nonparametric tests were used instead. The results and limitations of these approaches are
discussed in greater detail in the chapters that follow.
26
All hypotheses were tested using hierarchical linear regression. This analytical approach allows
each set of predictors to be assessed for their unique contribution to the dependent variable by
looking at both the magnitude and statistical significance of the change in R2 . Regression
requires an adequate sample size to ensure the findings are generalizable. Tabachnick and Fidell
(1996) provide a formula for determining minimum sample size: N>50+8*(number of
independent variables). Based on this formula, the minimum sample size for regression analyses
using four independent variables is 82 cases, which this study meets. This sample size is adequate
to detect a moderate effect8 size. Path analysis, an alternative causal modeling technique useful
for testing theorized directional relationships, requires a minimum of 30 subjects per
independent variable (Nunnally and Bernstein, 1994 in Munro, 2001); and was not used due to
the relatively small sample size available for this study.
Prior to carrying out the regression analyses, variables were checked for outliers, multicolinearity
and singularity, normality and linearity. Following Pallant (2001) outliers were recoded to fall
closer to the next value(s) while preserving their rank in the distribution. An attempt was made
to normalize variables with skewed distributions using logarithm or other appropriate
transformation. In some cases, transformed variables had bimodal or otherwise non-normal
distributions, so nominal or dichotomous variables were created. These are described in greater
detail in the methods section of the chapters that follow. Residual plots were produced to check
whether all assumptions for regression analyses were met, including homoscedasticity and
independence of the residuals. Detailed results are presented in the appendices to Chapters 3
and 4.
1.8 Contribution of Study
This study contributes to the governance literature in five important ways. First, it focuses on a
relatively under researched area in Canada, and one that is particularly timely: hospital
governance and its capacity to promote good performance. Second, it draws on multiple
measures of performance across three domains of great interest to researchers and policymakers:
financial health, quality of care and patient satisfaction. Most governance research to date has
focused on financial performance. Third, it explores two intuitively appealing but
8 According to www.danielsoper.com, a minimum sample size of 77 is required for a multiple regression analysis
with 1 predictor in Set A and 3 predictors in Set B, an anticipated effect size of .15 (moderate), an alpha level of .05,
and a beta level of .8.
27
underdeveloped theoretical constructs, „governance capacity‟ and „organizational monitoring and
alignment capacity.‟ Fourth, it builds on the work of the Hospital Report Research Collaborative
by using administrative and survey data from a variety of sources to present a profile of Ontario
hospital boards and test a series of hypotheses informed by institutional theory, resource
dependence theory and agency theory. Finally, it discusses current theoretical and practical
challenges associated with undertaking hospital governance research in Canada and proposes
promising new avenues for future study.
28
Appendix 1.1 Board Governance Survey, Hospital Report Research
Collaborative9
Board Governance Survey – Policies and Practices
Note: This print copy of the Governance Survey is provided for your convenience. Please submit your final responses online by no later than November 25, 2005 using the survey tool located at the Internet address confidentially provided by email to your Board Chair. If it is not possible for your Board Chair to submit responses online, a copy of your completed survey may be sent by fax to Joanne Tse at the Canadian Institute for Health Information. Fax: 416-481-2950 Phone: 416-544-5444 (email: [email protected])
1.0 Board Composition, Nomination and Succession
Please place in the column to the right of each question for the response which best reflects your Board‟s policy. [Check only one column]
No Yes
1.1 The Board uses a committee composed exclusively of independent directors1 to
nominate potential Directors.
1.2 As part of the Director nominations process, the Board and/or nominating committee and/or governance committee conduct a skills audit
2 to assess the skills reflected by
the existing Board. Deficiencies are then incorporated into the qualifications required for nominations.
1.3 The Board has an articulated succession plan for the CEO in order to identify potential successors following term completion and/or retirement.
1.4 The Board has an articulated succession plan for the Chairs of all Standing Committees of the Board.
1.5 The Board has an articulated succession plan for the Board Chair which includes a maximum term limit for the Chair.
1.6 Director re-appointment is subject to a performance audit3 (led by the nominations
committee or governance committee or another committee of the Board) against pre-determined indicators of performance.
1.7 The Board‟s Director nominations process takes into consideration the diversity of the hospital‟s community (including gender, age, ethnicity, and cultural background) when selecting potential nominees.
1 Independent directors do not include management, relatives of management, former members of management within the previous five years, or people whose firms do business with the hospital, such as information technology vendors, suppliers of diagnostics, lawyers, accountants or consultants.
2 An identification of the skills and knowledge required and held by the Board, including, but not limited to: healthcare delivery systems and reform, finance, law, human resource planning, public and media relations, information systems/technology, community development, and governance processes.
3 A review of director performance against pre-determined, objective indicators of performance (e.g. rates of committee attendance, preparedness, participation in hospital activities outside of Board and committee work, level of interaction with hospital staff).
2.0 Responsibilities and Processes of the Board and Board Committees
9 Reprinted with permission.
29
Please place in the column to the right of each question for the response which best reflects your Board‟s policy. [Check only one column]
No Yes
2.1 The Board has produced a publicly available document (e.g. by-laws or another publication) that describes Board responsibilities, terms of reference and lines of accountability.
2.2 The Board devotes 25% or more of annual Board meeting time to long-term hospital strategic planning
1.
2.3 The Board has recorded a set of objective criteria2 against which it evaluates Board
effectiveness annually (or more frequently).
2.4 The Board endorses a plan of action, at least annually, to improve on indicators of quality (e.g. managerial process performance, financial performance, clinical outcomes and patient satisfaction).
2.5 The Board uses a strategic plan against which to establish and review (at least annually) organizational goals and milestones of achievement.
2.6 Clinical leaders3 are regularly and directly involved in Board strategic planning.
2.7 The Board uses a set of documented criteria when providing advice to management regarding proposals for major, new programs and services.
2.8 All Board processes of Standing and other committee procedures and terms of reference are in writing and are publicly accessible.
2.9 The Board has approved a risk management plan that includes a process to identify, manage and minimize risks to the hospital‟s sustainability.
4
2.10 There is an opportunity at every Board meeting for Directors to meet privately, without the presence of management.
2.11 The Board or a committee of the Board has approved a management plan that addresses the handling of potential emergency situations (e.g. a SARS outbreak, power shutdown or bioterrorist attack) which could place a greater than normal stress or demand on hospital services.
1 This involves an evaluation of challenges to the organization‟s long -term sustainability (more than five years in the future) and a commitment to a plan of action to resolve those chal lenges.
2 Such criteria might include: the extent of completion of strategic objectives from the previous year, adherence to the Board‟s strategic plan, Directors‟ satisfaction with committee work and Directors‟ perceived ability to contribute to Board deliberations.
3 This should include clinical leaders beyond the President of the Medical Staff, Chair of the Nursing Advisory Committee, the Chief of Staff/Chair of the Medical Advisory Committee.
4 Risks are those that carry the potential for significant financial and/or reputational harm. A risk management plan should address potential risks prejudicial to the long-term viability of the hospital.
30
3.0 Audit Committee Characteristics
Please place in the column to the right of each question for the respons e which best reflects your Board‟s policy. [Check only one column]
No Yes
3.1 The Board has an Audit Committee1 composed exclusively of independent
2 directors.
3.2 All members of the Audit Committee are financially literate3 and at least one has a
professional designation4 in accounting or finance.
1 The group does not have to be entitled an “Audit Committee” to satisfy this requirement, but should be responsible for overseeing the internal control processes for accounting and financial reporting systems. It is responsible for ensuring the integrity of financial data and compliance of the information with regulatory requirements and appropriate accounting principles.
2 Independent directors do not include management, relatives of management, former members of management within the previous five years, or people whose firms do business with the hospital, such as information technology vendors, suppliers of diagnostics, lawyers, accountants or consultants.
3 Financially literate: has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the hospital‟s financial statements.
4 e.g. CA, CPA, CFA, CMA.
4.0 Responsibilities and Activities of the Board Chair and Directors
Please place in the column to the right of each question for the response which best reflects your Board‟s policy. [Check only one column]
No Yes
4.1 The Board publishes a document (e.g. by-laws or another publication) outlining the responsibilities of the Board Chair.
4.2 Either the Board Chair or a designate of the Board Chair attends at least one meeting per year of every committee of the Board.
4.3 The Board and/or Governance Committee sets minimum meeting attendance requirements
1 for all Directors.
4.4 The Board distributes letters of appointment to all Directors, outlining responsibilities and key terms and conditions of appointment.
1 The minimum meeting threshold must be at least 2/3 of all Committee and Board meetings.
31
5.0 Code of Conduct and Board Ethics
Please place in the column to the right of each question for the response which best reflects your Board‟s policy. [Check only one column]
No Yes
5.1 The Board has a formal whistleblower policy to ensure that information regarding suspected corruption and incompetence throughout the organization reaches the appropriate party
1.
5.2 Within the Board there is a formalized process by which Board members‟ potential conflicts of interest may be declared and evaluated by the Board and/or the Governance Committee.
5.3 The Board has a publicly available Code of Ethics by which it is governed that includes a process to review adherence to the Code.
1 The party (e.g. Audit Committee Chair/Board Chair) should be articulated in a Board publication.
6.0 Board Orientation and Professional Development Practices
Please place in the column to the right of each question for the response which best reflects your Board‟s policy. [Check only one column]
No Yes
6.1 The Board publishes a comprehensive Board policies and practices manual, which is distributed to all new Board members.
6.2 The Board regularly offers to members educational opportunities (e.g. roundtable meetings, seminars) to ensure that Board members may keep current with modern issues in health care.
6.3 The Board has implemented a mentoring process1 for all new Directors.
1 i.e. an ongoing peer support or other formal structure enabling new members to learn from experienced members.
7.0 Director Assessment Processes
Please place in the column to the right of each question for the response which best reflects your Board‟s policy. [Check only one column]
No Yes
7.1 All Directors are evaluated annually against a pre-determined set of performance indicators
1.
7.2 Performance measures to evaluate Director performance are re-evaluated at least annually to ensure ongoing relevance and validity.
1 e.g. rates of committee attendance, preparedness, participation in hospital activities outside of Board and committee work, or interaction with hospital staff
32
8.0 Board Information and Communication
Please place in the column to the right of each question for the response which best reflects your Board‟s policy. [Check only one column]
No Yes
8.1 The Board uses a review process to ensure the adequacy of the information which it receives, such as briefing notes, agendas, minutes of prior Board meetings, CEO and committee reports, upcoming motions, financial reports, recent media reports, and relevant journal articles.
8.2 The Board publishes reports (quarterly or more frequently) describing organizational performance for its community and stakeholders.
9.0 Board Innovation We are interested in learning more about innovative Board governance processes. Please identify any new, leading-edge Board governance practices in place at your organization that have not been described in this survey.
NOTE: Please go back and ensure that you have answered all the questions in this survey. If you have decided not to answer certain questions, please identify the question(s) below and explain why you have not provided a response to the question(s). Statement of Accuracy: These statements pertaining to Board Governance – Policies and Practices at our hospital are accurate and reflect the current normal operating circumstances on our Board. I am authorized to make these statements o n behalf of our Board and our organization.
Your name:
Hospital and Site (if applicable):
Title:
Phone number:
Fax number:
E-mail:
Signature:
Date:
33
Appendix 1.2 Selected Questions, System Integration and Change
Survey, Hospital Report Research Collaborative10
a. Governance Capacity Measure
6. Please indicate whether your organization currently has succession plans for the following groups
There were no formal succession plans in place (skip to Question 7) OR Check all that apply:
Senior Management (Vice President and above) (s)
Senior Medical Leadership (e.g. Chief of Staff, Vice President of Medical Affairs) (m) Senior Nursing Leadership (e.g. Chief Nursing Officer, Vice President of Nursing) (n)
23. We are interested in knowing how your organization disseminates information about the changes
made as a result of staff satisfaction findings. For the following groups, please indicate which of the dissemination strategies are currently being used.
(na)
Check all that apply (w) (v) (p)
Group Data not shared with this group
Internal written report is circulated about key highlights
Verbal presentation and discussion of the results (e.g. in an open forum)
Results reviewed beyond initial verbal presentation for the specific initiative
The board or board committees (including committee/task force looking at utilization (b)
…
27. We are interested in knowing how your organization disseminates information about the changes
made as a result of patient satisfaction findings obtained from patients via a formal quantitative survey (as indicated by checking 2005 NRC/Picker instrument or other formal (quantitative survey in question 26). For the following groups, please indicate which of the dissemination strategies are currently being used.
10
Compiled in October 2005 and published in 2006. Excerpts reprinted with permission.
(na)
Check all that apply (a) (b)
Group Data not shared with this group
Internal written report is circulated about key highlights
Verbal presentation and discussion of the results (e.g. in an open forum)
Results reviewed beyond initial verbal presentation for the specific initiative
The board or board committees (including committee/task force looking at utilization (b)
…
OR
OR
34
31. How does your organization disseminate or plan to disseminate the results of Hospital Report 2005: Acute Care to the following groups?
(na) Check all that apply (p) (x) (w) (e) (b) (m)
Group We did not disseminate results to this group
Verbal presentation and discussion of the results
Results reviewed beyond initial presentation for the specific initiative In
tern
al/E
xte
rna
l N
ew
sle
tte
r
Ho
sp
ital
We
bsite
Ele
ctr
on
ic M
ail
Ho
sp
ital
Bu
lle
tin B
oa
rds
Me
dia
The board or board committees (b)
…
40c. We are interested in knowing how your organization disseminates information about the outcomes
associated with its healthy workplace policy/programs. For the following groups, please indicate which of the dissemination strategies are currently being used.
(na) Check all that apply (w) (v) (p)
Group Data not shared with this group
Internal written report is circulated about key highlights
Verbal presentation and discussion of the results (e.g. in an open forum
Results reviewed beyond initial verbal presentation for the specific initiative
The board or board committees (b)
… 49a. Our hospital has adopted patient safety as a written strategic priority/goal
No Yes. If yes, please state Patient Safety Goal:
49b. Our hospital provides quarterly reports to the Board on patient safety, including changes/
improvements following incident investigation and follow-up. No plans for developing this process
To be developed in 2005 for full implementation in 2006
Fully implemented in our hospital 49f. Our staff receives feedback on the results of audits of staff compliance with these [patient safety]
hospital policies
No Yes.
If Yes – Feedback of audit results are made to (select all that apply) Unit
Physicians
Administration
OR
OR
35
b. Organizational Capacity Measure
Use and Dissemination of Clinical Data 28. For each of the following clinical measures, please indicate the extent to which these data are currently
collected and shared/used in your organization. Check this box if you anticipate fewer than 50 major surgical cases in the 05/06 fiscal year in
your organization and leave those clinical measures related to surgical procedures blank. Check this box if your organization does not currently have an ICU/CCU and leave those
clinical measures related to ICU/CCU blank.
36
Protocols
Utilization Management Strategies
33. Depending on a hospital‟s size, geographic location and resources, hospitals may engage in different Utilization Management strategies activities. Please indicate which of the following strategies your organization is currently engaged in:
Our organization is not engaged in any of the following strategies (if checked, please skip
the rest of this question).
OR Check all that apply:
Establishment of a measurement framework for utilization management indicators
Impact analysis and follow-up for new physicians
Use of concurrent utilization tools to determine appropriateness of acute admissions and
continued days of stay
Linkages with the Finance department for decision-making regarding utilization activities
Linkages with Clinical department for decision-making regarding utilization activities
Diagnostic utilization review of laboratory, pharmacy, and medical imaging physician
ordering practices
Use of physician peer review to assist in bed management
37
Clinical Integration
38
Appendix 1.3 Ontario Hospital Alliances
Alliance Member Hospitals Data Availability Chatham Kent Alliance*
Established 1998
Governed by Tri-Board composed of members of individual hospital boards
One CEO; integrated TMT
Public General Society Chatham
St Joseph‟s Health Services
Sydenham District
Reports to Ministry as single entity since 2006
3 board chairs sign one hospital service accountability agreement (HSAA)
Patient Satisfaction (Pat Sat) site level data available for 2 or all hospitals depending on year.
Financial and readmissions indicators available only at Alliance level
System Integration & Change (SIC), Governance Practices data available only at Alliance level
Hospital-level board data available from Canada Revenue Agency (CRA); some Alliance board level available from bylaws
Huron-Perth Health Care*
Established July 2003
Governed by single board which also serves as board of individual corporations. Individual hospitals also maintain advisory committees
One CEO; integrated TMT
Clinton Public Hospital
Seaforth Community
St Mary‟s Memorial Hospital
Stratford General
Each hospital signs HSAA; reports separately to the Ministry.
Readmissions data available at individual corporation level; may be aggregated to alliance level.
Financial and Pat Sat data available at hospital corporation and alliance levels
SIC, Governance Practices data available only at Alliance level.
Hospital-level board data available from CRA; some Alliance board level available from bylaws
MICS Group of Health Services Established 1996
3 boards; 3 Medical Advisory Committees; 3 management structures
Alliance governed by board of reps from each hosp
One CEO
Anson General Bingham
Memorial
Lady Minto
Each hospital signs HSAA; reports separately to the Ministry
Some financial and readmissions data available at hospital corporation level
Pat Sat site level available for 2 sites in 04/05; all in 05/06 and none in 06/07
SIC and governance practices data reported at Alliance level
Hospital-level board data available; some Alliance board level available from bylaws
Listowel and Wingham Alliance
Established Jul 2003
Individual boards meet as one
One CEO; TMT
Listowel Memorial
Wingham and District
Each hospital signs HSAA; reports separately to the Ministry
Some financial and readmissions data available at hospital corporation level
Pat Sat site level data available
SIC, Governance Practices data available at the alliance level
Wellington Health Care Alliance
Established Oct 2005 One CEO/TMT
2 boards
North Wellington*
Groves Memorial*
Each hospital signs HSAA; reports separately to the Ministry
Hospital-level Pat Sat, SIC, Governance Practices and board data available; limited alliance board info available online
North Simcoe Hospitals Alliance
Established 1992 Acts as single employer; joint
planning, etc
Separate boards Separate CEOs/TMTs
Huronia*
Penetanguishene
Each hospital signs HSAA; reports separately to the Ministry
Financial and readmissions data available at hospital corporation level
Pat Sat, SIC and Governance Practices data available only for Huronia
No alliance board info available
39
Middlesex Hospital Alliance
Established 1999 Single Board
Single CEO/TMT; separate MACs and COS
Strathroy Middlesex*
Four Counties
Each hospital signs HSAA; reports separately to the Ministry
Financial and readmissions data available for both hospitals
Pat Sat, SIC and governance data available only for Strathroy
St Francis/Renfrew Victoria
Established 1999 2 boards
Shared CEO
Separate TMT since 2000
St Francis Memorial Hospital*
Renfrew Victoria Hospital*
Each hospital signs HSAA; reports separately to Ministry
All data available at hospital corporation level
St Mary’s General Hospital/St Joseph’s Healthcare Hamilton Separate hospital boards;
cross-appointments to board of St Joseph‟s Health System
11 established in 1991
under sponsorship of Sisters of St Joseph
Shared CEO; St Mary‟s has separate President
St Mary‟s General Hospital*
St Joseph‟s Healthcare Hamilton*
Each hospital signs HSAA; reports separately to Ministry
All data available at hospital corporation level
St Joseph/LHSC
Separate boards
Integrated CEO; TMT since 2006
London Health Sciences Centre*
St Joseph‟s Healthcare, London*
Hospitals report separately and sign separate accountability agreements
No impact on data availability
Sunnybrook and Women’s College Hospital
Sunnybrook, Women‟s College and Orthopedic and Arthritic Hospital merged in June 1998
Women‟s College Hospital de-amalgamated June 1, 2006
Sunnybrook Health Sciences Centre
Women‟s College Hospital
Merged hospitals signed HSAA until 2006
Most data available at merged entity and Sunnybrook and Women‟s College Hospital site
*Treated as individual hospital corporations and retained for analyses in this study.
11
St Joseph‟s Health System (SJHS) also includes: St Joseph‟s Lifecare Centre Brantford, St Joseph‟s Villa Dundas, St Joseph‟s Health Centre Guelph and St Joseph‟s Home Care Hamilton)
40
CHAPTER 2
Rethinking the Role of Hospital Boards in the Era of Distributed Governance
2.0 Introduction
Healthcare is a $191.6 billion annual enterprise in Canada; growing at a rate faster than inflation
and consuming a burgeoning share of federal and provincial budgets (CIHI, 2010). With
hospitals accounting for some 29% of this spending (CIHI, 2010), and demand for safer, more
accessible, more specialized and more costly care unlikely to diminish soon, hospital boards are
increasingly looked to as levers of cost containment and performance improvement. Numerous
entities in Canada and elsewhere have attempted to define good governance (see Appendix 2.2).
Yet how much do we really know about the link between governance and performance? This
study reviews the board governance literature, including the theoretical drivers of governance
research and findings from key studies published in the US and Canada, and proposes a
conceptual framework to guide the study of nonprofit hospital governance.
2.1 Theoretical Drivers of Governance Research
Board governance - defined here simply as “the system by which an organization is directed and
controlled12” - has garnered a great deal of attention in recent years. Much of the scholarly
research in this area draws on five complementary theories to explain or predict board
behaviour: agency theory, resource dependence theory, institutional theory, and strategic choice
and upper echelons perspectives. More recently, studies informed by stakeholder and
stewardship theories have begun to emerge. The literature has yet to disprove any of these
theories. Indeed, there is evidence in support of all of them, albeit often relying on similar
measures.
12 This definition was used by Cadbury (1992, p. 15) to describe corporate governance.
41
Table 2.1 Theoretical Drivers of Governance Research
Theory Level of Analysis
Key Constructs Relevance to Governance Research
Agency Theory (Jensen & Meckling 1976)
Meso (organization, group)
Principal-agent problem, moral hazard, information asymmetry, adverse selection, alignment of interests/incentives, contracts
Board independence and monitoring contributes to performance. Board role is to reduce conflicts of interest and information asymmetries, and control top management through well-designed contracts and incentives.
Institutional Theory (Selznick, 1949; DiMaggio et al., 1983; Scott, 1995)
Macro (industry, organization, group)
Institutional fields, coercive, mimetic and normative pressures, isomorphism, imprinting, conformity, institutional events, environmental jolts as source of diversity or change
Rules, laws, sanctions, prevailing practices, physical and economic environment, organizational age, size, milestones, etc. have a large impact on board characteristics, structure, processes, decisions, outputs and outcomes. Board is a reflection of organizational history and environment.
Resource Dependence (Pfeffer & Salancik, 1978)
Meso (organization)
Resource acquisition, control over resources are tools to minimize dependence on others or increase other‟s dependence on focal organization
Board size, composition, networks and expertise influence ability to provide advice and counsel to senior management, acquire resources from environment. Board role is to provide advice and counsel, strengthen legitimacy, influence key stakeholders and secure external resources.
Stakeholder Theory (Freeman, 1984; Donaldson & Davis, 1991)
Meso (organization, group)
Corporation is constellation of co-operative and competitive interests possessing intrinsic value. Stakeholders have legitimate interests in corporate activity/ performance
The interests of shareholders/owners are not exclusive or primary. Many others – employees, suppliers, customers/service users, communities, governments, regulators, investors, etc – have a legitimate stake in firm structures, processes, decisions, outputs and outcomes. Board role is to clarify and manage competing interests.
Stewardship Theory (Davis, Schoorman & Donaldson, 1997)
Micro (group) Steward and shareholder interests align. Protecting and maximizing shareholder wealth maximizes top management utility
Employees/management are motivated to produce value and should be trusted. Management power and autonomy improve performance. Board role is to work in partnership with and support management.
Strategic Choice (Child, 1972, 1997)
Micro (group, individual)
Dominant coalition able to evaluate situation, consider alternate goals and select strategy to improve performance
Board strategic decisions to merge, diversify, expand, etc. contribute to or detract from organizational performance. Board role is to inform and drive strategy.
Upper Echelons (Hambrick & Mason, 1984)
Micro (group, individual)
Observable top team characteristics can serve as indicators of collective mindsets and constraints on rational choice
Age, functional background, career experiences, education, socioeconomic roots of leaders, and diversity, homogeneity, etc. of top teams systematically related to key strategic choices and related organizational performance. Board role reflects individual and collective capacity of top team.
42
Agency Theory
Agency theory (Jensen and Meckling 1976; Fama and Jensen, 1983) focuses on the board‟s duty
to monitor management decisions and organizational performance. Consistent with its roots in
economics, it holds that managers and owners have distinct, even divergent, interests. Managers
are expected to maximize their self-interest at the expense of the firm. Boards, motivated by
reputational concerns, are expected to act on behalf of the owners to reduce information
asymmetries, eliminate conflicts of interest, and align owner and manager interests through
contractual arrangements and other tools (Wu, 2004).
Agency theorists assume that lack of board independence from management in the form of
overlapping CEO and chair roles, or the presence of management representatives („insiders‟) on
the board, for example, compromises the board‟s ability to exercise its control function. Lack of
board independence, in turn, paves the way for excesses such as exorbitant compensation and
perquisites, inordinately large buy-out packages, and corporate strategic actions that benefit
managers at the expense of the owners (Daily and Dalton, 1994; Davis, 1991).
Effective owner representation on boards and committees is thought to keep management in
check. Callen and colleagues (2003), for example, found that the presence of major donors on
nonprofit board finance and audit committees was associated with reduced administrative
expenses and higher efficiency. Daily and Dalton (1994) found that bankrupt firms were more
likely than their matched pair to have dual CEO/board chair roles and lower proportions of
independent directors on their board. Dahya and McConnell (2007) found that UK firms that
complied with the Cadbury recommendation to have at least three outside directors on their
boards experienced significant improvements in absolute and relative operating and market
performance.
Agency theorists see organizations as „closed systems‟ and boards as having two main roles: one
is to design maximally efficient contracts; the other is to monitor performance. The extent to
which boards fulfill both roles, or fulfill them equally well, is debatable. Zajac and Westphal
(1994), for example, found that boards tended to treat incentive alignment and monitoring as
substitutes. Those that monitored had poorly aligned incentives; those that had performance-
related incentives did not focus on monitoring. A laboratory experiment conducted by Tosi,
43
Katz and Gomez-Mejia (1997) found that substituting monitoring for incentive alignment had
negative repercussions for the principals, with most positive effects accruing in situations
marked by high incentive alignment and high control.
Enforced public disclosure of performance results and governance and financial practices is
thought to improve board oversight. By reducing information asymmetries, such public
accountability may stimulate board action particularly in relation to those aspects of performance
with the potential to damage the reputation of prominent board members (Wu, 2004). Evidence
from the UK suggests that public reporting loses reputational impact over time (Bevan & Hood,
2006). Thus it may prove to be an unreliable means to sustaining governance attention on
performance issues, unless the release of results is accompanied by significant attention from the
media, regulators or other key stakeholders.
The relevance of agency theory to nonprofit organizations has been debated over the years.
Critics hold that it focuses board attention on compliance with regulatory/funder requirements,
rather than adherence to mission, purpose and values of the organization (Brown, 2005). They
also point out that managers and „owners‟ do not necessarily have opposing interests. Indeed
nonprofit managers may risk negative personal repercussions such as lower salaries than they
would otherwise receive in the corporate sector, due to a sense of duty or commitment to the
organization or its social mission (Preyra & Pink, 2001; Handy, Mook, Ginieniewicz & Quarter,
2007).
Resource Dependence Theory
The gap left unexplained by agency theory has been filled by the other major driver of
governance research: resource dependence theory (Selznick, 1949; Zald, 1969; Pfeffer, 1972;
Pfeffer & Salancik, 1978). Resource dependence emphasizes the service function. Its „open
systems‟ view of organizations holds that the role of the board is to link to needed people,
institutions, resources and information in the environment; manage external dependencies;
strengthen legitimacy; facilitate collaboration and provide advice and counsel to senior
management.
44
Much of the scholarly work testing resource dependence theory has focused on the links
between board size, composition and networks, and a variety of outcomes including:
organizational survival (Chaganti et al., 1985); strategic change (Goodstein, Gautam & Boeker,
1994; Kanak & Goodstein, 1996); and involvement in decision-making (Judge & Zeithaml,
1992). Resource dependence researchers have also devoted much attention to the links between
board characteristics and resource acquisition (Olson, 2000; Provan, 1980), or improvements in
operating margins and other financial indicators (Molinari, Hendryx & Goodstein, 1997;
Molinari, Hendryx, Alexander & Lyles, 1993; Boeker & Goodstein, 1991).
Institutional Theory
Both agency and resource dependence theories borrow heavily from institutional theory.
According to institutional scholars much organizational action is based on past actions, founding
conditions and environmental norms (Myer and Rowan, 1977; DiMaggio and Powell, 1983;
Scott, 1995). Organizational actions are based on patterns that evolve over time. These patterns
become embedded in organizations and organizational fields as a result of coercive, mimetic and
normative processes.
Normative pressures emerge largely as a result of professionalization, which encourages
conformity to standards of practice disseminated through various associations and networks.
Mimetic pressures arise in conditions of uncertainty where imitating the practices of a successful
or respected peer may be seen as less risky than trial and error. Coercive pressures arise largely
from societal and cultural expectations, or government and other sources of resources upon
which the organization is dependent. An example of coercive pressures at work can be found in
a recent US survey, where 87% respondents cited government and regulatory agencies as having
a high impact on hospital quality priorities (Vaughan, Koepke, Kroch, Lehrman, Sinha, Levey,
2006, p. 4). An example of normative and mimetic pressures is found in a recent Canadian study
where 100% of responding board chairs and 95% of CEOs cited peer hospital CEO
compensation as the top determining factor for focal hospital compensation decisions (Schraa,
2007).
According to institutionalists, organizations conform for reasons of legitimacy, resource
dependence and long-term survival (Selznick, 1949; Zald, 1969; DiMaggio and Powell, 1983;
45
Pfeffer and Salancik, 1978). Sometimes conformity can also arise out of „social contagion‟ or the
sharing of ideas and practices through social networks or interpersonal contact (Knight et al.,
1999; Davis, 1991; Davis & Greve, 1997; Haunschild & Miner, 1997).
Institutional theory may explain why hospitals of similar age, size, ownership structure or region
often share similar board characteristics (i.e., Brown, Alikhan, Sandoval, Seeman, Baker & Pink,
2005). It may also explain why some hospitals may adopt only those governance practices least
likely to disturb the status quo and thus fail to realize any anticipated improvements in board
interaction, transparency, accountability or organizational performance.
Evidence of institutional forces has been found in a wide range of studies. In a study of
institutional influences on board composition and structure, Luoma and Goodstein (1999) found
that stakeholder representation on corporate boards was greatest in states with laws encouraging
the consideration of stakeholder interests in corporate decision-making. Larger companies and
those operating in highly regulated industries also had greater proportions of stakeholder
directors on their boards, suggesting these types of organizations were also more responsive to
environmental pressures.
A study of a representative sample of US hospitals found that the adoption of cost-containment
policies was associated with hospital dependence on its external environment, large hospital size
and relative efficiency (Provan, 1987). A study of US nonprofit community hospitals found that
adoption of a corporate model of governance was most likely to occur in munificent, non-
threatening market conditions with those most likely to benefit from a change in governance
structure and practices least likely to undertake it (Alexander and Weiner, 1998). A study of
performance evaluation practices in 130 short-term hospitals in California found that board
adoption of formal CEO evaluation processes was predicted by industry factors, including
increased inter-hospital competition and managed care penetration, as well as system
membership (Young, Stedham & Beekun, 2000).
Strategic Choice and Upper Echelons Perspectives
In contrast to institutional theory, which suggests that much of what happens in organizations is
determined by macro forces, the strategic choice perspective (Child, 1972) mainta ins that
46
individual actors do matter to organizational performance. According to Miles and Snow (1978),
organizations respond to environmental conditions in multiple and diverse ways not fully
accounted for, or explained by, institutional variables. Managers have the ability to learn about,
manage and shape their environment. Their choices and actions can influence the fit between
organizations and their environment, thereby contributing to organizational performance (Child,
1972; Miles and Snow, 1978).
Going a step further, the upper echelons perspective elaborated by Hambrick and Mason (1984)
argues that the dominant coalition (Cyert & March, 1963) within organizations has an impact on
performance and observable top team characteristics can serve as indicators of collective
mindsets and constraints on rational choice. Thus, factors such as age, gender, tenure, functional
background, career experiences, education and the socioeconomic roots of leaders and top
teams are thought to be systematically related to key strategic choices made at the senior level
(Hambrick & Mason, 1984; Gautam & Goodstein, 1996; Beekun, Stedham & Young, 1998).
More recently, the focus has shifted to the impact of relational variables such as homogeneity
and heterogeneity, on myriad outcomes including executive compensation and turnover
(Westphal, 2000) and organizational efficiency (Wagner, Stimpert & Fubara, 1998).
Stakeholder and Stewardship Theories
Much governance research is informed by the closed systems rational view of the corporation
inherent in agency theory. In more recent years, open systems and human relations perspectives
of the corporation (see Table 2.2) have become more prevalent, as evidenced by the growth in
the number of studies testing resource dependence and using relational demography or
qualitative methods.
47
Table 2.2 Theoretical Approaches to the Study of Organizational Performance in Governance Research
Theory Key Constructs
Closed systems and bureaucratic control (Taylor, 1911; Fayol, 1916; Weber, 1946; Simon, 1957)
Rationality; bureaucracy; hierarchy, formalization; specialization; efficiency; goal specificity; focus on internal control; performance incentives. Effectiveness achieved through goal-setting, development of rules and roles to guide organizational behaviour, and monitoring of conformance. Consistent with agency theory.
Natural systems and human relations perspective (Mayo, 1945; Weick, 1999)
Organizational commitment, loyalty; Informal social relations/normative structure, organizational culture; leadership, motivation, morale, teamwork, participative management. Effectiveness depends on ability to engage the hearts and minds of workers, customers/service recipients and stakeholders. Consistent with organizational/relational demography; upper echelons perspective and stewardship theory.
Open systems and resource acquisition (Blau & Scott, 1962; Yuchtman & Seashore, 1967; Pfeffer, 1973)
Inputs-throughputs-outputs; morphostasis (processes that preserve structure and form such as socialization and control), morphogenesis (processes that promote change such as growth, learning, differentiation). Effectiveness depends on ability to acquire resources and manage external dependencies. Consistent with resource dependence theory.
Conflicting/multiple models and contingency perspective (Lawrence & Lorsch, 1967; Quinn & Rohrbaugh, 1983; Kaplan & Norton, 1992)
Competing value dimensions (flexibility/adaptability versus control/stability; internal versus external organizational focus; focus on outcomes versus focus on process). Effectiveness depends on ability to balance competing requirements and identify/execute critical performance characteristics, cause and effect logic chain or tailored strategies. Consistent with institutional and stakeholder theories.
Source: Baker & Branch, 2002.
Many of these studies test the links between governance and multiple perspectives of
performance but few explicitly reference stewardship or stakeholder theories as drivers.
Stewardship theory holds that principals (represented by the board) and managers, have
common interests and that managers are trustworthy and diligent stewards of organizational
assets (Davis, Schoorman & Donaldson, 1997; Donaldson & Davis, 1991). The role of the board
is to support, empower and trust management to do the „right thing,‟ a perspective strongly
resisted by agency theorists. Proponents point to studies by Muth and Donaldson (1998) and
others on the link between unified CEO/Chair roles and superior corporate financial
performance. Others point to the nonprofit sector where managers may risk negative personal
repercussions such as lower salaries than in the corporate sector due to a sense of loyalty or
commitment to the organization or its social mission (Preyra and Pink, 2001; Handy, Mook,
Ginieniewicz & Quarter, 2007).
Whereas stewardship theory emphasizes the management‟s contribution to organizational
performance, stakeholder theory (Freeman, 1984) holds that “managers should acknowledge the
validity of diverse stakeholder interests and should attempt to respond to them within a mutually
supportive framework” (in Donaldson and Preston, 1995, p. 87). According to Freeman, a
48
stakeholder is “any group or individual who can affect or is affected by the achievements of the
organizations objectives” (1984, p. 46).
Stakeholder theory is particularly relevant to sectors of the economy such as non-profit health
care where goals tend to be more ambiguous, ownership and interests more diffuse, and success
more difficult to measure. Taking into account stakeholder perspectives recognizes the many
constituencies that contribute to organizational activities and outcomes, and provides a more
well-rounded view of what constitutes good or acceptable performance. The role of the board in
such cases is to clarify and balance interests, build consensus and adjudicate conflicts with care
and due diligence. Critics of stakeholder theory (e.g., Heath and Norman, 2004), point to the
„multi-principal‟ problem, where managers accountable to many for multiple, often conflicting
aspects of performance will play one stakeholder against the other to the benefit of none. In
their view, this is a failure of governance control.
Taken together these theories suggest that there is no one best way for boards to function.
Indeed their role will likely be informed by where their organization sits along the three
continuums:
flexibility/control
internal/external perspective
past/future orientation.
Figure 2.1 summarizes this viewpoint building on the work of Quinn and Rohrbaugh‟s (2003)
Competing Values Framework.
49
Figure 2.1 Competing Values Governance Framework
Present Flexib ility Near Future
Human Relations Model
Means: cohesion, morale, collaboration Ends: human resource development Culture: clan, “do things together” Leader: mentor, facilitator, team builder Board role: build consensus, broker conflicts, balance interests, provide advice and counsel Internal Stewardship Theory
Open Systems Model
Means: flexibility, readiness, synergy, creation Ends: growth, resource acquisition Culture: adhocracy, “do things first” Leader: innovator, broker, entrepreneur, visionary Board role: legitimacy, link to external resources/networks, minimize dependencies Resource Dependence Theory External
Orientation Agency Theory Means: information/process management, measurement, documentation, communication Ends: stability, control Culture: hierarchy, “do things right” Leader: monitor, coordinator, organizer Board role: performance monitoring, fiduciary control
Internal Process Model
Strategic Choice; Upper Echelons Orientation Means: planning, goal setting, competition Ends: productivity, efficiency Culture: market, “do things fast” Leader: producer, director Board role: visioning, planning, strategy
Rational Goal Model
Past Control Future
Source: Adapted from Quinn and Rohrbaugh, 1983; Quinn, 1988; Cameron, 2006.
2.2 Governance Research Findings and Limitations
Appendix 2.1 summarizes the findings from a sample of empirical studies of Canadian and US
corporate, nonprofit and hospital boards over the last three decades. There are major limitations
to this research. First, many studies ignore structure and process variables that may attenuate
board function and weaken its links to organizational performance (Forbes and Milliken, 1999).
A notable exception is a 2006 study by McDonagh which used the Board Self-Assessment
Questionnaire, a tool developed and validated in the non-profit sector (Chait et al., 1991;
Jackson & Holland, 1998), to examine the links between six dimensions of board effectiveness
and a variety of performance measures in a sample of 64 US hospitals. The study found an
association between board composition, structure, processes and practices and measures of
profitability and efficiency, while staff clinical expertise and CEO performance evaluation were
more closely associated with quality of care. Another exception is a 2006 US study of 413
hospitals by Vaughn and colleagues which found that hospitals that performed better on a
variety of quality measures were more likely to have boards that spent more than 25% of their
Stakeholder Theory
Institutional Theory
50
time on quality, used a formal quality measurement report such as a dashboard, engaged medical
staff on quality issues, and based executive compensation in part on quality improvements.
A second major limitation of governance research is that relatively few studies have considered
the broad range of board committees where the bulk of governance work is carried out (Young
& Buchholtz, 2002). While much has been published on finance and audit committees in the
accounting literature (e.g., Pomeroy & Thornton, 2008), only recently has attention turned to the
work or perceived impact of hospital board committees. A small study carried out by Kroch et
al. (2006), found that high-performing hospitals had more engaged board quality committees and
more focused dashboards which they used to monitor progress and hold management
accountable. Jiang and colleagues (2008, 2009) uncovered significant differences between US
hospital boards with and without a quality committee on a wide variety of quality oversight
practices including: establishing strategic goals for quality improvement; establishing explicit
criteria for physician appointments, reappointments and clinical privileges; devoting 10-20% of
board time to quality; benchmarking and reporting to the board on indicators of patient safety,
satisfaction and quality; orienting new board members to the organization‟s approach to quality;
and evaluating CEO and executive performance based on quality and patient safety. Hospitals
with board quality committees also showed small but significant differences in risk -adjusted
mortality rates when compared to hospitals without such board committees in place.
Thirdly, much governance research is correlational and plagued by conflicting measures or
results (Finegold, Benson and Hecht, 2007). In the corporate sector where financial measures
predominate, definitions do not always converge (Daily & Dalton, 1994; Daily, Johnson &
Dalton, 1999). In the hospital and nonprofit sectors, measurement issues tend to be confounded
by multiple conceptualizations of board and organizational performance (see Appendix 2.4).
Few hospital and non-profit governance studies rely on a single measure of performance or
define performance in the same way; an acknowledgement of the complexity of healthcare and
nonprofit organizations, or perhaps due to a lack of validated tools or consensus in the field.
Many studies also rely on CEO ratings of board and organizational effectiveness which do not
always correlate with board ratings, external stakeholder ratings or objective measures of
performance (Herman and Renz, 1997; Bradshaw, Murray and Wolpin, 1992).
51
Fourthly, beyond measurement issues are challenges related to the application of the findings.
Corporate governance research focuses on issues of concern to shareholders and markets which
may be of limited relevance to the nonprofit and broader public sector environments that typify
healthcare delivery in Canada. Many commonly referenced studies were motivated by massive
corporate failures subsequently attributed to fraud, conflicts of interest and lack of oversight by
both boards and regulators. In the nonprofit and healthcare sectors, organizational failures have
been somewhat more modest. While „mission-drift‟ (Jones, 2007) and not managing for value
(Moore, 2000) remain threats to the usefulness and viability of many charitable institutions, such
factors are much more difficult to quantify and study than traditional aspects of financial
performance. Not surprisingly, few researchers have attempted it.
Similarly, some hospital governance studies may have limited application beyond the regulatory
environment in which they were undertaken. Much healthcare research originates in the US
where a greater diversity of ownership structures exist. In Canada, health governance research
has tended to emphasize policy questions rather than management and leadership issues (e.g.,
Lomas, Woods & Veenstra, 1997). Ontario hospitals continue to be governed by volunteer
boards that enjoy a level of autonomy far beyond that of their counterparts in the rest of
Canada. To isolate the contribution of boards and executives to organizational performance it
may be important to control for variation by focusing on a particular jurisdiction or institutional
field (i.e., Ontario acute care hospitals) and to study performance changes in relation to board
and top team variables over time.
Despite these caveats, the governance literature appears to indicate the existence of a modest
relationship between board and executive team variables (e.g., CEO voting status, board size and
structure, director occupational background); decisions related to organizational strategy,
monitoring and/or incentive alignment; and mostly financial indicators of organizational
performance (Goodstein & Gautam, 1994; Dalton et al. 1998,1999; Molinari, Alexander,
Morlock & Lyles, 1993; Jackson & Holland, 1998; Ibrahim, Angelidis & Howard, 2000). More
recently, governance studies linking board oversight practices and hospital quality of care have
begun to emerge (e.g., Jiang et al., 2008). Although causality is difficult to establish, evidence of a
governance effect on performance appears to be strongest in times of organizational upheaval or
environmental uncertainty (Molinari, Alexander, Morlock & Lyles, 1995; Alexander, Lee &
Weiner, 2004).
52
2.3 Implications for the Study of Hospital Governance
The theoretical framework depicted in Figure 2.2 brings together the different theories and
strands of literature covered thus far.
Figure 2.2 Theoretical Framework Linking Hospital Governance and Performance
Institutional theory would suggest that much of what hospitals and their leaders do is
environmentally-determined and institutionally constrained. For example, hospitals of similar
age, size, geographic region or service profile are likely to share similar governance
characteristics. Hospitals with stronger ties to sectoral associations or professional bodies may
also be more likely than their lesser networked peers to be influenced by prevailing industry
norms with respect to adoption of governance „best practices.‟ Since 198813, Ontario hospital
boards have been required by law to include the President of the Medical Staff, the Chief of
Staff or Chair of Medical Advisory Committee, and in some cases, the Vice President of the
Medical Staff. Therefore they may be larger or have more „insiders‟ than their counterparts in
other jurisdictions due simply to environmental requirements. Ontario hospital boards may also
have less control over closures, mergers or major service reconfigurations - strategic decisions
13 Ontario Regulation 156/10 rescinded voting rights for hospital employees and members of the medical, dental,
extended nursing and midwifery classes as of January 1, 2011 (Golding, 2010).
Str
ate
gic
Cho
ices /
Decis
ion
s
Organizational Monitoring and Alignment
Capacity
Hospital
Performance
Institutional Theory
Resource Dependence Theory
Board
/ M
anagem
ent
Pow
er
and A
cco
unta
bility
Situ
atio
nal/S
takehold
er
Pers
pec
tives
of P
erfo
rmanc
e
Com
petin
g V
alu
es/C
ontin
gency
Theory
Environmental Munif icence (human, economic, physical, social)
Policy / Regulatory / Normative Environment
Governance Capacity
Top Management Team
Characteristics
Organizational Monitoring & Alignment
Capacity
Agency T
heor
y
Board
Characteristics
Governance
Practices
Com
petin
g V
alu
es/C
ontin
gency
Theory
53
typically studied in US governance research - as a result of their heavy dependence on public
funding and increasingly tight oversight by local health integration networks.
Nevertheless, within a limited repertoire of action, hospital boards and their top management
teams do make strategic choices related to how they spend their time, organize their work,
allocate resources, monitor outcomes and link to the broader environment that can contribute to
(or detract from) hospital performance. Operational reviews undertaken over the past decade
(see Appendix 2.3) suggest that much board effort in the Ontario hospital sector has gone into
defending the status quo, protecting autonomy, or expanding programs and budgets in response
to community and provider pressure. Some argue that this was done with limited consideration
of the impact of such actions on the local healthcare system and in some cases, their impact on
patient safety or patient satisfaction.
The growth and preservation of community assets has traditionally been viewed as an important
governance responsibility. The decision of the provincial ministry of health to implement a
unique „made in Ontario‟ policy coupling autonomous local providers with regionalized planning
and funding structures would suggest that powerful local interests, particularly those in the
hospital sector have been successful in defending their turf. Resource dependence theory would
propose that hospital boards have been resourced to minimize external dependencies, link to
powerful stakeholders and acquire resources from the broader environment.
In recent years, hospital attention has shifted from resource acquisition and capital projects to
dimensions of performance traditionally within the exclusive purview of physicians, nurses and
other health care professionals. It is no longer enough for hospital leaders to attract or retain
scarce resources. Efforts to make healthcare organizations more transparent – through forced
disclosure of medical errors, and publication of hospital standardized mortality ratios or
complication rates for designated procedures, for example – are making it more difficult for
boards to distance themselves from the outcomes or indeed, the production of care.
Increasingly, they must also prove to funders, regulatory bodies and their own communities that
hospital services are cost-effective, evidence-based, safe, timely, and meeting or exceeding
consumer expectations. Although some are voluntarily publishing selected performance
measures, few provide access to a wider range of performance information or distill and
54
Accreditation
Agency
Ministry of Health
Local Health Authority
Quality Council
National Revenue Agency
Professional
Colleges
Patients and
Families
National Health Information
Agency
Corporate
Membership
Donors
Cancer
Agency
Advocacy
Groups
Other Service
Providers
Auditor General
Coroner
Research Institutes
Workplace Health
and Safety Board
Media
Physicians
Board and
Committees
Staff
Medical Advisory
Committee
TMT
Other Funders
Ministry of Labour
Public
summarize such information in a way that assists key audiences, including those internal to the
organization, to take a holistic view of organizational performance.
Boards accountable for competing measures must carefully balance of their control and service
roles. From an agency theory perspective it is particularly important that boards monitor
management and align incentives. In highly-regulated environments such as healthcare, there are
many stakeholders with a stronger pulse on singular aspects of organizational performance – and
most have more time, resources and expertise to devote to oversight than the board.
Stakeholders external to the hospital include accreditation agencies; professional societies; public
reporting, funding and regulatory bodies; advocacy groups and other service providers.
Examples internal to the hospital include patient care committees, professional peers and
patients and families. Figure 2.3 depicts the accountability web within which most Canadian
hospitals operate. Consistent with stakeholder theory, these groups monitor overlapping aspects
of organizational, unit, team or individual-level performance. Few, if any, have a complete
picture of performance, and even fewer have access to the data or information that would enable
them to create that picture or identify gaps or areas ripe for system failure.
Figure 2.3 Contingency/Multiple Perspectives on Performance: The Hospital Accountability Web
55
A key role of boards of publicly-funded organizations in such „distributed governance‟
environments is to bridge divides and enable internal and external stakeholders to more fully
scrutinize the integrity, effectiveness and outcomes of their organization from an integrated
perspective. Agency theory would suggest that to minimize discrepancies and dissonance, it is
important that boards promote transparency, harmonize accountability requirements and align
governance decision-making and monitoring systems with performance measurement and
reporting at various levels of the organization. This creates a more fulsome picture of
performance. It helps institutions with a public mandate to better define their role in relation to
system peers; public and user expectations; and funder and regulator requirements. It can help
leaders to stay up-to-date on standards and more appropriately prioritize, time and track
improvement efforts. It can also help to identify areas where variation in the conceptualization
and measurement of performance is of little value and may in fact lead to accountability and
governance challenges.
Much of the governance research to date has distinguished between board and management
roles. Resource dependence theory argues that boards have a crucial role to play in providing
advice and counsel to the senior management team, particularly the CEO. Similarly, agency
theory sees boards as having important oversight responsibilities. Both of these functions call on
high levels of knowledge and skill directly or functionally related to the business of the
organization. Hospitals are highly complex organizational systems heavily reliant on entrenched
hierarchies of self-regulating knowledge workers. It is expected that boards that possess a deep
knowledge of the healthcare industry or relevant processes or methodologies for improving
quality, efficiency or other important aspects of performance will be better able to make strategic
decisions that benefit both the hospital and the healthcare system. It is also expected that such
boards would be more adept at monitoring performance and promoting ongoing improvement.
Additionally, boards that have members with countervailing and complementary educational,
occupational and institutional backgrounds will be better able to challenge themselves and their
senior leaders, particularly clinical staff, to explore alternative ways of conceptualizing or
improving performance.
56
Hospital boards, particularly unaffiliated volunteer community members, do not have the time14,
resources15 or expertise to carry the full weight of responsibility for the strategic decisions of
their organizations. Boards share the governance function with their top management team,
including the CEO and the Chief of Staff. Collectively, and in keeping with stewardship theory,
they are accountable for building their collective capacity to govern with insight, transparency
and due diligence. They are also accountable for building the capacity of their organizations to
meet evolving expectations and performance requirements.
The concept of “governance capacity” is well developed in the political science and community
development literatures, often in reference to governments, networks and third sector
organizations. Here, governance capacity refers to the overall ability of nonprofit hospital
boards, physician leaders and management executive teams to work together, develop strategy,
allocate resources, carry out their work and monitor and improve performance. It is
hypothesized to encompass both governance practices - board policies, processes or customary
ways of behaving or operating – as well as observable board and top management team
characteristics such as size, turnover and occupation, gender and other aspects of diversity.
Governance capacity is complemented by “organizational monitoring and alignment capacity” or
the ability to align, monitor and benchmark performance. This capacity is hypothesized to be the
product of institutional factors such as age, size or location, as well as strategic choices which
seek to improve performance by investing in analytical infrastructure, building an evidence-based
culture or promoting clinical integration, for example. Thus, governance capacity is expected to
contribute to organizational monitoring and alignment capacity over time. At any one point in
time, organizations that possess greater monitoring and alignment capacity are also expected to
exhibit greater governance capacity. Moreover, both factors are hypothesized to contribute to
14
A cursory review of hospital websites indicates that board members are recruited with the expectation that they
will devote 4-15 hours per month to board business. While this is a significant time commitment, it is less than the
19-25 hours per month averaged by corporate directors although they were also paid for their expertise (Price
Waterhouse Cooper, 2009; Korn Ferry International, 2007). It is also only a small proportion of the time spent by
affiliated directors who work in the healthcare sector or insiders who work in the organization. 15
Ontario hospital boards report a low locus of control with respect to key aspects of hospital performance,
including service integration and alignment of financial incentives (Brown, Alikhan, Sandoval, Seeman, Baker &
Pink, 2005; Schraa, 2007). In response to a question regarding the factors limiting the relationship between CEO
compensation and hospital performance, board chairs cited: outcomes beyond the control of the CEO (72%),
difficulty in defining appropriate performance measures (56%), difficulty in determining the relative importance of
indicators (33%), and difficulty in achieving consensus on appropriate indicators (19%) (Schraa, 2007, p. 61).
Interestingly, timeliness of data was noted by 47% of respondents and concerns over data quality by 36% (Schraa,
2007, p. 61).
57
organizational performance, although testing the directionality of these hypothesized
relationships may pose methodological challenges.
2.4 Conclusion
Much has been written on board governance in the last thirty years. Yet evidence of a consistent
link between more comprehensive views of organizational performance and board practices or
characteristics continues to elude us. One reason is that „good performance‟ is surprisingly
difficult to define. Much of the research has focused on financial health, although even this
concept is highly dependent on perspective. For example, many studies in the US have defined
good hospital financial performance in terms of ability to generate revenues or profits, or
provide more services – neither of which is necessarily desirable from the perspective of patients
or policymakers. Additionally, good performance in one domain does not necessarily guarantee
good performance in another. The Hospital Report Research Collaborative, for example, has
failed to find consistently high-performers across years or domains of performance.
This paper suggests that boards have an important role in helping their hospital to look at
performance from an integrated way – not by creating competing measures or scorecards or
focusing on one domain to the exclusion of all others, but by more closely reviewing,
harmonizing and acting on the multi-factorial performance information that is already provided
to, and available from various stakeholders within their accountability web.
In „distributed governance‟ environments, boards exercise control by systematically enabling
internal and external stakeholders to more carefully scrutinize the integrity, effectiveness and
outcomes of their organization from an integrated perspective. This approach relies on much
more open flow of information and much better ways of dissecting and incenting good
performance and managing the conflicts and reputational hits that will inevitably arise. Indeed,
informed healthcare consumers and the rise in popularity of the internet and social media are
already forcing both hospitals and healthcare professionals, including physicians, to deal with the
consequences of free-flowing information and more diffuse governance structures.
This paper presents an integrated multi-level conceptual framework to guide the study of
governance based in part on an emerging “third logic” of organizations summarized in Table 4.3
58
(Baker & Branch, 2002). Building on emerging views of the organization as a nexus for
networks, collaboration and a multi-focal orientation, this framework defines organizational
performance broadly and hypothesizes that it is dependent on both “governance capacity” and
“organizational monitoring and alignment capacity.”
Table 2.3 The Changing Logic of Organizations
LOGIC I LOGIC II
LOGIC III
Bureaucratic Control Engagement Networking and Collaboration Internal Orientation External Awareness and
Adaptation External Positioning Orientation
Internally Oriented Hierarchical Relationships and Processes
Internally Oriented Lateral Relationships and Processes
Externally Oriented Relationships, Partnerships, and Alliances
Generic Organizational Design Contingent Organizational Design Flexible and Fluid Network Design Organization Designed around Internal Functions
Organization Designed around Externally Oriented Products and Customers
Organization Designed to Effect Positioning in External Environment
Primary Value-Added Is Management
Value-Added of All Employees Value-Added of Partnerships and Alliances
Management Focus Leadership Focus Facilitation Focus Source: Baker and Branch, 2002, p. 10.
Consistent with stewardship theory, this paper also argues that there is little empirical evidence
to justify the arbitrary line drawn between „independent‟ part-time volunteer board members,
and „insiders‟ – the senior executives and physicians (and to a lesser extent, nurses) who populate
hospital governance structures and control much of the decision-making and decision-
monitoring that occurs at that level. Governance relies heavily on the ability of both groups to
put relevant knowledge, skills and networks to good use and work together towards a common
purpose. In essence, board governance is a bundle of responsibilities circumscribed by varying
organizational needs and environmental demands. As long as the „governance space‟ is
adequately filled, and governance and organizational outcomes are open to rigorous and
consistent scrutiny and tracked over time, it matters little whether it is volunteer board members ,
clinicians or administrators who lead the charge.
Currently there is no comprehensive program of research on healthcare governance in Canada.
We know little about the men and women who serve on hospital boards and committees and
what contributions they make to organizational or system decisions. We know little about what
impact those decisions have on performance and the role of networks and incentives on how
performance is construed, measured and monitored at all levels. We know little about which
59
governance practices actually matter and whether corporate or association-led education and
training programs or peer governance networks are effective. We also know little about the
impact of recent legislative efforts to make boards and senior executives more accountable, their
decisions more transparent and their compensation more dependent on outcomes. The time has
come for governments and funding bodies to invest in a long-term, collaborative program of
research that will answer the questions: in an era of distributed governance, what is the unique
contribution of healthcare boards? Are they living up to their promise?
60
Appendix 2.1 Summary of Selected Empirical Studies of Hospital, Non-Profit and Corporate Governance
Authors Sample Variables Findings Alexander & Lee, 2006
Study of 950+ US hospitals that participated in one or both 1985 and 1989 AHA governance surveys
Governance Configuration: degree of conformance with 8 features of corporate governance model
Financial Performance: efficiency, occupancy, adjusted admissions, market share and cash flow (all operational and financial measures averaged over 4-year period)
Positive association between corporate governance configuration and operational efficiency, adjusted admissions, market share. Public, free-standing hospitals more likely than private or system hospitals to show relationship between governance configuration and performance.
Boeker & Goodstein, 1991
Study of 290 California NP and FP hospitals based on 7 years of data (1980-1986) from the California Health Facilities Commission
Board Composition: change in % physicians, hospital executives and business executives on the board before and after introduction of prospective payment system
Financial Performance: Occupancy and profitability
Poor performers more likely than good performers to change their board composition in response to environmental changes. For example, hospitals with low occupancy added significantly more physicians to their boards. Hospitals in more competitive environments added more business executives. Less profitable hospitals tended to add more hospital executives to their boards.
Bradshaw, Murray & Wolpin, 1992
Survey of 1,200 nonprofits across Canada conducted between Dec 1990 and Feb 1991. 417 organizations responded, including 96 healthcare organizations.
Board Processes (13 measures: common vision, origin of vision staff leader, origin of vision board leader, strategic planning, involvement in operations, meeting management, intra-board conflict, board-staff conflict, existence of core group, core group as positive force for change, hours spent by officers, hours spent by board members, number of full board meetings)
Board Structure (3 measures: degree of formalization, horizontal complexity, size)
Board Performance (2 measures – satisfaction with board; satisfaction with performance of board functions)
Organizational Performance (4 measures: perceived effectiveness in carrying out mission, perceived reputation; % change in annual budget, deficit as % total budget)
Positive association between perceived board effectiveness and satisfaction with board performance and 11 board processes including strategic planning, common vision, good meeting management practices, hours spent on board work, presence of an active core group that brings about positive change, low levels of conflict, formalization and number of committees and interestingly, board involvement in operations. Only six of the 13 board process measures were related to objective organizational performance measures. Board-staff conflict and absence of strategic planning, common vision, active informal group and poor meeting management were associated with budget deficits. Board processes and structure explained 26% of variation in perceived organizational effectiveness and 21% of variation in perceived reputation, 10% of variation in budget increases and 25% of variation in deficit as % total budget. Board involvement in operations was associated with budget increases (3% of variance). Strategic planning explained 13% of variance in budget deficits and absence of intraboard conflict another 4%.
61
Brown, 2005 Nonrandom sample of 202 nonprofit human services organizations in the LA and Phoenix metropolitan areas
Board Attributes: board size, frequency of board meetings
Board Performance: six dimensions of effective boards contextual, political, strategic, analytic, educational, interpersonal (as measured by slightly shorter Board Self-Assessment Questionnaire)
Organizational Performance: perceived organizational performance as assessed by modified five-item scale developed by Herman and Renz. Financial performance: total revenues/total expenditures, total contributions/total revenues, total revenue/total fundraising expense, net revenue (total revenues- total expenses)
Board size and frequency of meetings were not associated with organizational performance but were associated with some dimensions of board performance. Larger organizations as measured by staff or budget also reported higher levels of board performance. Larger and older organizations performed better on some aspects of financial performance. There was a correlation between board performance on analytic and interpersonal dimensions and net surplus, and strategic and political dimensions and net revenues. Perceived organizational performance as assessed by board and executives was correlated with strategic, analytical and contextual board performance. Regression analysis failed to find a relationship between net revenue and board performance, although organizational size and age accounted for 8% of the variance. The interpersonal dimension of board performance reported by CEOs explained 12% of the variance in organizational effectiveness as perceived by board members. Both strategic and interpersonal dimensions explained variance in organizational performance as judged by executives.
Callen, Klein & Tinkelman, 2003
95/107 large NPs in New York state. Governance survey data collected in summer 1995. 1994, 1995, 1996 financial data obtained from administrative sources
Board Composition: presence of major donors on the board; key committees
Financial Performance: three measures of efficiency -administrative expenses ratio, fundraising expenses ratio, program expenses ratio
Proportion of major donors on the board is associated with decreased administrative expenses and lower ratio of total expenses to program expenses. Presence of major donors on finance committee is positively related to administrative expense efficiency. No association between presence of major donors on other board committees and nonprofit efficiency.
Daily & Dalton, 1994
50 matched pairs of bankrupt and solvent US firms in 1990. Data for 3 time periods
Board Independence: CEO/Board Chair, % of interdependent/ independent board members, number of independent directors
Financial Performance: Profitability, liquidity, leverage, working capacity as % of sales
Firms with joint CEO/Board chair structures and lower proportions of independent directors 5 years and 3 years prior to bankruptcy are more likely to go bankrupt.
62
Dulewicz & Herbert, 2004
Survey of board chairs of 86 UK companies. 1997 board data linked to performance in 1998, 1999 and 2000.
Board Composition and Structure (10 measures)
Board Practices (117 tests related to 16 tasks)
Financial Performance: two measures, 1) cash flow return on total assets (operating profit before interest, taxation, depreciation and amortization / total assets) and 2) sales turnover
No relationship between performance and board independence, structure or stakeholder engagement. There was a positive relationship between performance and effective communications. There was a negative relationship between performance and degree of current board involvement in planning and internal monitoring. There was a positive relationship between subsequent firm performance and four areas identified by board chairs as having potential to improve: vision/mission/values, efficacy of internal controls, delegation, and rewarding performance.
Eldenburg, Hermalin, Weisbach & Wonsinska (2003)
486 California acute care hospitals including FPs, religious NP, other NP, hospital district and government. Data from 1980-1996
Board Composition: Board turnover, CEO turnover, % outsiders/insiders, % physicians
Financial Performance: income margin, administrative expenses, uncompensated care (charity care, bad debt)
Board size and composition varies systematically across ownership types. Board turnover associated with poor performance and low levels of uncompensated care, although there are differences by ownership type. CEO turnover associated with poor performance, high administrative costs and high levels of uncompensated care.
Finegold, Benson & Hecht (2007)
Review of 105 empirical studies published between 1989 and 2005 (updates review by Zahra and Pearce in 1989)
Board Characteristics: chair/CEO duality, insider/outsider ratio, size, board ownership, director compensation
Board Performance: Shareholder activism, corporate governance ratings
Financial Performance: financial (accounting) and stock market measures
Chair/CEO duality was not associated with stock market measures of performance; mixed results for measures of financial performance. Board independence beneficial during periods of strong financial performance, detrimental during periods of weak performance; mixed in times of crisis. Lower performing firms more likely to add independent directors though no consistent link between insider/outsider ratio and performance. Studies of board size, ownership and director compensation had similar mixed results.
63
Gill, Flynn & Reissing (2005)
Nonrandom sample of 32 Canadian nonprofit agencies
Board Performance: 144 items covering: 1) structure, 2) culture, 3) responsibilities related to mission/planning, financial stewardship, human resources stewardship, performance monitoring and accountability, community representation and advocacy, risk management, 4) board processes and practices related to board development, board management and decision-making and two summary measures: a) a board effectiveness quick check and an overall governance quotient. A third summary measure assessed perceived degree of board comfort in asking challenging questions, preparedness for meetings and overall board effectiveness
Board/ED Characteristics: board attendance in past year, average annual turnover, ED turnover in past 10 years, governance model, board size
Organizational Effectiveness: board, CEO/ED perceptions of how well the organization functioned and how consistently it achieved objectives. External stakeholder (funder/other service provider) were also asked to rate the focal organization relative to others on 10 aspects of performance
Study undertaken to validate a governance self-assessment checklist (GSAC). All subscales were moderately to highly correlated. Board member and external reviewers‟ assessment of organizational effectiveness were strongly correlated; the degree of concordance between latter two and executive director assessments was not as strong. The GSAC summary measures as assessed by the board explained 63% of the variance in external ratings of organizational effectiveness, while the ED governance ratings explained only 33%. Highest rated areas were: board culture, community representation and financial stewardship. The areas that received the lowest ratings and therefore had the biggest potential for improvement pertained to board development and board responsibilities related to mission/planning, human resources stewardship, performance monitoring and accountability, and risk management. There was a negative relationship between annual board turnover and the summary governance measures; no relationship was detected between governance or organizational performance and ED turnover, board size, governance model or organizational size as determined by budget or number of staff.
Golden & Zajac, 2001
3,198 US hospitals that participated in 1985 and 1990 AHA surveys
Board Characteristics: size, tenure, age, occupational heterogeneity, business orientation, attention to strategy, comprehensiveness of CEO evaluation, power
Board Strategy: strategic change defined as service addition or divestiture
Small board size, low tenure, younger proportion of board members, occupational heterogeneity, business orientation, attention to strategy were positively related to strategic change and these results are more pronounced among more influential boards. The association between board member age and strategic change was linear. Other relationships were curvilinear (inverted U shape), suggesting a possible explanation for contradictory research findings.
Goodstein, Gautam & Boeker, 1994
334 NP, private and government California hospitals in 1980-1985
Board Characteristics: size, occupational diversity and outside representation
Board Strategy: strategic changes defined as additions, divestitures or reorganizations
Three measures of strategic change positively correlated with one another but negatively correlated with board size, occupational diversity and proportion of outsider board members. A subsequent study (Gautam and Goodstein, 1996) found that boards with higher proportions of insiders and business directors made more service changes in response to the introduction of the Prospective Payment System in 1982.
64
Herman & Renz, 2000
46 randomly selected nonprofit United Way and developmental disability agencies in one US metropolitan area
Board Practices: % of 25 dichotomous board practices adopted. Board practices index based on practices frequently recommended in normative literature and suggestions from nonprofit leaders
Board Effectiveness: self-assessment tool completed by CEO, two board officers and two funders
Organizational Performance: organizational effectiveness as assessed by board president, two senior managers and two funders
Wide divergence in perceptions of board effectiveness. Significant differences in reported board practices between top and bottom 10 nonprofits studied, with more effective boards reporting greater use of board self-evaluation, written expectations about giving and soliciting contributions, and the role of CEO in board nomination processes. There was also a statistically significant correlation between using board practices and perceived organizational effectiveness.
Ibrahim, Angelidis & Howard, 2000
184 directors from 15 hospitals in 3 SE states
Board Characteristics Performance: Corporate social responsiveness
orientation measured by validated tool that tests economic, legal, ethical and discretionary activities
Board members with a non-health care background show greater concern with economic performance and legal issues but are not significantly different from those in health care with respect to ethical and discretionary dimensions.
Jiang, Lockee, Bass & Fraser, 2009
490 US hospitals. Public and survey data from 2006
Board Practices: based on 27 survey questions Quality and Overall Performance: Processes of
care related to 3 conditions (heart attack, heart failure and pneumonia) and risk adjusted mortality for same conditions based on Hospital Compare
Better process and outcome performance associated with board practices including: having a board quality committee, having QI strategic goals, involvement in setting hospital quality agenda, including quality item on board agenda, using a dashboard with national benchmarks for clinical quality, patient safety and patient satisfaction, and linking executive pay to quality and safety performance.
Judge and Zeithamal 1992
42 CEOs and 72 directors (114 board members) from 42 privately-owned general medical hospitals, biotech firms, textile firms and diversified Fortune 500 companies
Board Characteristics: size, insider representation
Board Practices: board involvement in strategic decision-making (formation and evaluation)
Financial Performance: measured as average return on assets between 1985 and 1989.
Organizational age was positively associated with board involvement in strategic decision-making. Organizational diversification and board size and level of insider involvement was negatively associated with board strategic involvement. Board involvement in strategy development/evaluation was positively related to financial performance.
Kroch, Vaughn, Koepke, Roman, Foster, Sinha & Levey 2006
109 hospitals from 9 US states
Board Monitoring: as measured by Dashboard Implementation Survey
Overall Performance: CareScience Quality Index and Solucient Top 100 Hospital Ranking
Both hospital performance measures were correlated with board involvement in the development of dashboard content. Those whose board quality committees and medical staffs were highly involved had significantly higher performance. High-performing hospitals had slightly fewer dashboard measures (26 versus 30), had used the dashboard longer and reviewed it more frequently (i.e., monthly or more) and with more groups (full board, board quality committee, medical staff, middle management, general staff).
65
McDonagh, 2006
64 nonprofit hospitals across US based on data from 2004 and 2005
Board Effectiveness in 6 areas of competency (contextual, educational, interpersonal, analytical, political and strategic) as measured by the Board Self-Assessment Questionnaire
Overall Performance: Hospital financial and quality performance as determined by Solucient 100 Top Hospitals
The 6 areas of competency reduced to a single factor of effective board functioning. Higher performing boards had higher profitability and lower expenses. Interestingly, BSAQ respondents most of whom were CEOs did not believe that board performance was correlated with financial performance. Hospitals with lower BSAQ scores on political dimension performed better on Solucient rankings.
Molinari, Morlock, Alexander & Lyles, 1993
90 short-term general hospitals in California. 1985/1989 data
Board Characteristics: Independence measured as: No insiders; CEO participation; CEO and medical staff participation; insider and business outsider participation
Financial Performance: Financial viability (8 measures)
Hospitals with no CEO or medical staff participation had worse operating margins, ROA, bad debt and net plant, property and equipment ratios than other hospitals. Compared with hospitals with no insiders on their board, those with only one insider category had significantly better operating margin, ROA and bad debt. There was no difference between the financial performance of hospitals with insider representation versus those that also reported outsider participation. A subsequent study (Molinari, Hendryx and Goodstein, 1997) found that hospitals with CEOs who participated on the board or had voting rights had significantly better operating margins. The presence of a CEO job contract or changes to that contract had no effect on performance.
Pearce & Zahra, 1991
69 Fortune 500 manufacturing and 70 Service 500 service companies
Board Characteristics: independence, expertise, role involvement, representation of diverse interests and ethical conduct; board composition (size, female directors, minority directors, outside directors), board process and style, perceived board effectiveness
Financial and Overall Performance: 3 year average earnings per share, stock financial strength, subjective ratings
Four board types (caretaker, statutory, participative and proactive) identified. These differed significantly on board characteristics, board process and decision-making style but not on board composition, with the exception of number of female directors. CEOs perceived proactive and participative boards as more effective than caretaker or statutory boards. Board types also differed significantly on both subjective and objective performance ratings with proactive and participative boards in particular associated with higher performance.
Provan, 1987 303 US nonprofit community hospitals
Board Characteristics related to independence: CEO board member, % physician board membership
Board Decisions: adoption of cost containment policies (scale 0-4)
After controlling for external involvement and hospital characteristics, physician board presence was not related to adoption of cost containing policies, although CEO board membership was.
66
Provan, 1991 287 US nonprofit community hospitals
Board Characteristics and Monitoring Practices: % of 18 reports routinely received by CEO, medical staff and board; perceived influence of 3 groups over 4 decisions (purchase of medical equipment, clinical service merges, changes in payment method for hospital-based specialists and adoption of pre-admission testing program), CEO board participation
The CEO dominated the flow of information, received the most information and had least perceived influence over decisions. Receipt of information by boards and medical staff was correlated with influence over hospital decisions. Hospital size was strongest predictor of receipt of information. Medical staff of local and state-funded hospitals were also more likely to receive internal administrative information than voluntary or religious hospitals.
Prybill, Peterson, Price, Levey, Kruempel & Brezinski, 2005
7 matched pairs of private nonprofit US hospitals in 7 states
Board Characteristics and Practices: % medical staff board voting members, board member involvement in 8 functions
Overall Performance: high performing and mid-range performers included in 3 Solucient 100 top hospitals published between 1999-2003
Higher performing hospitals most likely to report higher levels of physician engagement (e.g., physicians comprise 25% of more of board voting members) and board involvement. They are also more likely to report having boards that question and deliberate constructively before decisions are made.
Succi & Alexander, 1999
1220 US community hospitals. Survey data collected in 1993
Board Characteristics: Physician involvement in hospital management and governance (3 item index that captured whether physicians were board voting members, paid to consult on administrative issues or compensated for administrative positions)
Organizational Characteristics: Medical staff size, diversity, % salaried primary care and specialist physicians
Financial Performance: ratio of net income plus depreciation divided by total assets.
Medical staff size, diversity and % primary care physicians related to hospital inefficiency. Physician involvement in management and governance activities was positively related to hospital inefficiency. Physician executives/board members had a positive effect on hospital efficiency when medical staffs were larger, less diverse and composed of fewer salaried primary care physicians (% of salaried specialty care physicians has no effect).
Vaughn, Koepke, Kroch, Lehrman, Sinha & Levey, 2006
413 hospitals in 8 US states. Data collected in 2005
Board Practices: Executive QI Survey
Quality Performance: CareScience Quality Index
High-performing hospitals more likely to have boards that spent 25% of their time on quality, received a formal quality performance measurement report, reported high levels of interaction with medical staff, identified the CEO/COO as having the greatest impact on QI and based senior executive compensation in part on QI performance.
Wagner, Stimpert & Fubara, 1998
Meta-analysis of 30 samples; 259 large US companies
Board Characteristics: Insider/Outsider board representation
Financial Performance: return on equity, return on assets, profit-margin, sales, stock performance, etc
Greater presence of insiders and outsiders associated with improved performance, suggesting curvilinear relationship (inverted U-shaped relationship) between board insider/outsider composition and return on assets measures but not return on equity measures. Authors hypothesize that ROA reflects unique capabilities of both inside directors to improve efficiencies and outside directors to generate income.
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Weiner, Shortell & Alexander, 1997
2,193 acute care community hospitals based on data from 1989 and 1993
Leadership CQI/TQM Involvement (5 measures: CEO involvement in 13 CQI/TQM domains, board quality monitoring of up to 10 measures, board activity in quality improvement, active staff physician involvement in governance, and physician-at-large involvement in governance)
Clinical CQI/TQM Involvement (4 measures: physician participation in formal QI training, physician participation in QI teams, n of 9 clinical departments with formally organized QA/QI project teams, and n of 15 clinical conditions and procedures for which quality of care data are used by formally organized QA/QI project teams)
CEO CQI/TQM involvement significantly and positively related to physician participation in formal QI training, clinical departments with formally organized QA/QI projects, and clinical conditions for which quality of care data are used by formally organized QA/QI project teams. Board quality monitoring positively related to four clinical involvement measures. Board activity in quality improvement was related to all clinical measures except clinical departments with formally recognized QI projects. Active staff physician involvement on the board was positively related to all clinical involvement measures, while involvement by physicians at large was negatively related to physician participation in formal QI training, clinical conditions for which quality of care data are used by formally organized QA/QI project teams, and clinical departments with formally organized QA/QI project teams. Cash flow performance (a control variable) was related to 3 clinical involvement measures.
Westphal, 1999 243 CEOs and 564 outsider directors from sample frame of 600 Forbes 1000 index of industrial and service companies. Based on data from 1995
Board and CEO Characteristics; Monitoring Practices: (% board appointed during CEO‟s term, CEO-board friendship ties), CEO incentive alignment (CEO share ownership, extent to which CEO compensation tied to achievement of specific performance goals), advice and counsel and monitoring (two multi-item scales)
Financial Performance: return on equity, market-to-book value of equity
CEO-board friendship ties and % board appointed during CEO tenure unrelated to level of board monitoring but positively related to level of advice and counsel on strategic issues. Level of board monitoring and provision of advice and counsel both positively associated with subsequent firm performance. Social ties do not reduce level of board monitoring and enhance the role of outside directors in providing advice and counsel on strategic issues. Social ties likely to increase advice-seeking in cases where director expertise was high. Interaction between incentives and social ties suggests that incentives may have a beneficial impact on performance when CEOs able to take advantage of board social capital.
Young, Stedham & Beekun, 2000
130 short-term private California hospitals with data from 1989
Board Independence: independent board chair, outsider representation, % board members appointed during CEO tenure
Board Decision: Board adoption of formal CEO evaluation process
Formal CEO performance evaluation associated with lower CEO tenure and board chair independence but not with other board variables. Institutional variables (competition and managed care penetration) explained more variance than board or control variables (financial performance, size, CEO tenure and system affiliation).
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Appendix 2.2 Selected Governance Reviews, Codes and Guidelines:
US, UK and Canada16
Source Document Year Jurisdiction Focus
Corporate Sector
US Congress Sarbanes-Oxley Act (SOX) 2002 US Corporations
Toronto Stock
Exchange
Where were the Directors? Guidelines for
Improved Corporate Governance in Canada
(Dey Report)
Five Years to the Dey (Corbin) – with Institute of
Corporate Directors
Beyond Compliance: Building a Governance
Culture. Final Report of the Joint Committee on
Corporate Governance (Saucier Report) – with
Chartered Accountants of Canada and TSX
Venture Exchange
Multilateral Policy 58-201: Effective Governance
-with other provincial/ territorial securities
regulators
1994
1999
2001
2004
Canada
Companies listed
on Toronto Stock
Exchange
Canadian
Council of Chief
Executives
Governance, Value and Competitiveness. A
Commitment to Leadership
2002 Canada
Large
corporations
Canadian
Coalition for
Good
Governance
Governance Self-Appraisal Form
Corporate Governance Guidelines for Building
High Performance Boards
Executive Compensation Guidelines
Best Practices for Compensation Disclosure
2003
2005
2006
2007
Canada Public
Corporations
UK Financial
Services
Authority
Combined Code on Corporate Governance 2003 UK
Corporations
Broader Public and Nonprofit Sectors
Independent
Commission on
Good
Governance in
Public Services
The Good Governance Standard for Public
Services (Langlands Report)
2005 UK
Publicly-funded
organizations
and partnerships
Auditor General
of Canada
Annual Reports
… Canada
Federal
Government and
Crown
Corporations
16
See also Appendix 3.1
69
Source Document Year Jurisdiction Focus
Treasury Board
of Canada
Guidelines for Audit Committees in Crown
Corporations and Other Public Enterprises
Meeting the Expectations of Canadians – Review
of the Governance Framework for Canada‟s
Crown Corporations
2003
2005
Canada
Federal Crown
Corporations
Panel on
Accountability in
the Voluntary
Sector
Building on Strength: Improving Governance and
Accountability in Canada‟s Voluntary Sector.
Final Report of the Panel on Accountability in the
Voluntary Sector (Broadbent Report)
1999
Canada
Non-Profit Sector
Government of
British Columbia
Best Practice Guidelines
Standards of Ethical Conduct for Directors of
Public Sector Corporations
2005
2005
Canada -
British
Columbia
Public sector
including health
authorities
Healthcare
Alberta Health
and Wellness
Governance Expectations of Alberta‟s Health
Authority Boards
2001 Canada -
Alberta
Health
Authorities
Ontario Hospital
Association
Hospital Governance and Accountability in
Ontario (Quigley and Scott)
Guide to Good Governance (Corbett & Mackay)
Quality and Patient Safety: Understanding the
Role of the Board (Corbett, Baker & Reinertsen)
2004
2005
2008
Canada -
Ontario
Hospitals
National Quality
Forum
Hospital Governing Boards and Quality of care:
A Call to Responsibility
2004 US
Hospitals
Center for
Health Care
Governance
Building an Exceptional Board. Effective
Practices for Health Care Governance - Report
of the Blue Ribbon Panel on Health Care
Governance
2007 US
Hospitals
Institute for
Healthcare
Improvement
Governance Leadership (Boards on Board): 5
Million Lives Campaign
2007 US Hospitals
Canadian
Council on
Health Services
Accreditation
(now
Accreditation
Canada)
Governance Check-Up. Guidance for Healthcare
Organizations - with CCAF-FCVI
Patient Safety Required Organizational Practices
QMentum Governance and Leadership
Accreditation Standards
1998
2005
2008
Canada
Healthcare
sector
Canadian
Health Services
Research
Foundation and
Canadian
Patient Safety
Institute
Effective Governance for Quality and Patient
Safety in Canadian Healthcare Organizations
(Baker et al.)
2010 Canada Hospitals
70
Appendix 2.3 Operational Reviews and Governance Facilitator and
Supervisor Appointments, Ontario, Canada: 1997-200817
Hospital Review Type and Year Rationale/Purpose Addiction Research Foundation, Clarke Institute of Psychiatry, Donwood Institute and Queen Street Mental Health (now the Centre for Addiction and Mental Health)
HSRC Governance Facilitators – G Scott; M Quigley (1998)
To facilitate amalgamation of four mental health facilities in keeping with Health Services Restructuring Commission directions
Ajax Pickering (now part of Rouge Valley Health System)
HSRC Governance Facilitator – A Szende (1999) Finance and Service Agreement Review (Jan 2003)
To facilitate amalgamation of Centenary Health Centre and Ajax Pickering General in keeping with Health Services Restructuring Commission directions
To identify opportunities to improve operating results through a) changing cost structure; b) changing the scope and size of services
Bluewater Health (formerly St Joseph‟s Hospital Sarnia)
Peer Review (2005) Management and Governance Investigation (2007)
To provide an assessment of hospital operations in order to develop a Balanced Budget Plan. To develop model of palliative care delivery that preserves quality programs and services, expands palliative services, integrates community and institutional care
To review: a) communication issues between the board and the communities served by the hospital; b) systemic issues between board and its physicians to help increase the community‟s confidence in the hospital‟s services; c) recommendations contained in the 2005 Peer Review Report and the recent reviews of the hospital‟s surgical program.
Brockville General Hospital
Performance Review (2003)
To identify strategies to return the hospital to a positive financial position
Cambridge Memorial Hospital
Operational Review (2000)
To assess hospital operations
Chatham-Kent Healthcare Alliance
Operational Review and Clinical Audit (Sep 1999)
To address deficit financial position
Children‟s Hospital of Eastern Ontario
Operational Review (Apr 1999)
To provide an objective assessment of the hospital and identify a financial plan to achieve positive operating results
Cornwall General, Cornwall Hotel Dieu, Glengarry Memorial
Operational Review (Aug 2000)
To resolve anticipated operating funding shortfall
Collingwood General and Marine Hospital
Operational Review and Clinical Audit (Oct 1997)
To provide an assessment of the hospital‟s programs and services to maximize efficiency and to review funding base
Doctors Hospital (closed)
HSRC Governance Facilitator – M Delaney (1998)
To transfer the operation and management of programs and services to The Toronto Hospital (now part of the University Health Network) in keeping with HSRC directions
Douglas Memorial Hospital Fort Erie (now part of Niagara Health System)
HSRC Governance Facilitators – G Scott; M Quigley (1998) Supervisor - J Bailey (Feb 2000)
To facilitate amalgamation of St Catherine‟s General, Greater Niagara General, Welland County General, Shaver, Douglas Memorial, Niagara on the Lake, Niagara Rehabilitation Centre and Port Colborne General in keeping with HSRC directions unsuccessfully challenged in court by Douglas Memorial
Board replaced by standing committee of amalgamated board pursuant to directions issued by Health Services Restructuring Commission
17
See also Appendix 3.2 and 3.3.
71
Hospital Review Type and Year Rationale/Purpose Four Counties Hospital Newbury (now part of Middlesex Hospital Alliance)
Supervisor - G Davies (Aug 2002)
Board resigned
Grand River Hospital Investigator - G Paech (Jun 1997) Peer Review (June 2006) Emergency Department Review (2006) Supervisor – T Closson (2006)
To address growing deficit, including concerns regarding financial position, contravention of Ministry policy, ongoing viability, leadership
To develop comprehensive expenditure control plan, strategies, processes and practices to achieve balanced position by Mar 31, 07 and beyond
To review the management of emergency services and assist the hospital in resolving the operating issues in the emergency department as identified by the hospital‟s medical staff. Supervisor appointed to implement recommendations
Guelph General Focused Org Analysis - Capital and Financial Review (Aug 2002)
To describe and evaluate planning and decision-making processes related to capital redevelopment project
Hamilton Health Sciences
Operational Review (Apr 2000) Supervisor - R Mulchey (Apr 2000 – Mar 2001)
To determine reasons for financial deficit and develop multi-year recovery plan
Hospital for Sick Children
Peer Review (2005) To provide recommendations to help HSC to achieve a balanced position by March 31, 06.
Hotel Dieu Hospital, Kingston w/ Kingston General Hospital
HSRC Governance Facilitators – M Decter and A Hudson (1998) Peer Review (Jun 2005)
To investigate the potential for an interim agreement between Hotel Dieu Hospital, Kingston General and Providence Continuing Care regarding implementation of Health Services Restructuring Commission directions and following unsuccessful court challenge by Hotel Dieu initiated to transfer inpatient services to Kingston General
To assist hospital to achieve balanced position by end of 05/06 and provide advice on sustainable strategies to maintain balanced budget
Joseph Brant Memorial Hospital
Peer Review (2005) To determine if there are opportunities to improve administrative and clinical utilization efficiencies towards balancing hospital budget in 2005/06
Kingston General Hospital
Operational Review (Jan 1999) Peer Review w/ Hotel Dieu Hospital (May 2006) Investigator – G Scott (2008)
To provide objective assessment of hospital and financial plan to achieve positive operating results and multi-year plan to eliminate the working capital deficit and long-term debt
To investigate and document reasons hospital is incurring deficits and develop plans to achieve 0 Total Margin
To review and report on the management and governance of the hospital including planning and decision-making with regards to budgeting and the efficient delivery of health services; implementation status of several reports, peer reviews and studies that the hospital has received to help it more effectively manage its operations and he impact of its teaching hospital responsibilities on service delivery and management
Lakeridge Health Corp HSRC Governance Facilitators – G Scott and M Quigley (1998-99) Focused Capital Review (2002) Peer Review (2006)
To facilitate the amalgamation of Whitby General Hospital, Oshawa General Hospital, North Durham Health Services and Memorial Hospital, Bowmanville in keeping with HSRC directions
To determine process improvements and work to move forward on construction of wing of Regional Cancer Centre
To develop plan to bring hospital to balanced position
72
Hospital Review Type and Year Rationale/Purpose London Health Sciences w/ St Joseph‟s Health Care
Clinical, Operational and Financial Review (Mar 2000) Peer Review (Jun 2006)
To review reasons for operating and working funds deficits and identify steps and timelines for achieving balanced budget
To develop detailed plan to achieve balanced position and ensure long-term financial health of London Hospitals
Montfort Hospital Review (2005) To review Post Construction Operating Plan PCOP allocation associated with proposed 47 acute care bed expansion
Niagara Health System and Hotel DIeu HSC
Minister‟s Designate - D Timbrell (Nov 2002)
To implement restructuring plan in keeping with HSRC directions
Norfolk General Peer Review – M Martin (Oct 2006)
To analyse financial, statistical and clinical utilization data and identify opportunities to improve operations and reduce costs
North Bay General Hospital
Peer Review (2005) To identify factors contributing to operating losses since 2001; determine clinical utilization improvements, level of global budget subsidization of extra vote programs and assess management practices and processes, corporate oversight mechanisms, management controls, etc.
North York Branson w/ North General
HSRC Governance Facilitator – H Kelly (1998)
To develop a plan to transfer responsibility for the operation and management of programs and services at North York Branson to North York General in keeping with HSRC directions
Northeast Mental Health Centre
HSRC Governance Facilitator – M Watts (1998)
To create a governance structure for the new Northeast Mental Health Centre in keeping with HSRC directions
Northumberland Health Care Corporation (now Northumberland Hills Hospital)
HSRC Governance Facilitator – T Armstrong (1998)
To assist the board to structure changes in keeping with Health Services Restructuring Commission directions
Oakville Trafalgar w/ Milton General and District (now Halton Healthcare)
HSRC Governance Facilitator – C Halpin (1998)
To facilitate the amalgamation of Oakville Trafalgar Memorial and Milton General and District in keeping with HSRC directions
Owen Sound Health Corp
Operational Review (Jul 1999)
To improve clinical utilization; to improve delivery of quality health services in multi-site system, to analyse financial management so as to decrease operating deficit and erosion of working capital
Ottawa Hospital Corp HSRC Governance Facilitators – G Scott and M Quigley (1998) Operational Review and Clinical Audit (Jun 2001) Supervisor D Timbrell (Jul 2001-Sep 2002) Peer Review (2006)
To facilitate the amalgamation of the Ottawa Civic, Ottawa General, Riverside and Salvation Army Grace Hospitals in keeping with HSRC directions
To develop plan to improve management and operations resulting in positive financial position and ongoing ability to meet academic and population health needs. Supervisor appointed to implement recommendations
To help hospital to reach a balanced budget position by March 31, 2006; provide advice on sustainable strategies to maintain a balanced position in the long-term and ensure that changes have a minimal impact on the hospital‟s academic mandate, patient care, education and research
Pembroke General HSRC Governance Facilitator – H Kelly (1998)
To develop a governance plan for Pembroke General following HSRC directions to Pembroke Civic to amalgamate and transfer its programs to General. Directions were unsuccessfully challenged in court
Peterborough Regional Hospital
Operational Review and Investigation (Oct 1997)
To review operations of Peterborough hospitals. Investigators appointed to address concerns with respect to ED patient care
73
Hospital Review Type and Year Rationale/Purpose Queensway Carlton Operational Review (Feb
2001) Coach – D Carriere
To explain reason for operating and working fund deficits and identify actions to improve financial performance in light of fiscal and programmatic pressures
Quinte Healthcare Governance Review (Jan 2006) – R S Rowand
To assess capacity of board to govern effectively and make recommendations to improve governance and organizational effectiveness, including health services integration, accountability, openness and transparency
Rouge Valley Health System
Peer Review (2007) To identify strategies to achieve a balanced budget by March 31, 2008 and maintain a balanced position in future years
Royal Ottawa Health Care Group
Peer Review (2005) To develop recommendations for achieving balanced budget by March 31, 2006 and beyond
Royal Victoria Hospital Barrie
Peer Review (Apr 2005) To develop comprehensive expenditure control plan to achieve a balanced position by Mar 31, 06
St Thomas Elgin Operational Review and Clinical Audit (May 1999)
To address deficit financial position
Scarborough Hospital Supervisor – R Levitt (2007)
Supervisor to assume governance responsibilities following court challenge brought by community group regarding board decision to delay processing new membership applications The Superior Court of Justice ruled that the board had misunderstood its powers and acted unfairly
Sisters of Charity Ottawa Health Services
Special Assessment (2005)
To review cost drivers of CCC program, identify unique factors which explain current financial situation and the impact of fluctuating revenue stream on hospital
St John‟s Rehabilitation w/ St Bernard‟s Hospital
HSRC Governance Facilitators – C Sherk and L Leonard (1998)
To transfer the operation and management of St Bernard‟s Hospital to St John‟s Rehabilitation Centre in keeping with HSRC directions
Stevenson Memorial Hospital
Supervisor – M Rochon (2007)
Board resigned. New board announced in Dec 2007.
Sudbury Regional Hospital
HSRC Governance Facilitators – G Scott and M Quigley (1998) Operational Review (Nov 2002) Supervisor - G Scott (Jan 2003)
To facilitate the amalgamation of Laurentian Hospital, Sudbury General and Memorial Hospitals in keeping HSRC directions; and following unsuccessful court challenge brought by Sisters of St Joseph on behalf of Sudbury General
To review governance, management and medical staff structures, decision-making and communications; identify factors affecting financial position and develop recovery plan; identify strategies to improve clinical utilization; identify impact of restructuring; review capital project management
Sunnybrook and Women‟s
HSRC Governance Facilitators – P Cramer and F Pillemer (1998); T Heintzman (nd) Operational Review (Nov 2002) Perinatology and Gyneacology Program Review (2005) Peer Review (2005)
To facilitate the amalgamation of the Orthopedic and Arthritic Hospital, Sunnybrook Health Sciences Centre and Women‟s College Hospital in keeping with HSRC directions
To review hospital operations in light of Health Services Restructuring Commission (HSRC) directions
Focused review of HSRC directions related to siting and management of the Perinatal and Gynecology program to determine if the proposed redevelopment solution is the most efficient and effective long-term capital and operating solution for delivery of this program.
To assess management effectiveness, financial management practices, operational effectiveness and clinical utilization efficiencies allowing the hospital to achieve a balanced position by March 31, 06 and thereafter.
74
Hospital Review Type and Year Rationale/Purpose Toronto East General and Orthopaedic Hospital
Governance Review (Feb 2002) Supervisor – G Davies (Mar 2002-Jan 2003)
Divided board lost confidence of administration and physicians.
Supervisor appointed to take over governance responsibilities and establish new board
Toronto Rehabilitation Centre, Rehabilitation Institute of Toronto and Lyndhurst Hospital (now the Toronto Rehab Institute)
HSRC Governance Facilitators – G Scott and M Quigley (1998)
To facilitate the amalgamation of the Toronto Rehabilitation Centre, Rehabilitation Institute of Toronto and Lyndhurst Hospital in keeping with HSRC directions
Wellesley-Central Hospital w/ St Michael‟s Hospital
HSRC Governance Facilitator – C Hart (1998)
To facilitate the transfer of the operation and management of Wellesley-Central Hospital to St Michael‟s Hospital in keeping with HSRC directions which were unsuccessfully challenged in court
William Osler Health Centre
HSRC Governance Facilitator – M Decter (1998) Supervisor – K White (2007- )
To facilitate the amalgamation of Peel Memorial, Georgetown and District Memorial and Etobicoke General
To improve communication between the hospital and the community, reduce emergency department wait times and make sure the hospital has enough nurses and other staff to meet patient needs
Winchester District Memorial
Operational Review and Clinical Audit (Sep 2000)
To develop strategic information plan and structures and processes for board to restructure hospital and implement strategic plan, improve efficiencies and clinical utilization, examine opportunities for shared services, improve revenue and make recommendations regarding capital plan and improvements to management structures and decision-making processes
Windsor Regional/ Windsor Hotel Dieu
Focused Organizational Analysis (Jun 2002)
To identify contributing factors to operating deficits and erosion of working funds; achieve positive financial position and improve productivity and utilization management
Sources: Ontario Hospital Association (2004), Ontario Ministry of Health and Long-Term Care (2004) and http://www.health.gov.on.ca/en/public/publications/pub_ministry_reports.aspx
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Appendix 2.4 Sample Approaches to Performance Measurement in
Hospital and Non-Profit Governance Studies
Study Performance Measures
Financial Performance
Alexander & Lee, 2006 Efficiency (ratio of total expenses to beds) Adjusted admissions (sum of inpatient admissions and equivalent
admissions attributed to outpatient services)
Market share (% of total adjusted admissions in county attributable to focal hospital)
Occupancy (Ratio of average daily census to statistical beds)
Cash Flow (Ratio of net assets and depreciation to total assets) All averaged over 4 years to smooth unavoidable short-term variations
in hospital performance. One year lag between governance predictors and subsequent performance
Alexander, Lee & Weiner (2004) High/Average/Low Performance (categories based on annual adjusted admissions relative to industry moving average)
Boeker & Goodstein (1991a, b) Annual occupancy rate 1980-85
Profitability (annual net profits / revenues over same period) Change in bed capacity
Brown & Iverson (2004) Financial measures: balance, surplus or loss during previous fiscal year Perceived outcome performance, goal attainment, quality of services
and growth Callen, Klein & Tinkelman (2003) Efficiency: % admin expenses to total expenses, % fundraising
expenses to total expenses, % program expenses to total expenses
Financial health: debt capitalization as % of total assets, % total liabilities to total assets
Fundraising capacity: % donations to income Gautam & Goodstein (1996); Smith et al. (2006); Goodstein, Gautam & Boeker (1994); Molinari, Hendryx & Goodstein, 1997;
Operating margin (operating income, before interest and taxes, divided by net patient revenue)
Operating Margin (net hospital operating margin averaged over 6 years)
Golden & Zajac (2001) Occupancy (change in occupied staff beds, 1985-90)
Efficiency (change in operating expenses / change in FTEs over same period)
Goodstein, Gautam & Boeker (1994); Average ROA 1985 to 1989 / primary industry ROA over same time period
Hodge & Piccolo (2005); Trussel, Greenlee & Brady (2002)
Financial vulnerability index (weighted regression consisting of debt ratio= total liabilities/total assets; revenue concentration =sum (revenue / total revenues); surplus margin = total revenues – total expenses / total revenues; administrative cost ratio=admin expenses / total revenues; size=natural log of total assets). High scores indicate higher vulnerability
Molinari, Morlock, Alexander & Lyles (1993; 1992)
8 measures of financial performance: operating margin, net income/patient revenues, return on total assets , days in accounts receivable, bad debt, long-term debt/total assets, hospital occupancy rate, net plant, property and equipment expenditure / bed
Nobbie & Brudney (2003) Revenue/expenditures over 5 years pre and post adoption of Policy Governance model
CEO perceptions of resource acquisition measured on a 5 point scale over same period
Succi & Alexander (1999) Operational efficiency (total operating expenses / adjusted hospital admissions, each averaged over two years to increase reliability)
Succi & Alexander, 1999; Alexander & Weiner, 1998; Weiner, Alexander & Shortell (1996; 1997); Succi, Lee & Alexander (1998)
Cash Flow (net income + depreciation / total assets)
Admissions (total hospital annual admissions standardized by hospital size)
Adjusted admissions / staffed beds
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Study Performance Measures
Stakeholder Perceptions and User Satisfaction Brown (2005)
5 item scale designed to assess success in positive impact of services on users, growth in programs and services, improvement in quality of services, client/consumer satisfaction and achievement of organizational goals/objectives
D‟Aunno (1991) CEO, VP and medical dean perceptions of patient satisfaction with care received in hospital and staff satisfaction indicated by high morale, strong commitment and identity with the hospital and agreement that hospital is a good place to work
Quality and Overall Performance Jiang, Lockee, Bass & Fraser (2008) Mortality weighted average for 6 medical conditions (heart attack,
congestive heart failure, pneumonia, stroke, hip fracture and gastrointestinal bleeding)
Mortality weighted average for 6 surgical procedures (abdominal aortic aneurism repair, coronary artery bypass graft, percutaneous transluminal coronary angioplasty, craniotomy, hip replacement and carotid endarterectomy)
Overall risk-adjusted mortality for 12 indicators
McDonagh (2006) Kroch, Vaughn, Koepke, Roman, Foster, Sinha & Levey (2006)
Solucient Top 100 Hospital risk adjusted mortality rates, risk adjusted complication rates, profitability and expense per adjusted discharge
Prybil et al. (2005) Compared governance profile of matched pairs of 7 high-performing and 7 mid-range performing hospitals included in 3 Solucient Top 100 Hospital rankings between 1999-2003
Vaughn, Koepke, Kroch, Lehrman, Sinha & Levey (2006); Kroch, Vaughn, Koepke, Roman, Foster, Sinha & Levey (2006)
CareScience Quality Index combines risk-adjusted adverse outcomes for mortality, morbidity and complications with efficiency measures such as length of stay.
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CHAPTER 3
Governance Capacity: The Link between Governance Practices and Top Team Characteristics
3.0 Introduction
Ontario hospital boards face myriad governance challenges. Some are due to the way in which
accountabilities are divided in a public system funded and regulated by competing orders of
government, and managed and delivered by multiple local providers. Others are due to the
nature of health care delivery which is characterized by vulnerable populations; a technical core
of highly educated, self-governing workers; and a vast and growing knowledge base that is
challenging both constrained budgets and established hierarchies. Many hospital governance
challenges are endemic to boards themselves - relatively large, elite groups that meet only
episodically and whose perceived power and influence far outdistance their cognitive, strategic
and symbolic roles (Forbes & Milliken, 1999).
This study explores the concept of “governance capacity,” defined for the purposes of this study
as “the overall ability of boards and executive teams to work together to develop strategy,
allocate resources, and monitor performance.” Consistent with the conceptual framework
introduced in Chapter 1 and further elaborated in Chapter 4, governance capacity is
hypothesized to encompass both governance practices and board and top management team
characteristics such as size, turnover, diversity and knowledge and skills. This study begins with a
review of the literature related to the hypothesized components of governance capacity,
followed by an analysis of relevant Ontario data, and a discussion of the findings and their
implications for policymakers and researchers.
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3.1 Literature Review
Board and Top Management Team Characteristics
a. Board Size
Board size has been the subject of much scholarly attention. From an agency theory perspective,
a small board facilitates decision-making and management oversight because it requires focused
effort and active engagement by all members of the group (Jensen, 1993). From a resource
dependence perspective, a large board facilitates access to resources in the environment, and
ensures that various stakeholders are represented in organizational decision-making (Pfeffer,
1973). Thus larger boards may have more knowledge and diversity of opinion at their disposal
but engagement, coordination and conflict may pose challenges. Smaller boards on the other
hand, may be more focused, engaged and able to take decisive action. Or they may become
captive to powerful individuals, vulnerable to blinkered decision-making or simply unable to
carry out the full scope of their responsibilities due to small numbers. An institutional
perspective would also note that board size depends on industry and organizational
requirements (Pfeffer, 1972; Alexander, Weiner & Bogue, 2001; Eldenburg, Hermalin, Weisbach
& Wosinska, 2004).
Research on the relationship between board size and organizational performance is mixed. A
meta-analysis of 27 studies found a statistically significant link between market and accounting-
based measures of financial performance and larger board size (Dalton, Daily, Johnson &
Ellstrand, 1999). A study of 417 Canadian nonprofit organizations found a negative relationship
between board size and perceived organizational reputation (Bradshaw, Wolpin & Murray,
1992). Research on the banking industry over 40 years found no evidence of under-performance
among those with larger boards (Adams & Mehran, 2005). A study of 14 high and low-
performing hospitals found no difference in board size (Prybil et al., 2005; Prybil, 2006).
Research by Lynall and colleagues (2001) suggests that an inverted U-shaped relationship exists
between board size and strategic change. In Ontario, there is wide variation in the size of
hospital boards (Quigley & Scott, 2004). To date, no empirical research has been undertaken on
the relationship between board size, governance practices and various aspects of Ontario
hospital performance, including financial health.
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b. Turnover
According to agency theory, a core duty of boards is to evaluate their own and executive
performance and take action when one or both is found wanting. Thus, low turnover at the
senior levels can signal stability and satisfaction with current organizational or top team
performance. It may also signal power imbalances or stagnation. High turnover, on the other
hand, can be an adaptive reaction to poor fit or poor performance. It can also be destabilizing to
an organization, particularly if turnover is unplanned, sustained over a long period of time or
involves individuals in key positions (e.g. CEO).
In the literature, board and CEO turnover have been linked to poor financial performance
(Eldenberg et al., 2003), and both declines, and improvements in performance (Kesner &
Sebora, 1994). Annual turnover among US hospital CEOs has ranged from 14% to 18%, with
ripple effects on the turnover of other senior executives, particularly chief medical officers
(Khaliq, Walston & Thompson, 2005). In Ontario, CEO turnover hovered around 30% between
1996 and 2003 (Schraa, 2007), perhaps indicative of the consolidation activity generated by the
Health Services Restructuring Commission during that period. No up-to-date information is
available on the turnover of other executives or board members. Optimal levels of turnover have
yet to be determined, although there appears to be agreement on the need for boards and
executives to manage transitions by having processes in place to renew their membership in
keeping with evolving strategic requirements (Kesner & Sebora, 1994). To date, no research has
been undertaken in Ontario on the links between top team turnover management practices and
various aspects of hospital performance.
c. Diversity
Diversity due to differences in occupation, sex, ethno-racial background and other factors is
thought to decrease insularity and aid decision-making by introducing fresh perspectives,
prompting divergent thinking and helping groups to consider a wider array of options and
viewpoints than they would normally (Westphal & Milton, 2000). Diversity can also reduce
social cohesion, slow decision-making, increase conflict and affect the ability to engage in needed
strategic change, particularly in times of environmental turbulence (Goodstein, Gautam &
Boeker, 1994). Such challenges can be minimized through common social networks and
effective group processes (Westphal & Milton, 2000; Forbes & Milliken, 1999).
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Pressure to make hospital boards more reflective of their communities has mounted in recent
years. Hospitals unable to meet this challenge may be faced with challenges to the legitimacy of
their authority, particularly when making decisions related to the volume, location or mode of
delivery of a public good. To date, no systematic research has been carried out on the make-up
of hospital boards in Canada. Studies of large US companies suggest that gender and ethnic
diversity have a positive effect on financial performance (Erhardt, Werbel & Shrader, 2003;
Carter, D‟Souza, Simkins & Simpson, 2007). Research published by the Conference Board of
Canada found that boards with higher proportions of women tend to pay more attention to
audit, risk oversight and control, and ethical conduct (Brown, , Brown & Anastasopoulos, 2002).
Indeed, 74% of boards with three or more women had an explicit method for measuring
strategy versus 45% of all-male boards; 94% explicitly monitored strategy implementation versus
66% of all-male boards; and 86% had a code of conduct for the organization versus 66% of all -
male boards (Stephenson, 2004). Women may also affect the exercise of leadership in the
boardroom by reducing CEO dominance and promoting more collaborative decision-making
through the use of alliances, informal networks, and bridging and influencing behaviours outside
of board meetings (Burgess & Tharenou, 2002). While much of this research is correlational,
surveys of female corporate directors have found that these women are highly educated and
have more varied work and career experiences than their male counterparts. They also have
extensive and often concurrent governance networks and experience in the corporate, broader
public and nonprofit sectors (Burke, 1995, Stephenson & Rakow, 1993). It is unclear whether
such characteristics are shared by women board members of Ontario nonprofit hospitals.
d. Knowledge and Skills
Resource dependence theory argues that boards have a crucial role to play in providing advice
and counsel to the senior management team, particularly the CEO. Similarly, agency theory sees
boards as having important oversight responsibilities. Both of these functions call on high levels
of knowledge and skill directly or functionally related to the business of the organization.
Hospitals are highly complex institutions heavily reliant on knowledge workers. It is expected
that boards that possess deep knowledge relevant to the healthcare industry will be better able to
make strategic decisions that benefit both the hospital and the health system. It is also expected
that such boards would be more adept at monitoring performance and promoting ongoing
improvement. Additionally, boards that have members with countervailing and complementary
educational or occupational backgrounds will be better able to provide advice in key areas
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(Golden & Zajac, 2001). For example, Hillman (2005) found that firms with politicians on the
board tended to perform better on market-based measures of performance than those without,
and the effect was more pronounced in heavily regulated industries. A 2005 US hospital
leadership survey found significant differences in the educational, functional and career profile
of CEOs of Solucient‟s Top 100 and median-ranked hospitals (2005).18 Similar differences were
apparent with respect to other top team members. Thus, hospital boards may be able to
contribute to organizational performance through their choice of administrator and indirectly,
their top management teams or alternatively, through improved board recruitment practices. A
recent report highlighted challenges to competency-based recruitment of hospital board
members and gaps in key areas of expertise including legal and information technology skills
(Auditor General of Ontario, 2010). No up to date information is available on the educational
and functional expertise of Ontario hospital top teams.
e. Board Independence
Much of the governance literature has drawn a line between „insiders‟ and others on the board,
with inconclusive results attributed at least in part to how board independence and
organizational performance are conceptualized and measured (Daily & Schwenk, 1996; Daily
and Dalton, 1999). Physician board involvement and voting status are distinguishing features of
hospitals that score highly on Solucient rankings which emphasize both quality of care and
financial performance (Prybil et al., 2005; Prybil, 2006). In the broader literature, physician
involvement on hospital boards is associated with higher occupancy and operating margins
(Goes & Zhan, 1995; Molinari at al, 1995) and lower efficiency (Succi & Alexander, 1999).
Greater CEO board involvement on the other hand, has been associated with better operating
margins (Molinari, 1997). To date, no research has been carried out in Ontario on the
relationship between board independence, governance practices and hospital performance.
Board Practices
Prescriptions for good governance abound but evidence regarding their uptake and efficacy is
mixed. One of the earliest and best known umbrella groups to tackle the state of board
governance in Canada was the Toronto Stock Exchange. TSE‟s landmark report, Where were the
18
According to Cejka Search and Solucient (2005) 95% of Best of Breed hospital CEOs had a master‟s degree and
12% had two or more advanced degrees compared with 81% and 7% respectively of CEOs of median performing
hospitals. Best of breed CEOs were also more likely than their peers to have hospital operations experience,
experience in teaching or academic institutions, and to be promoted from within.
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Directors? (Dey, 1994) noted widespread confusion regarding the roles, responsibilities, skills and
aptitudes of effective board members; scarcity of structures and processes to safeguard the
independence of boards and audit committees, and lack of good information to enable boards to
plan and make decisions. Half a decade later, a follow-up report found some progress on the
implementation of 14 recommended practices but concluded that “the Canadian business
community has not yet fully endorsed a corporate governance culture” (Dey, 2000, p. 7).
Guidelines for the governance of crown corporations released by the federal Treasury Board
Secretariat and the Department of Finance over a decade ago recommended that boards
explicitly assume responsibility for the stewardship of the corporation, including approval of the
strategic plan, identification and management of risk, succession planning, and monitoring the
adequacy of management information systems (Neville & Larson, 1998, pp. 23-24). Subsequent
reviews of crown corporation governance processes conducted by the Auditor General of
Canada reported progress in some areas but found weaknesses in several others, most notably
confusion over whether accountability for performance rested with the CEO or the board and
chair, and failure to detect through internal audit, improper movements of public funds (Gray,
2006).
The Panel on Accountability and Governance in the Voluntary Sector (Broadbent, 1999, p. 24)
advised nonprofit boards to carry out eight tasks of effective board stewardship including: 1)
steering toward the mission and guiding strategic planning; 2) being transparent, communicating
to members, stakeholders and the public, and making information available upon request; 3)
developing appropriate structures; 4) ensuring the board understands its role and avoids conflicts
of interest; 5) maintaining fiscal responsibility; 6) ensuring that an effective management team is
in place and overseeing its activities; 7) implementing assessment and control systems; and, 8)
planning for the succession and diversity of the board. A national study of governance practices
in the Canadian voluntary sector released in 2006 (Bugg & Dalhoff) documented ongoing
challenges related to board recruitment, development and evaluation; performance
measurement; role clarity; and meeting effectiveness, among others.
In the hospital sector, the Ontario Hospital Association released a Guide to Good Governance
(Corbett & Mackay, 2005), followed two years later by a guide on quality and patient safety
(Baker, Corbett & Reinertsen, 2007) to help individual trustees to better understand and fulfill
83
their fiduciary duties and legal responsibilities19. Yet reports released by the national accreditation
agency (see Appendix 3.2), and governance and operational reviews conducted by the Ontario
Auditor General, ministry of health, Quigley and Scott (2004, pp. 5-6), and others (see Appendix
3.3) document a wide range of governance challenges in the hospital sector. These include:
limited understanding of hospital board roles and responsibilities and lack of clarity
regarding the board‟s accountability to multiple stakeholders;
weak board processes related to resource allocation and budget management and not
enough attention paid to meeting funder requirements such as pre-approval of proposed
new programs or services;
conflict-ridden relations and poor communication between the board and the
community, administrators and/or clinical staff;
misalignment between board responsibilities and processes for carrying out the board‟s
work, including committee structures that failed to clearly differentiate between
governance and management work;
an inappropriate mix of skills to fulfill the full scope of governance responsibilities, and
limited opportunities to rectify the problem due to the absence of defined board
member term limits;
inadequate or inappropriate information, and absence of formal board policies, processes
and systems to support effective board decision-making;
poor monitoring practices and controls related to credentialing, utilization management,
quality of care and financial performance.
Arguably one of the reasons for lack of progress may be that governance practices require time
and resources to implement, and the pay off is neither immediate nor immediately clear. Another
may be lack of consistency or clarity in both recommended practices and anticipated outcomes.
For example, only since the publication of guidelines for hospital annual planning submissions
and the adoption of service accountability agreements in 2005-07 has the Ontario government,
19
A common myth is that hospital boards can delegate their responsibility for quality to the medical advisory
committee. Recent research by Pomey, Denis, Baker, Preval & MacIntosh-Murray (2008) proposes that Canadian
healthcare boards improve information they receive on quality and safety and the expertise of board members to
assess and act on such information. They also propose that boards create a quality and safety plan and build
effective relationships with medical staff and senior leadership.
84
as regulator and funder, begun to enumerate explicit performance expectations of hospitals.20
And it was not until the introduction of the Excellent Care for All Act in 2010 that Ontario
healthcare boards were given the power to challenge entrenched professional hierarchies
through clear direction from government to establish quality committees, report on quality of
care, develop annual quality improvement plans, conduct patient and staff satisfaction surveys,
take action on critical incidents and tie executive compensation to improvements in quality of
care.
In the empirical literature, much effort has gone into defining good governance but considerably
less has been expended on empirical assessments of its impact (Pomey, Denis, Baker, Preval &
MacIntosh-Murray, 2008). Bradshaw, Murray and Wolpin (1992) were among the earliest
researchers to study the links between board processes, structure and effectiveness, and both
perceived and objective measures of organizational performance. In their study of 417 Canadian
nonprofits (including 96 healthcare organizations), board processes and structure explained 26%
of the variation in perceived organizational effectiveness, 21% of the variation in perceived
reputation, 10% of the variation in budget increases, and 25% of the variation in deficit as a
percentage of total budget. Boards judged to be highly effective were more likely to undertake
extensive strategic planning, share a common vision, have good meeting management practices,
have an informal core group of hardworking members and experience little internal conflict or
conflict with staff. Interestingly, low levels of board conflict were also associated with larger
organizational deficits. More recently, McDonagh (2006) examined the links between six
dimensions of board effectiveness as determined by the Board Self-Assessment Questionnaire
(BSAQ) and a variety of performance measures in a sample of 64 US hospitals. The study found
BSAQ scores, particularly those related to analytical, strategic and political competencies to be
associated with measures of profitability and efficiency.
A 2006 study of 413 US hospitals by Vaughn and colleagues found that hospitals that performed
better on a variety of quality measures were more likely to have boards that spent more than
25% of their time on quality, use a formal quality measurement report such as a dashboard,
engage medical staff on quality issues, and base executive compensation in part on quality
improvements. Jiang and colleagues (2008) uncovered small (3-4%) but significant differences in
20
A notable exception is the provincial cancer agency which has had a comprehensive cancer control plan and a
rigorous performance management and public reporting system in place for several years.
85
risk-adjusted mortality rates of hospitals with and without board quality committees. Boards with
quality committees also reported more quality oversight practices including: establishing strategic
goals for quality improvement; establishing explicit criteria for physician appointments,
reappointments and clinical privileges; devoting 10-20% of board time to quality; benchmarking
and reporting to the board on indicators of patient safety, satisfaction and quality; orienting new
board members to the organization‟s approach to quality; and evaluating CEO and executive
performance based on quality and patient safety.
The challenge with much of this research is that it is correlational, making it difficult to ascertain
whether governance drove performance or whether good performance permeated all aspects of
the organization, including governance. Nonetheless, these studies point to a relationship
between board practices, broadly defined, and board and management team characteristics. Little
empirical research has been carried out in Canada on this topic. This study aims to fill that gap.
3.2 Conceptual Model and Hypotheses
This study explores governance capacity broadly conceptualized as the relationship between
board and top team characteristics and governance practices. The conceptual model in Figure
3.1 marries governance theory and organizational demography, a perspective elaborated by
Hambrick and Mason (1984) nearly three decades ago and a driver of numerous governance
studies since. The latter holds that top management individual and group background
characteristics systematically affect decision-making processes which in turn determine
organization survival, growth and other aspects of performance. According to the upper
echelons perspective, these characteristics can be reliably measured using observable
demographic information such as education, age, experience and functional background as a
proxy. The conceptual framework below summarizes the relationships tested in this study.
86
Figure 3.1 Conceptual Model: Governance Capacity and Performance
Governance Capacity
Board Characteristics Governance Practices PERFORMANCE
TMT Characteristics
More specifically, this study draws on administrative and survey and data from Ontario, Canada
to test the following three hypotheses:
H1: Governance practices will be positively related to board characteristics including size,
independence, diversity and turnover.
H2: Governance practices will be positively related to top management team characteristics
including education, diversity and turnover.
H3: Governance Capacity (governance practices and top team characteristics) will be positively
related to hospital performance.
3.3 Research Methods
Sample
Administrative and survey data were obtained from the Canada Revenue Agency Charities
Listing, the Ontario Ministry of Finance Salary Disclosure Dataset, the Canadian College of
Health Services Executive (CCHSE) certification database, the Ontario Ministry of Health and
Long-Term Care‟s Hospital Indicator Tool, the Joint Policy and Planning Committee and two
surveys carried out by the Hospital Report Research Collaborative. Data on board size, structure
and independence was also extracted from an analysis of the bylaws of 79 hospital corporations.
A fulsome description of these data sources is contained in Chapter 1. Analyses were conducted
at the individual and board/top team levels and aggregated to the hospital corporation level.
87
No single unique identifier, including organization name, was used by all sources. In some cases,
unique identifiers changed due to mergers or corporate restructuring. Thus an index of
organizations was created for each source. A master list containing various unique identifiers was
then used to link and merge organizational-level data. This list was cross-referenced with a
hospital list obtained from the Ontario Hospital Association. Eleven partnerships/alliances
involving 26 hospital corporations were uncovered during the data due diligence process (see
Chapter 1, Appendix 1.3). For the purposes of this study, one alliance governed by a single
board that also serves as the board of the individual hospital corporations, and another alliance,
governed by a tri-board composed of members of the individual hospital corporations but which
reports to the ministry as a single entity and signs one funding and service agreement, were
treated as single corporate entities. Due to governance-related mergers during the study period
or missing data at the appropriate level of analysis, three hospitals and two alliances involving 5
hospitals were excluded from all analyses. Consistent with the organizational level of analysis,
and to maximize the number of cases in the final data set, members of all other alliances that
continue to exist as individual corporations and for which disaggregated data were available,
were treated as separate entities. The final sample consisted of 101 Ontario hospital
corporations.
Measures
Governance Practices
Hospital-level responses to dichotomous questions on 34 governance best practices in the Board
Governance Survey were obtained from the Hospital Report Research Collaborative. These
practices covered: board composition, nomination and succession; responsibilities and processes
of the board and board committees; audit committee characteristics; responsibilities and
activities of the board chair and directors; code of conduct and board ethics; board orientation
and professional development; director assessment and board information and communication
(Wagg, Tse, Seeman, Baker, Flintoff & Paul, 2006, p. 6). These data were complemented by eight
questions on board information practices reported in the Hospital Report‟s System Integration and
Change Survey (SIC), also collected in Fall 2005 (Wagg et al., 2006). These questions asked
whether the board:
88
had adopted patient safety as a written, strategic priority/goal (Q49a)
received results of audits of staff compliance with patient safety policies (Q44f)
received quarterly reports on patient safety, including changes/improvements following
incident investigation and follow-up (Q49b)
reviewed information related to physician and staff satisfaction (Q23), patient
satisfaction (Q27), Hospital Report (Q31b) or healthy workplace policies/programs
(Q40); and
had a succession plan for senior medical leadership (Q6m), nursing leadership (Q6n) and
senior management (Q6s).
For excerpts of the surveys, see Chapter 1, Appendices 1.1 and 1.2. Responses were grouped
based on theory and summed to create indices of governance practices related to Transparency
and Decision-Making; Monitoring and Independence and Membership Management. An overall
Governance Oversight Practices score was calculated based on the sum of the equally weighted
responses in these three areas. Responses to Governance Survey Question 2.10, which asked
whether board members were able to meet privately without management, were also analysed
separately as a marker of Board Independence.
Twenty-two practices in the original Board Governance Survey and one practice in the SIC survey
(Q49a) were reported by over two thirds of respondents and excluded from the final analyses
(See Appendix 3.5). Only 10% of respondents noted that the board received the results of staff
compliance with patient safety policies, therefore SIC question 44f was dropped. Also dropped
due to missing data for 22 hospitals was SIC question 31b which asked whether the organization
disseminated Hospital Report results to the board or board committees. Table 3.1 contains the
final list of governance practices examined in this study. The SIC questions were dichotomized
for consistency with the Board Governance Survey. The reworded items below reflect the cut
off points used.
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Table 3.1 Governance Practices
Elements of Interest Governance Practices
Transparency and Decision-making (max score=6)
The Board has a formal whistleblower policy to ensure that information regarding suspected corruption and incompetence throughout the organization reaches the appropriate party (BG Survey Q5.1)
The Board has a publicly available Code of Ethics by which it is governed that includes a process to review adherence to the Code (BG Survey Q5.3)
The Board publishes reports (quarterly or more frequently) describing organizational performance for its community and stakeholders (BG Survey Q8.2)
The Board devotes 25% or more of annual Board meeting time to long-term hospital strategic planning. (BG Survey Q2.2)
The Board uses a set of documented criteria when providing advice to management regarding proposals for major new programs and services. (BG Survey Q2.7)
The Board has approved a risk management plan that includes a process to identify, manage and minimize risks to the hospital‟s sustainability(BG Survey Q2.9)
Monitoring and Independence (max score=6)
There is an opportunity at every Board meeting for Directors to meet privately, without the presence of management (BG Survey Q2.10)
The Board uses a review process to ensure the adequacy of the information it receives. (BG Survey Q8.1)
The board or board committees (including committee/task force looking at utilization), etc. review physician and staff satisfaction findings beyond initial verbal presentation (SIC 2006 23bp)
Board or board committees receive verbal presentation of patient satisfaction information and discuss results (SIC 2006 Q27bb)
Board or board committees review outcomes of healthy workplace policy/programs beyond initial verbal presentation (SIC 2006 Q40cp)
Board receives quarterly reports on patient safety, including changes/improvements following incident investigation and follow-up (SIC 2006 Q49b)
Membership Management (max score=8)
Director re-appointment is subject to a performance audit (led by the nominations committee or governance committee or another committee of the Board) against pre-determined indicators of performance. (BG Survey Q1.6)
The Board distributes letters of appointment to all Directors, outlining responsibilities and key terms and conditions of appointment. (BG Survey Q4.4)
The Board has implemented a mentoring process for all new Directors (BG Survey Q6.3)
All Directors are evaluated annually against a pre-determined set of performance indicators. (BG Survey Q7.1)
Performance measures to evaluate Director performance are re-evaluated at least annually to ensure ongoing relevance and validity. (BG Survey Q7.2)
The board has articulated a succession plan for standing committee chairs (BG Survey Q1.4)
The board has articulated a succession plan for the CEO (BG Survey Q1.3) The organization has a succession plan for senior medical leadership (e.g.
chief of staff, VP Medical Affairs) (SIC 2006 Q6m) Overall Governance Practices (max score=24)
Equally weighted sum of three above scores
90
Board Characteristics
Board Size: Three measures of board size were used in this study: target or maximum
board size contained in the hospital bylaws, annual board size calculated using lists of
board members submitted to the Canada Revenue Agency, and board size reported to
the Canada Revenue Agency between 2000 and 2003.
Turnover: Turnover was calculated as the average of the number of board members
who left in 2003 plus the number of board members who joined in 2004, divided by the
average board size in 2003 and 2004. Data are based on trustee lists submitted to the
Canada Revenue Agency.
Diversity: Board member and board chair gender diversity was calculated as
dichotomous variables based on the Canada Revenue Agency Trustee lists. Gender was
assigned based on first name. In the case of gender neutral names (e.g., Pat), initials only,
or names of indeterminate origin, searches were conducted on hospital, baby name and
WebMD websites to assist with gender identification. Less than 2% of the records have
missing gender data. Approximately two thirds of CRA hospitals also submitted some
occupational data for their board between 2000 and 2003. To determine occupational
diversity, these data were manually recoded into categories as follows: 1=physician,
2=other health or social care, 3=hospital CEO, 4=religious, 5=lawyer, 6=educator,
7=accountant/finance, 8=independent business, 9=corporate executive, 10=farmer,
11=government official/politician, 12=labour, 13=homemaker, 14=other. Retired board
members were also flagged where this information was provided either in lieu of, or in
addition to occupation.
Top Management Team Characteristics
Numerous approaches to determining top management team membership are documented in
the literature (Carpenter, Geletkanycz & Sanders, 2004). Following Carpenter et al.‟s (2004, p.
769) advice that the definition should be flexible and address the question: “who at the apex of
the firm impacts organizational outcome?,” the top management team was defined as the chief
executive officer, chief financial officer, chief of staff and chief nursing officer. This study
looked at the following top management team characteristics:
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Education: Data were obtained for 1,235 individuals who had obtained a
CHE/FCCHSE designation as of December 2008. Of the 743 individuals residing in
Ontario, 309 worked in the hospital sector. This list was cross-referenced with the Salary
Disclosure List to identify hospital top team members with professional designations and
obtain additional information on their educational background. Eighty-seven individuals
who served as hospital CEO between 2000 and 2008 had a CHE designation, and 11
were Fellows of the Canadian College of Health Services Executive. An additional 20
CFOs, 36 chief nursing executives and 6 chiefs of staff who served in Ontario hospitals
during that period obtained a designation. The overwhelming majority of hospital top
management team members with a designation had a master‟s degree in administration
or health-related field; 16 had an accountancy background. Due to missing data only
CEO CCHSE designation (1=yes, 0=no) was retained in the final model.
Diversity and Turnover: Gender diversity and turnover were calculated based on data
reported annually to the Ontario Ministry of Finance in keeping with the Public Salary
Disclosure Act. The data was supplemented by career-related announcements on
www.longwoods.com and www.oha.com, as well as information in www.linkedin.com
and www.pipl.com. Gender was assigned based on first name (female=1, male=0).
Turnover was calculated based on whether the top management team member‟s name
appeared on the salary disclosure and/or board list in a given year (1=yes, 0=No). The
chief nursing executive was excluded from most analyses due to the difficulty in
identifying CNEs based on title alone, missing data prior to 2006 (few hospital nursing
executives appear to earn more than $100,000 before that year), and inability to cross-
reference the list with other sources, including board lists (most hospitals do not include
nursing representatives on their board). Significant data gaps were also uncovered with
respect to chiefs of staff and chief financial officers.
Hospital Performance
Financial measures are often used in governance research. This study used a measure of
Operational Efficiency developed by the Ontario Joint Policy and Planning Committee. The
„Rate Model‟ is calculated annually based on all the activity of small hospitals; acute, day surgery
and chronic care activity of large hospitals, and chronic care activity of stand a lone chronic
hospitals (JPPC, 2006). Stand-alone rehabilitation and specialty facilities are excluded. The model
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draws on data from the CIHI Discharge Abstract Database and Chronic Care Reporting System,
Ontario Cost Distribution Methodology and Ontario Healthcare Reporting System and
complexity (“PAC10”) weights calculated annually by the ministry of health. It adjusts for
statistically significant factors beyond management control known to affect costs (e.g., isolation,
size, teaching activity). A weighted least squares regression model is used to predict a hospital-
specific expected cost per equivalent weighted case which is then compared to the actual cost
per equivalent weighted case. A negative value indicates relative efficiency; a positive value
indicates relative inefficiency. In 2005/06, the model was refined to provide more stable year-
over-year results reflective of actual changes in relative efficiency rather than differences in data
management and reporting practices (JPPC, 2007). Annual results were published on the Joint
Policy and Planning Committee website and included in Hospital Report and hospital planning
submission and accountability processes up to 2008. According to the JPPC (2006), the model
has also been used by the ministry of health to allocate over $1 billion in new hospital funding
since 2001/02, therefore it is likely to be monitored by hospital boards. To maximize reliability,
the measure of Operational Efficiency used in this study is a two year average calculated by the
author based on results published by the JPPC for 2005/06 and 2006/07.
3.4 Results
Analyses were carried out using SPSS 18.0. Table 3.2 compares the characteristics of the sample
in this study (n=101) with available data for 149 of 155 public hospitals in Ontario in 2005/06.
Table 3.2 Sample Hospital Characteristics (Study 1)
Sample (n=101) Population (N=149)
Hospital Size
Median (Mean, Range) Full Time Equivalent Staff (FTEs)
545 (1,105, 50-6,673)
367 (918, 40-6,673)
Median (Mean, Range) Beds Staffed and In Operation
147 (229, 8-986)
108 (209, 8-1,135)
Median (Mean, Range) Equivalent Weighted Cases (EWCs)
7,377 (15,907, 581-93,638) (n=100)
4,266 (12,594, 500-93,638) (n=140)
Median (Mean, Range) Audited Revenues
$66.5M ($152M, $5.7M-$1.14B) (n=90)
$39.7M ($118M, $4.4M-$1.14B) (n=133)
Hospital Type
Teaching Hospital 9 (10%) 12 (8%) Specialty, Rehab or Mental Health
1 (1%) 22 (15%)
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Community Hospital 63 (62%) 67 (45%) Small Hospital 28 (27%) 48 (32%)
Ontario Region North 22 (22%) 38 (26%)
East 25 (25%) 31 (21%) Central 17 (17%) 29 (19%) South 19 (19%) 27 (18%)
West 18 (18%) 24 (16%) Other
Alliance Member 12 (12%) 24 (16%) Multi-Site Hospital 36 (36%) 45 (30%)
Peer Review 34 (34%) 40 (27%) Coroner Review 18 (18%) 22 (15%)
As Table 3.2 shows, hospitals in this study tend to be larger - as measured by revenues, weighted
cases, full-time equivalent staff or number of beds staffed and in operation - than the provincial
average. In the case of revenues and weighted cases, the difference was statistically significant
(p<.01). It includes almost all acute teaching and community hospitals in Ontario; particularly
those located in the Eastern region of the province, and excludes almost all specialty hospitals.21
It under-represents Small Hospitals, most of which are single site facilities located in the North
and excludes specialty and chronic/rehab hospitals. Univariate and bivariate results and
methodological issues are discussed below.
Governance Practices
The Board Governance Survey surveyed board chairs on uptake of 34 „best practices‟ identified by
Hospital Report researchers based on a comprehensive literature review and a Delphi process
involving governance experts and hospital leaders. These questions were complemented by six
board-related information management practices captured in the System Integration and Change
Survey. Peer group performance was consistent across most of the 23 practices reported by at
least two thirds of respondents in the sample (see Appendix 3.5), with five exceptions. Small
Hospitals were less likely than Community or Teaching Hospitals to report using a skills audit in
the nominations process and having audit committee members with financial expertise.
Community Hospitals were less likely than other peer groups, particularly Small Hospitals, to
report having board-approved emergency or risk management plans. Teaching Hospitals were
much more likely than other peer groups to have adopted patient safety as a strategic goal and to
report that their boards were able to meet without management at every meeting. They were also
21 Hospital type is based on the designations accorded by the provincial ministry of health and the Hospital Report Research Collaborative. For ease of analyses and due to its membership in the Council of Academic Health Centres, the lone specialty hospital was treated as a teaching hospital in all analyses. This categorization is consistent with the peer groups established by the
Hospital Report Research Collaborative.
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less likely than Community or Small Hospitals to report having a review process to ensure the
information the board receives is adequate. A Chi-square test of independence failed to show a
statistically significant relationship between board ability to meet without management and CEO
board voting status.
Table 3.3 lists the least frequently reported governance practices in the sample of Ontario
hospitals used in this study. Only one in five boards of Teaching Hospitals used criteria for
providing advice to management on proposals for new programs and services, although over
90% reported spending a quarter or more of board meeting time on long-term planning. Small
Hospitals were much less likely than either Community or Teaching Hospitals to have practices
in place to evaluate director performance or manage turnover either at the committee chair or
CEO levels. Community Hospitals were much less likely than the other two peer groups to
publish reports describing organizational performance. Fewer than one in five Community and
one in four Small Hospital boards reported having a whistleblower policy compared to 60% of
Teaching Hospital boards.
Table 3.3 Least Frequently Reported Governance Practices Reported by Ontario Hospitals, 2005
Small Hospitals (n=28)
Community Hospitals (n=63)
Teaching Hospitals (n=10)
All Hospitals (n=101)
Board Governance Survey
Board has whistleblower policy 22% 18% 60% 23% (n=99)
Directors evaluated annually 29% 44% 60% 42%
Director evaluation measures reviewed annually
29% 48% 70% 45% (n=100)
Board succession plan for CEO 22% 53% 70% 46% (n=99)
Board publishes reports describing organizational performance
56% 41% 70% 47% (n=100)
Board uses criteria for providing advice on proposals for new programs and services
43% 56% 20% 49% (n=97)
Director reappointment subject to performance against pre-determined indicators
39% 51% 80% 51% (n=99)
Succession plans for board standing committee chairs
43% 52% 70% 52%
Mentoring process exists for new directors
50% 60% 60% 57% (n=100)
Board distributes letters of appointment to directors
43% 67% 60% 59%
25%+ Board meeting time devoted to long-term planning
46% 64% 90% 61%
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Board has Code of Ethics and review process
54% 69% 60% 64% (n=100)
Board members can meet privately at every board meeting
64% 65% 70% 65%
Board approved risk management plan (n=99)
71% 70% 80% 70%
Board has process to ensure adequacy of information it receives
75% 76% 70% 75%
System Integration and Change Survey
Board receives quarterly reports on patient safety (SIC 2006 49b)
39% 48% 60% 47%
Board or board committees receive verbal presentation of patient satisfaction information and discuss results (SIC 2006 Q27bb)
25% 57% 50% 47%
The board or board committees review physician and staff satisfaction findings beyond initial verbal presentation (SIC 2006 23bp)
29% 48% 50% 43%
Board or board committees review outcomes of healthy workplace policy/programs beyond initial verbal presentation (SIC 2006 Q40cp)
14% 22% 50% 23%
Formal succession plans exist for senior medical leadership (SIC 2006 Q6m)
18% 22% 60% 25%
Interestingly, although two thirds of sample hospitals indicated that patient safety was a strategic
priority, fewer than half were actively reporting quarterly to the board on patient safety measures
in Fall 2005. There was also a significant discrepancy in reported succession planning practices,
with only 30% of SIC respondents indicating succession plans were in place for senior
management and 46% of Board Governance Survey respondents indicating succession plans
were in place for the CEO. The discrepancy may be due to differences in wording or
interpretation of the questions. Chi-square analyses showed the responses to the three SIC
questions to be strongly correlated (p=.00) while correlations related to board-level succession
planning were much smaller and failed to achieve statistical significance once the Bonferroni
adjustment was applied.
As discussed in the previous section, key practices taken from the Board Governance and System
Integration and Change surveys were grouped to create theory-driven summative measures of
Board Transparency and Decision-Making, Board Monitoring and Independence and Board
Membership Management Practices. Ten hospitals with missing data for at least one component
question were excluded from the analysis.
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The Board Transparency and Decision-Making Practices score was calculated based on whether
the board publishes performance reports quarterly or more frequently, has a formal
whistleblower policy or a publicly available Code of Ethics, has a risk management plan in place,
devotes 25% or more of its time to strategic planning and uses a documented set of criteria
when providing advice to management on new programs or services. The maximum score for
this measure was 6. The Board Monitoring and Independence Practices score measures whether
the board uses a review process to measure the adequacy of the information it receives and is
able to meet without management. It also examines the extent to which the board is directly
engaged in reviewing data related to patient safety, patient and staff/physician satisfaction
surveys and workplace health programs. The maximum score for this measure was 6.
The Board Membership Management Practices score measures whether new directors receive
letters of appointment and have access to mentors; director performance and related indicators
are subject to an annual review, and the results inform the reappointment process; and
succession plans exist for the CEO, chief of staff and the chairs of Board standing committees.
The maximum score for this measure was 8.
There was wide variation in performance in Membership Management and Monitoring and
Independence Practices, both within and between peer groups. There was also wide variation in
Transparency and Decision-Making governance practice scores; although there was little
difference in the scores of Community and Small Hospitals. Figure 3.2 shows the weighted
Governance Oversight Practices summary score by peer group. Teaching Hospitals score
highest, Small Hospitals lowest, with wide variation in the scores of Community Hospitals.
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Figure 3.2 Governance Oversight Practices by Ontario Hospital Peer Group
An analysis of the relationships among the three theoretical components of Board Oversight is
depicted in Table 3.4. It shows a moderate correlation between Membership Management and
Board Transparency and Decision-Making (rho=.430, p<.00), and a small correlation between
Board Transparency and Decision-Making and Board Monitoring and Independence (rho=.275,
p=.00).
Table 3.4 Correlations Among Components of Governance Oversight Practices Measure
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Board Characteristics
Below is a summary of the findings related to board characteristics including: size, turnover,
gender diversity and functional knowledge and skills as evidenced by occupation.
Board Size: Board size is one of the most frequently studied variables in governance research.
From an agency theory perspective, a small board size facilitates decision-making and oversight.
From a resource dependence perspective, a large board size facilitates linkages to needed
resources. Table 3.5 summarizes data obtained from the bylaw review, supplemented by
information on hospital websites. The hospital-defined maximum or ideal board size contained
in the bylaws varies by hospital type with Small Hospitals having the lowest average number of
board members (mean=16) and Teaching Hospitals the highest (mean=21). Teaching Hospitals
have a higher number of elected, ex officio and appointed members, particularly medical staff
and university and foundation representatives. Community hospitals are closer to teaching
hospitals in terms of board size and number of elected and ex officio board members, although
their appointed members tend to be drawn from volunteer associations and local government.
While these findings must be interpreted with caution given that bylaw data on board size were
only available for a subset of hospitals in the sample (n=54), maximum or target board size is
very close to the calculated measures of board size reported in Table 3.6.
Table 3.5 Board Size and Elected and Ex Officio Members (Hospital Bylaws)
Small Hospitals (n=28)
Community Hospitals (n=63)
Teaching Hospitals (n=10)
All Hospitals (n=101)
Maximum/Targeted Board Size n 17 30 7 54
Mean 16 20 23 19 Median 16 19 21 18
Standard Deviation 2 5 4 4 Minimum 12 12 19 12
Maximum 19 33 30 33 Number of Elected Members n 23 54 9 86
Mean 10 13 14 12 Median 10 12 14 12
Standard Deviation 2 4 7 4 Minimum 5 0 0 0
Maximum 14 23 25 25 Number of Ex Officio Members
n 23 53 9 86 Mean 5 6 7 6
Median 4 6 6 5 Standard Deviation 2 2 2 2
Minimum 3 3 5 3 Maximum 8 10 12 12
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Table 3.6 summarizes longitudinal data obtained from the Canada Revenue Agency. The first
three years are based on reported board size22; the last six were calculated based on annual
trustee lists. Board sizes less than six were treated as missing data and excluded from the
analysis. An outlier Teaching Hospital was found to have reported the membership of its
executive committee rather than the full board; its board size was based on data extracted from
annual reports. While it appears that the size of Community and Teaching Hospital boards has
declined slightly over the last decade, a closer inspection of the data revealed a problem with
right-censoring starting in 2005, which resulted in an unusually large number of hospitals with a
board size of 20.23 For the purposes of this study, average board size was calculated based on
data for fiscal years 2002/2003 and 2003/2004.
Table 3.6 Ontario Hospital Board Size, 1999/00-2007/08
20001 2001
1 2002
1 2003
2 2004
2 2005
2 2006
2 2007
2 2008
2
Small Hospitals n 23 24 26 29 31 31 31 31 32
Mean 15 15 15 14 15 14 14 14 15 Median 15 14 14 14 14 14 15 14 15
Std Deviation 4 4 4 4 4 3 3 3 3 Minimum 11 10 11 7 10 9 9 8 8
Maximum 27 27 27 24 24 20 20 20 20 Community Hospitals n 40 49 46 58 58 58 59 59 60
Mean 20 20 19 19 19 18 18 18 18 Median 20 19 20 19 18 18 18 18 18
SD 4 4 5 4 3 3 3 3 4 Minimum 9 9 8 10 12 12 11 12 11
Maximum 30 29 30 30 27 27 29 29 37 Teaching Hospitals
n 7 8 7 9 9 9 9 9 9 Mean 26 25 23 24 24 21 20 19 20
Median 23 25 22 24 23 20 20 20 20 Std Deviation 6 5 4 5 5 4 1 1 1
Minimum 21 17 17 17 17 17 17 18 18 Maximum 37 34 29 34 33 29 22 20 21
All Hospitals n 70 81 79 96 98 98 99 99 101 Mean 19 19 18 18 18 17 17 17 17
Median 18 18 17 18 18 17 17 17 17 Std Deviation 5 5 5 5 4 4 3 4 4
Minimum 9 9 8 7 10 9 9 8 8 Maximum 37 34 30 34 33 29 29 29 37 1Board size reported by hospital corporations. 2Board size calculated based on lists of board members submitted annually to Canada Revenue Agency
22 The Trustee List form was revised in 2003. 23 Follow up discussions with the Canada Revenue Agency revealed that although charities reported a full
complement of board members, an artificial limit of 20 was imposed on the trustee database.
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Boards of Small Hospitals ranged from 10 to 25 members, with a median of 14. Community
Hospitals had boards ranging in size from 11 to 27, with a median of 19. Teaching Hospitals had
a range of 17 to 34 members with a median of 24. In terms of regional variation, hospitals in
Central Ontario have the largest median board size and those in the North and West the
smallest, although there is wide variation.
Larger boards reported significantly more Membership Management practices (rho=.314, p<.00)
than smaller boards. No relationship was detected between board size and governance practices
related to Board Transparency and Decision-Making, or Board Monitoring and Independence.
Board Gender Diversity: Sample hospital boards had an average of 6 women on their boards
between April 2002 and March 2004. All hospitals had at least one female on the board, with
one quarter recording four or fewer women, and half recording between five and seven women.
Table 3.7 shows peer group differences in the proportion of sample hospital board members
who are women. This proportion ranges from one quarter of Teaching Hospital boards, to one
third for Community Hospitals and nearly 40% of Small Hospital boards.
Table 3.7 Women on Ontario Hospital Boards, 2002/04
Small Hospitals (n=28)
Community Hospitals (n=63)
Teaching Hospitals (n=10)
All Hospitals (n=101)
Number of Women on the Board n 27 61 10 98
Mean 6 6 6 6 Median 6 6 6 6
Standard Deviation
2 2 3 2
Minimum 1 1 2 1 Maximum 10 12 12 12
Percentage of Board Members who are Women n 27 60 10 97
Mean 39% 32% 26% 34% Median 37% 33% 26% 34%
Standard Deviation
14% 10% 11% 12%
Minimum 6% 6% 6% 6% Maximum 76% 57% 43% 76%
Percentage of Hospital Boards with Female Chair n 26 52 10 87
2002/03 27% 23% 10% 23% n 23 49 10 82
2003/04 35% 23% 20% 26%
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Approximately one quarter of sample hospital board chairs in 2002/03 and 2003/04 were
women. Sixty percent of the 89 sample hospitals for which there was complete data had at least
one female chair between 2002 and 2007. Female board leadership was most prevalent in Small
and Community Hospitals.
There was a moderate correlation between board size and gender diversity in 2002/04, with
larger boards reporting a significantly higher number (r=.423, p<.00), but a significantly lower
proportion (r=-.266, p<.00) of board members who are women.
Finally, there was a small but significant negative correlation between the number of reported
Board Membership Management practices and diversity as indicated by the proportion of
women board members (r=-.266, p=.00). As previously noted, both measures were also related
to hospital size, with Small Hospitals, for example, reporting a higher proportion of women on
the board as well as a lower number of governance „best practices.‟
Board Occupational Diversity: CRA data from 2000-2003 identified a wide range of
professions represented on Ontario hospital boards. Missing data due to incomplete reporting of
board lists preclude a more comprehensive analysis of board occupational diversity. However
for the hospitals in the sample for which complete board data are available in any of three years
in which it was reported, the most frequently occurring occupational groups were, in descending
order: physicians and other health care professionals (including hospital administrators),
independent business owners and corporate executives, accounting/financial experts, educators,
politicians and lawyers. Least frequently identified were: religious, farmers, homemakers and
labour representatives. The broad category of „Other‟ also ranked highly but consisted of a wide
range of less commonly identified professions including: law enforcement, transportation,
marketing, insurance, construction or architecture, and information technology. These findings
are not inconsistent with those of a 2007 survey of 20 Ontario hospital boards, which identified
information technology and legal skills as the two most underrepresented areas of board
functional expertise (Auditor General of Ontario, 2008). Approximately 10% of hospital board
members in the three years for which data were available were identified as being retired.
An analysis of the bylaws of 76 corporations in the sample, complemented by information on
hospital websites, revealed a wide range of ex officio (usually voting) board members and other
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individuals appointed or entitled to attend meetings. Among the latter were: past board chairs
and honourary members, religious leaders and university or medical school leaders. In addition
to the medical staff and the CEO, the most frequently listed ex officio or appointed members
reported by hospitals in the sample were representatives of the volunteer association (69%), local
government (43%) and hospital foundation (reported by 35% of hospitals). Approximately 11%
of sample hospitals had academic or religious representatives on the board. Fourteen percent
reported having representatives from francophone and/or aboriginal communities on the board.
Groups least frequently identified for board membership included: nursing leaders, with only
five hospitals in the sample reporting them, and representatives of other hospitals or service
providers. The number of non-elected representatives ranged from 3 to 12, with medical staff
and municipal representatives comprising the two largest groups. This is consistent with a survey
of Greater Toronto Area hospital boards which found that the average board had six ex officio
members (Auditor General of Ontario, 2008).
Hospital Boards with municipal representatives scored lower than their peers on Board
Membership Management practices such as evaluating directors against pre-determined
performance indicators, reviewing Director performance measures or making Director re-
appointments subject to performance audits (p=.01).
No relationship was found between reported governance practices and presence of hospital
insiders such as volunteer association and foundation representatives on the board.
Board Turnover: Following Eldenburg et al. (2004), board turnover was calculated by averaging
the sum of board members who left in 2002/03 or joined in 2003/04 and dividing by the
average board size in 2002/2004. The product was multiplied by 100 to calculate percent
turnover. Between 8 and 10 people left or joined the typical board of sample Ontario hospital
during this time. Median annual board turnover hovered around 23% for Small and Community
Hospitals and 11% for Teaching Hospitals. A possible explanation for this difference may be
that Teaching Hospitals have higher numbers of insiders/appointed members lending these
boards greater membership stability than other peer groups.
Annual turnover among board chairs varied depending on officer term limits outlined in the
bylaws and hospital reappointment practices. Some hospitals appointed a new board chair
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annually; others did so every two or three years. Approximately one third of Ontario hospitals
have turnover in their board chairs annually.
No relationship was detected between average annual board turnover and the governance
practice measures used in this study.
Top Management Team Characteristics Below are descriptive statistics related to gender diversity, turnover, education and board voting
status of hospital top management. As noted earlier, missing data precluded a more fulsome
analysis of top management team characteristics; thus much of the data pertains to the CEO.
Table 3.8 Hospital Top Team Characteristics
Small Hospitals (n=28)
Community Hospitals (n=63)
Teaching Hospitals (n=10)
All Hospitals (n=101)
Women , 2004/05 CEO 29% 18% 10% 20% CFO 25% (n=20) 24% (n=58) 40% 28% (n=88)
COS 22% (n=23) NA* (n=51) 22% (n=9) 12% (n=83) > 1 woman on TMT 76% (n=21) NA* (n=52) 60% 53% (n=83)
Chair 18% (n=26) 21% (n=61) 20% 21% (n=97) > 2 women on top team
21% (n=22) NA* (n=54) 20% 15% (n=86)
Turnover CEO (2002/05) 42% (n=26) 34% (n=61) 10% 31% (n=94)
CEO (2005/08) 29% 30% 20% 29%
>1 on TMT 2005-08 72% (n=26) 72% (n=60) 44% 69% (n=94)
CEO Education CCHSE Designation 36% 49% 70% 49%
*Not calculated due to missing data.
Gender Diversity: The proportion of Ontario hospital CEOs who are women rose from 18%
in 2004 to 23% in 2008, while the proportion of women CFOs climbed from 22% to 30%
during the same time period. The proportion of chiefs of staff who are women rose from 10%
in 2004 to 15% in 2007. Missing data in 2004 precluded an analysis of gender composition of
the three positions together. However, an analysis of 2005, 2006, 2007 and 2008 data revealed
that the presence of women on top management teams is growing among all hospital peer
groups particularly Small Hospitals. Among Community Hospitals, the proportion is lower but
growing nevertheless, with nearly half reporting at least one woman on their top management
team, up from one third in 2005. When the chair and CEO positions are examined in tandem,
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the same trend is evident. In 2004, 35% of sample Ontario hospitals had female Chairs or
CEOs; by 2008, this proportion had grown to 44%.
No statistically significant differences in governance practice scores were detected in hospitals
with and without women on their top team.
Turnover: Two thirds of sample hospitals experienced CEO turnover between 2000 and 2008.
Turnover in this position peaked at 17% in 2003/04 before declining to 10% in 2007/08, up
from 6% in 2000/0124. Despite the low CEO turnover, some hospitals had problems retaining a
top leader, with nearly one quarter of sample hospitals employing two or more CEOs between
2002 and 2008.
Turnover in the CEO position was lowest among Teaching Hospitals and highest among
Community hospitals.
Interestingly, boards of hospitals with no CEO turnover between 2003 and 2005 were
significantly more likely to report having a CEO succession plan in place than hospitals with
CEO turnover during that period (Chi-Square=7.14, df=1, 92, p=<.00). Of the 28 sample
hospitals with CEO turnover between 2003 and 2005, three quarters reported having no CEO
succession plan in place in 2005.
No other statistically significant differences were detected in board governance practices of
hospitals with and without CEO turnover. Missing data for one or more years precluded similar
analyses of differences in governance practices related to turnover in the CFO, CNO or COS
positions.
CEO Education: Just under 50% of sample Ontario hospital CEOs had a CCHSE designation,
rising to over two thirds among Teaching Hospital leaders. This proportion remained constant
in 2003/04, 2004/05 and 2005/06. Over half of male CEOs and between one quarter and one
fifth of female CEOs had the designation. This difference was statistically significant (Chi -
24 This turnover rate is lower than reported by Schraa (2007), possibly because the sample in this study excludes merged
hospitals.
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square=4.652, df=1, 100 p=.03), suggesting gender differences in career paths or perceived value
of the designation.
Hospitals whose CEO had a CCHSE designation tended to score higher on governance
practices with the exception of Board Monitoring and Independence, and the differences were
statistically significant at the p<.02 level.
CEO Board Voting Status: As noted earlier, 61% of CEOs of the 82 sample hospitals for
which data were available had board voting status. This was less frequent among Small Hospitals
(50%) than Teaching (89%) or Community Hospitals (61%).
No statistically significant differences were detected in governance practices reported by hospital
boards with and without CEO voting membership.
3.5 Model Testing
This section explores the relationships among the hypothesized components of governance
capacity, and between governance capacity and hospital financial performance.
Relationship between Governance Practices and Board Characteristics
Hypothesis 1 proposed that a positive relationship would exist between governance practices
and board characteristics including size, diversity and turnover. As noted above, there were small
to moderate bivariate correlations between only one component of governance practices, Board
Membership Management, and board characteristics including size, percentage of women on the
board and municipal representation, but not turnover. Board size and percentage of women on
the board were correlated, therefore only one was retained for analysis.
Board Membership Management Practices in 2005 was entered as the dependent variable in the
hierarchical linear regression model to determine the explanatory value of board characteristics.
The independent variables were entered in two blocks. To control for the effects of
organizational size, a dummy variable indicating whether the hospital was a teaching or very
106
large community hospital was entered in Block 1. Percent Female Board Members 2002/0425
and a dummy variable indicating the presence of municipal representatives were entered in Block
2. Following Tabachnick and Fidell26 (1996), the analysis met the minimum sample size
requirements (i.e., >50+8*3=74) as well as assumptions related to:
multicollinearity (i.e., Tolerance was > .9)
outliers (none with Mahalanobis distance exceeding the critical value of 16.27)
independence of the residuals (i.e., normal probability plot was a reasonably straight line ;
the scatterplot appears to be rectangularly shaped, albeit with a slight skew27.)
Appendix 3.6 contains the detailed results. The model was statistically significant; and explains
approximately 16% of the variance in Board Membership Management practices (F(3,
80)=6.366, p=.001). Hospital size accounts for approximately 8% of the variance (p=.008).
Percentage of women board members and the presence of municipal representatives explain the
remaining 11% of the variance in Board Membership Management Practices (p=.006). An
examination of the beta values shows that both are negative and statistically significant. The
analysis was repeated with alternate measures of hospital size, with similar results. Thus there
was partial support for Hypothesis 1.
Relationship between Governance Practices and Top Management Team
Characteristics
Hypothesis 2 proposed a positive relationship between governance practices and top
management team characteristics. The independent variables were entered in two blocks in the
hierarchical linear regression. As above, a dichotomous variable was entered in Block 1 to
control for hospital size. Block 2 featured two dummy variable predictors of Overall Oversight:
CEO CCHSE designation in 2004/05 and CEO turnover between 2002/03 and 2004/05.
25
In accordance with Pallant (2001), 5 cases on the extreme right of the distribution were recoded to the next
closest values. 26 N > 50 + 8(m) where m=number of independent variables (Pallant, 2001, p . 136). 27
A visual inspection of Membership Management Practices score showed a fairly normal distribution with a
skewness of -.017 and a kurtosis of -.856, both relatively close to 0. The Shapiro-Wilk test indicated a statistically
significant divergence from normality in the Membership Management practices scores of Small and Community
Hospitals, but not Teaching and Large Community Hospitals. This test is affected by the presence of multiple
identical values. It is unclear whether these slight deviations affected the outcome of the analysis.
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Appendix 3.7 contains the detailed results. Following Tabachnick and Fidell (1996), the analysis
met the minimum sample size requirements as well as assumptions related to:
multicollinearity (i.e., Tolerance was > .9)
outliers (none with Mahalanobis distance exceeding the critical value of 16.27)
independence of the residuals (i.e., normal probability plot was a reasonably straight line,
rectangular scatterplot with values distributed along the 0 point)
The model explains 11% of the variance in Overall Oversight governance practices scores (F
3(81)=5.734, p=.01), with CCHSE designation and CEO turnover accounting for approximately
8%. When the beta values were examined, only hospital size and CEO education made positive
and statistically significant unique contributions below the target .05 p value. In the case of CEO
turnover, the contribution was negative, relatively small and marginally significant (p=.06). Thus,
there was only partial support for Hypothesis 2.
Relationship between Governance Capacity and Hospital Performance
Hypothesis 3 proposed that a positive relationship would exist between hospital performance
and governance practices and top team characteristics, both theoretical components of
“governance capacity.” This hypothesis was tested using hierarchical linear regression with
Operational Efficiency in 2005/07 entered as the dependent variable. Average Beds Staffed and
in Operation in 2005/07 was entered in Block 1 to control for organizational size. The Overall
Oversight Practices summary governance measure was entered in Block 2. No bivariate
relationships were detected between Operational Efficiency and board or top team size,
turnover, diversity or education, therefore these characteristics were not included in the model.
Appendix 3.8 contains the detailed results. Following Tabachnick and Fidell (1996), the analysis
met the minimum sample size requirements (i.e., >50+8*2=66) as well as assumptions related
to:
multicollinearity (i.e., Tolerance was > .673)
outliers (none with Mahalanobis distance exceeding the critical value of 13.82)
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independence of the residuals (i.e., normal probability plot was a reasonably straight line;
scatterplot of the standardized residuals shows the values distributed in a roughly
rectangular shape with most of the scores concentrated along the centre).
The overall model explains 19% of the variance in Operational Efficiency (F 2(87)=11.235,
p<.00), with governance practices accounting for 10% of the variance beyond organizational
size. The beta value was negative and statistically significant; that is, hospitals that scored higher
on governance practices had lower than expected costs per weighted case (i.e., they were more
efficient). Since no relationship was found between operational efficiency and top team (board
and management) characteristics, the second hypothesized component of governance capacity,
there was only partial support of Hypothesis 3.
3.6 Discussion
This study drew on multiple sources of data to describe and test the relationship between
financial performance, governance practices and board and top team characteristics commonly
discussed in the literature. Analyses carried out in a sample of 101 Ontario hospitals found
statistically significant differences in reported governance practices across peer groups. This is
consistent with other studies, for example, Brown (2005) found that larger organizations
reported higher levels of board performance. Small Hospitals were less likely than Community
or Teaching Hospitals to report using a skills audit in the nominations process and having audit
committee members with financial expertise. They were also much less likely than either
Community or Teaching Hospitals to have practices in place to evaluate director performance or
manage turnover either at the committee chair or CEO levels.
Community Hospitals were less likely than other peer groups, particularly Smal l Hospitals, to
report having board-approved emergency or risk management plans. They were also much less
likely to publish reports describing organizational performance. Fewer than one in five
Community, and one in four Small Hospital boards reported having a whistleblower policy
compared to 60% of Teaching Hospital boards.
Teaching Hospitals were much more likely than other peer groups to have adopted patient safety
as a strategic goal and to report that their boards were able to meet without management at
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every meeting. However, they were also less likely than Community or Small Hospitals to report
having a review process to ensure the information the board receives is adequate. Additionally,
only one in five boards of Teaching Hospitals used criteria to provide advice to management on
proposals for new programs and services, although over 90% reported spending a quarter or
more of board meeting time on long-term planning. This suggests an imbalance between the
board‟s service and control roles in teaching facilities.
Peer group differences were also evident with respect to board characteristics. Boards of Small
Hospitals ranged from 10 to 25 members, with a median of 14. Community hospitals had boards
ranging in size from 11 to 27, with a median of 19. Teaching Hospitals had a range of 17 to 34
members with a median of 24. Not surprisingly, larger boards reported significantly more
Membership Management practices than smaller boards. These findings are consistent with
theory and research on nonprofit boards carried out by Bugg et al. (2006).
Nearly 40% of Small Hospital boards in 2002/2004 were made up of women, while the
equivalent proportions for Community and Teaching Hospitals were 32% and 26% respectively.
Female board leadership was most prevalent in Small and Community Hospitals. There was a
moderate correlation between board size and gender diversity with larger boards reporting a
significantly higher number (r=.423, p<.00) but a significantly lower proportion (r=-.266,
p<.00) of board members who are women. There was also a small but significant negative
correlation between the number of reported Board Membership Management Practices and
diversity as indicated by the proportion of women board members (r=-.266, p=.00), although
hospital size may have been a common underlying factor.
An analysis of the bylaws of a subsample of hospital corporations revealed a wide range of ex
officio (usually voting) board members and other individuals appointed or entitled to attend
meetings. In addition to the medical staff and the CEO, the most frequently listed ex officio or
appointed members reported by hospitals in the sample were representatives of the volunteer
association (69%), local government (43%) and hospital foundation (reported by 35% of
hospitals). The number of non-elected representatives ranged from 3 to 12, with medical staff
and municipal representatives comprising the two largest groups. Approximately 11% of sample
hospitals had academic or religious representatives on the board. Fourteen percent reported
having representatives from francophone and/or aboriginal communities on the board. Groups
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least frequently identified for board membership included: nursing leaders, with only five
hospitals in the sample reporting them, and representatives of other hospitals or service
providers, a surprising finding given the recent policy focus in Ontario on nursing and service
integration.
Hospital Boards with municipal representatives scored lower on all governance practice
measures than hospitals without municipal representatives; however, only Membership
Management practices achieved statistical significance (p<.00). It is unclear why this is the case.
One explanation may be that these boards are more politicized and externally focused. Research
by Hillman (2005) and others suggests that politicians play an important role in helping boards
to manage external dependencies in heavily regulated industries. Further study is required to
determine whether that is the case in Ontario.
Annual board member turnover hovered around 23% for Small and Community Hospitals and
11% for Teaching Hospitals. Annual turnover among board chairs varied depending on officer
term limits outlined in the bylaws and hospital reappointment practices. Approximately one third
of Ontario hospitals have turnover in their board chairs annually. No relationship was detected
between average annual board turnover and any governance practice measures. This is contrary
to the findings of other studies (e.g., Gill, Flynn & Reissing, 2005) but indicative of
institutionalized hospital board renewal practices in Ontario and the importance of context in
governance research. These findings suggest that board turnover measures may be of limited
value to hospital governance research in Ontario.
In terms of top management team composition, one in five sample hospitals were led by a
female CEO in 2005. Just under 50% of sample Ontario hospital CEOs had a CCHSE
designation, rising to over two thirds among Teaching Hospital leaders. Women CEOs were
much less likely to have a designation, suggesting gender differences in career paths or perceived
value of the designation. No statistically significant differences in reported governance practices
were detected in hospitals with and without women on their top management team. Teaching
Hospitals were more likely than Community or Small Hospitals to accord board voting status to
their CEOs. However, contrary to agency theory, no relationship was detected between CEO
board voting status and reported adoption of governance practices reviewed in this study.
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This study hypothesized that a positive relationship would exist between governance practices
and board characteristics and indeed, a relationship was detected. After accounting for hospital
size, hospitals with municipal representatives and higher proportions of women scored lower on
Board Membership Management practices. Indeed their presence helped to explain 11% of the
variance in scores. It is unclear why these differences exist, although the Membership
Management practices score reflects a degree of formalization that may be incongruent with
more politicized or socialized board appointment processes of the boards populated by
municipal appointees or higher proportions of women. It is also possible that rurality, or other
factor not adequately captured in the model could explain the difference in practices.
Alternatively, slight deviations from normality in the data may account for the findings.
This study also hypothesized that a positive relationship would exist between governance
practices and top management team characteristics. CEO CCHSE designation, and CEO
turnover between 2003 and 2005 explained approximately 7% of the variance in Overall
Governance scores beyond hospital size. However, only CEO education made a statistically
significant unique contribution to the model. This finding suggests that senior leaders influence
board development and their professional development or networks may promote adoption of
certain governance practices.
Finally, it was hypothesized that a relationship would exist between governance capacity and
hospital performance. After accounting for hospital size, a relationship in the expected direction
was detected between one component of governance capacity, governance practices, and
operational efficiency. That is, a higher score on governance practices predicted lower than
expected cost per weighted case. Indeed the summary governance oversight practices score
accounted for approximately 10% of the variance in operational efficiency, a measure used by
the provincial government in the last few years to allocate hospital growth funding, and
according to Schraa (2007), by hospital boards to assess CEO performance. This finding is
consistent with agency theory which emphasizes the importance of board oversight to
organizational performance, as well as published research. For example, Molinari et al. (1997)
found that hospitals with CEOs on the board or with voting rights had significantly better
operating margins. Provan (1987) found that CEO membership on the board was associated
with hospital decision to adopt cost containment policies.
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3.7 Conclusion
Hospital governance has attracted great interest from researchers and policymakers in recent
years. Consistent with institutional theory, organizational size was by far, the strongest and most
significant predictor of both governance practices and board and top management
characteristics in this study. Also consistent with resource dependence theory, partial support
was found for the hypothesized relationships between governance practices - specifically those
related to Membership Management - and selected board and top management characteristics,
including CEO education and municipal and female board representation. Interestingly, no
relationship was detected between board and top management team characteristics and Board
Monitoring and Independence practices or other measures of board independence used in this
study. These findings provide mixed support for the use of organizational demography in
governance research.
Measurement error and misspecification of the measures may explain some of the results. The
governance measures used in this study were theory-driven. Correlation and chi-square analyses
were used to verify the relationships among the questions used to construct individual variables.
However, the type of data available (e.g., few factors, dichotomous or non-normal data) did not
lend itself to factor analysis or the use of the Cronbach‟s alpha coefficient to assess the reliability
and internal consistency of the measures. Furthermore, this study relied on two surveys both of
which were vulnerable to social desirability bias and heavily dependent on the knowledge of
respondents. As well, data were collected for other purposes and had sizeable gaps in coverage
and quality. For example, Canada Revenue Agency data was expected to yield reasonably
reliable, multi-year measures of hospital board characteristics such as size, turnover, leadership,
education, professional affiliation, etc. However, significant gaps were uncovered during the data
preparation stage which reduced the sample size and precluded some types of analyses.
Moreover, different respondents to board-related questions used to calculate the governance
practices measures may have amplified measurement error.
Despite its weaknesses, this study sheds light on governance practices and top team
characteristics of Ontario hospital boards. It provides a snapshot of hospital board size,
turnover, structure and composition based on an analysis of hospital bylaws and publicly
reported data mined from a variety of sources. It presents an overview of governance practices
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in use in Ontario in 2005 and finds a relationship between these practices and operational
efficiency in 2005/07. While this study is cross-sectional and exploratory, the lagged association
does hint at a positive contribution of governance to hospital financial performance, a matter of
great interest to both policymakers and academics.
This study underlines the importance of taking into account the broader policy and
organizational context when developing measures or interpreting results. The Governance Practices
Survey revealed widespread adoption of „best practices‟ identified by Canadian experts as
requiring attention. The bylaw analysis revealed a relatively high degree of consistency and
formalization in the membership and structure of Ontario hospital boards, much of it in line
with published „best practices.‟ Yet operational and governance reviews conducted over the last
decade continue to document problems of oversight and leadership. From a measurement
perspective, this suggests that dichotomous measures may be unreliable indicators of governance
best practice, and that some may lose reliability or discriminant power over time.
This study also links and makes use of multiple sources of administrative data not previously
tapped for governance research purposes, including data reported annually to the federal and
provincial governments. The challenges of working with multiple data sources encountered in
the course of this study point to the need to establish a centralized repository that would enable
more complex longitudinal studies of health care governance in Canada. Existing data collected
by provincial and federal governments provide a starting point. However, to be useful, these
data sets must be linked – and the challenges to doing so suggest that this should be an ongoing,
centralized effort best carried out by a research collaborative or governance institute. These data
sets must also be administered in such a way as to maximize reliability and research potential.
Canada Revenue Agency data is incomplete in part because of administrative decisions to limit
the number of fields in the trustee database. The process to report the data is paper-driven and
administratively burdensome, with few quality checks in place.
Data quality would likely improve if CRA were to move to online reporting, integrate into the
reporting system basic data quality checks (and abandon data collection and management
practices that contribute to poor data quality), and promote the database for research purposes,
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possibly through a collaboration with Statistics Canada or the Canadian Institutes for Health
Research.
In conclusion, this study attempted to test the concept of governance capacity using available
data sources. The preliminary findings suggest that there is merit in investigating this concept
further using more refined measures and better data.
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Appendix 3.1 Highlights of Recent Governance Reports and Regulatory
Initiatives: US, UK and Canada
Source and Report Year Jurisdiction Highlights Corporate Sector
US Congress Sarbanes-Oxley Act (SOX)
2002
US Corporations
Act promotes fuller and timelier disclosure of internal control structure and processes, board independence and oversight and auditor independence. It prohibits those „unfit to serve‟ from being directors or officers of a corporation and restricts personal loans to executives and directors. It also imposes or increases criminal and financial penalties and liability for fraudulent activities, obstruction of justice, non-filing/disclosure/certification of key corporate practices, including financial reports. Public Company Accounting Oversight Board monitors SOX implementation.
Toronto Stock Exchange Where were the Directors? Guidelines for Improved Corporate Governance in Canada (Dey Report) Five Years to the Dey (Corbin) – with Institute of Corporate Directors Beyond Compliance: Building a Governance Culture. Final Report of the Joint Committee on Corporate Governance (Saucier Report) – with Chartered Accountants of Canada and TSX Venture Exchange Multilateral Policy 58-201: Effective Governance – with other provincial/ territorial securities regulators Guide to Good Disclosure
1994 1999 2001 2004 2006
Canada Companies listed on Toronto Stock Exchange
Defines corporate governance and recommends the adoption of 14 practices related to board stewardship, planning, corporate communications policy, internal controls and management information systems; board size, structure, independence, development and self-assessment; CEO oversight and audit committee and use of external/independent advisors. A follow-up report (1999) found weaknesses in CEO performance management and succession planning, communications and board management and director self-evaluation. The 1999 report emphasizes adoption of practices to promote greater board independence and effectiveness. The Saucier report identifies 3 issues fundamental to building a governance culture: 1) board capacity to engage in mature and constructive relationship with management based upon an understanding of each other‟s roles, 2) role of board in CEO selection, strategic planning and performance monitoring and 3) role of independent directors. Report makes 15 recommendations related to disclosure of information, audit committees, director selection and functions, chair responsibilities and board self-management. The Multilateral Policy updates Dey with 18 recommended best practices with respect to board composition and mandate, independent director meetings, position descriptions, orientation and continuing education, code of conduct and ethics , director nominations, executive compensation and board assessments. A 2006 Guide provides additional guidance to boards and audit committees on legal requirements and other voluntary practices that demonstrate good governance related to board independence, composition, mandate, position descriptions, orientation and continuing education, ethics, nominations, compensation and self-assessment.
Canadian Council of Chief Executives Governance, Value and Competitiveness. A
2002
Canada Large corporations
Defines board role and makes 8 recommendations related to trust and accountability, code of ethics, corporate citizenship, board independence, board recruitment and development, audit committees, assessment and compensation of CEO and Executive
116
Source and Report Year Jurisdiction Highlights Commitment to Leadership
Team and transparency and disclosure related to compensation, governance practices, etc.
Canadian Coalition for Good Governance Governance Self-Appraisal Form; Corporate Governance Guidelines for Building High Performance Boards Executive Compensation Guidelines; Best Practices for Compensation Disclosure
2004 2005 2003 2006
Canada Corporations
Report outlines 12 guidelines related to board composition, board structure and board processes for building high-performing boards: 1) quality motivation of board members, 2) director share ownership, 3) majority independent directors 4) separate CEO/chair positions, 5) board committee independence and mandates, 6) follow new audit committee requirements , 7) board and committee evaluation, 8) individual member performance review, 9) CEO assessment and succession planning, 10) management oversight and strategic planning, 11) management evaluation and compensation, 12) report on governance to shareholders. Guidelines related to executive compensation call for: 1) independent compensation committee, 2) independent point of view through use of external advisors, 3) pay-performance links to ensure pay packages vary significantly in relation to outcomes, 4) executives to maintain significant equity investment in firm even beyond retirement, 5) disclosure of all elements of executive compensation, including retirement benefits. Additionally, authors note that compensation package should strive to attract, retain and motivate excellent people; reward exceptional short and long-term performance and be fair to all including shareholders, employees, etc.
UK Financial Services Authority Combined Code on Corporate Governance
2003
UK Corporations
Brings together recommendations of Cadbury Report, Greenbury Report, Turnbull Committee Guidance on Internal Controls, Smith Group Guidelines on Audit Committees and Auditors and Higgs Report on Good Governance Practices. Includes a comprehensive set of best practices. Requires companies to issue a disclosure statement on how they are applying the principles of the Code and confirm whether they are in compliance and if not, why.
Broader Public and Nonprofit Sectors
Independent Commission on Good Governance in Public Services The Good Governance Standard for Public Services (Langlands Report)
2005
UK Publicly-funded organizations and partnerships
Highlights 6 core principles for good governance: focusing on organizational mission and outcomes such as high quality services and value for money; performing effectively in clearly defined roles and functions; promoting values and demonstrating good governance through behaviour; taking informed, transparent decisions and managing risk; developing capacity and ability of governing body to be effective and engaging stakeholders in making accountability real. Appendices include questions to assist governors and members of the public to assess governance standards.
Auditor General of Canada Annual Reports See also: Auditor General of Ontario Annual Reports
…
Canada Federal Government and Crown Corporations
Several reports have addressed governance issues and challenges. In its audit methodology, the AG devotes a section to questions related to the functioning of the board, its understanding of the corporation‟s public policy objectives, relationship with senior management and the minister, CEO accountability, board information, assurance and values and ethics.
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Source and Report Year Jurisdiction Highlights Treasury Board of Canada Guidelines for Audit Committees in Crown Corporations and Other Public Enterprises Meeting the Expectations of Canadians – Review of the Governance Framework for Canada‟s Crown Corporations
2003 2005
Canada Federal Crown Corporations
Outlines 3 broad roles and responsibilities of board audit committees: 1) overseeing standards of integrity and behaviour, 2) overseeing the integrity and credibility of financial reports and 3) overseeing management control practices. Framework identifies the cornerstones of good governance as legitimacy, transparency and accountability. Identifies 31 measures to: 1) reassert the role of crown corporations as instruments of public policy, 2) clarify accountabilities and stewardship roles, 3) ensure an appropriate process to appoint chairs, CEOs and directors, 4) ensure boards of directors are better equipped to fulfill their responsibilities, 5) promote a governance regime that keeps pace with best practices, 6) ensure a greater degree of transparency
Panel on Accountability in the Voluntary Sector Building on Strength: Improving Governance and Accountability in Canada‟s Voluntary Sector. Final Report of the Panel on Accountability in the Voluntary Sector (Broadbent Report)
1999
Canada Non-Profit Sector
Identifies 8 tasks of voluntary sector boards: 1) Ensure the board understands its responsibilities and avoids conflicts of interest; 2) Undertake strategic planning to carry out the mission; 3) Be transparent, for example, by communicating with members, stakeholders and the public, and responding appropriately to complaints and requests for information; 4) Develop appropriate organizational structures; 5) Maintain fiscal responsibility; 6) Oversee human resources, including ensuring there is an effective management team in place; 7) Implement assessment and control systems; 8) Plan for the succession and diversity of the board. Report includes recommended practices related to mission and strategic planning, transparency and communication, structures, board‟s understanding of its role, fiscal responsibility, oversight of human resources assessment and control, planning and succession and demonstration of good governance.
Government of British Columbia Best Practice Guidelines Standards of Ethical Conduct for Directors of Public Sector Corporations
2005
BC Public sector including health authorities
Identifies best practice guidelines for BC public sector governance and disclosure related to 12 areas: board composition and succession, board responsibilities, committees (including audit committee), board chair, individual directors, CEO/President, Corporate secretary, code of conduct/ethics, orientation and education, board/committee/director evaluation and communications strategy. Standards address compliance with the law, declaration and avoidance of conflicts of interest, disclosure, confidentiality, responsibility and penalties for breach.
Healthcare Sector
Alberta Health and Wellness Governance Expectations of Alberta‟s Health Authority Boards
2001
Alberta Health Authorities
Document articulates ministry expectations of health authority boards related to overall direction and planning; relationships, fiscal management; risk management; monitoring, evaluation and reporting; and board performance. It includes reference to Alberta‟s vision for health and accountability framework within which the boards operate. It also discusses options of the ministry of health with respect to performance evaluation and remedies for under-performance (e.g., direction to the board, replacement of chair, removal of board).
Canadian Health Services Research Foundation and the Canadian Patient Safety
Canada and US
Comprehensive literature review, board surveys, expert interviews and 4 case studies found increasing focus on role of the board as a lever of healthcare quality improvement but challenges related to board focus on
118
Source and Report Year Jurisdiction Highlights Institute Governance for Quality and Patient Safety (Baker et al.)
2010
Hospitals, regional health authorities, LTC homes
quality, development of quality and safety plan, skills and expertise related to governance and quality improvement, performance measurement, and relationships with management and clinical staff. Report includes recommendations for board chairs, CEOs and policymakers.
Ontario Hospital Association Hospital Governance and Accountability in Ontario (Quigley and Scott) Guide to Good Governance (Corbett and Mackay) Quality and Patient Safety: Understanding the Role of the Board – with IHI (Corbett, Baker and Reinertsen)
2004 2005 2007
Ontario Hospitals
Report clarifies hospital board accountability to patients, community and funder, as well as duties imposed by Corporations Act, Public Hospitals Act and other relevant legislation. Authors promote Hybrid Policy Leadership Model based on work of Carver and Pointer and Orlikoff. Model proposes 6 board responsibilities: defining ends, ensuring management performance, ensuring quality and effectiveness, ensuring financial viability, ensuring board effectiveness and building relationships. The authors recommend the adoption of polices and practices related to corporate membership and governance model; roles, responsibilities and terms of office of directors, committee structure and composition, and board work and evaluation and renewal. Guide covers hospital board role and accountabilities , and duties and obligations of officers and individual directors with respect to: oversight and evaluation of the CEO and Chief of Staff; credentialing; strategic planning; performance measurement and management; risk management, board composition, recruitment, orientation, education and evaluation; committee structure, meeting management and corporate members. Twelve governance best practices are also listed including: 1) Explicit statement of hospital accountabilities to multiple stakeholders, 2) Statement of board role and ways in which it exercises its governance function, 3) Clear roles and responsibilities and duties and expectations of directors, 4) Board policies that support fulfillment of duties including Conflict of Interest Policy, Code of Conduct, meeting attendance requirements, etc, 5) Board size appropriate to carry out work, 6) Processes to ensure a skilled and qualified board, 7) Mandatory orientation for new board members in areas of board governance, hospital operations, healthcare environment and relationship with key stakeholders, 8) Processes to ensure qualified board leaders, including the chair, 9) Board independence from management, 10) A committee structure that facilitates board work, 11) Meeting processes that enhance board effectiveness, 12) Commitment to board self-evaluation and ongoing improvement.
Provides overview of hospital board responsibilities for quality and advice on how carry out these responsibilities drawing on learnings from the US. The report includes 10 questions to help boards assess their quality performance including criteria for a board performance measurement system.
National Quality Forum Hospital Governing Boards and Quality of Care: A Call to Responsibility
2004
US Hospitals
Document outlines 4 principles for hospital boards related to quality improvement:
Monitoring and improving quality of care to ensure it is safe, beneficial, patient-centered, timely, efficient and equitable by: a) making it a priority and focus of board activities, b) giving it at least equal attention to
119
Source and Report Year Jurisdiction Highlights finance, c) establishing culture and practices that support quality improvement and holding management accountable for adverse outcomes and poor performance, d) ensuring performance measurement and quality improvement system is in place, e) engaging medical staff, nursing executives and other clinical leaders, f) ensuring HR policies and bylaws include specific expectations related to involvement in quality improvement, technical competency and education and training, g) ensure management supports safety and quality through organizational design, resource allocation, internal reporting, h) aligning budgeting processes and financial and capital resources with quality and safety, i) ensuring payment contracts do not penalize investments in quality and safety.
Enabling board effectiveness and self-evaluation by: a) diversifying its membership and ensuring expertise in quality, safety and involving groups such as physicians, nurses, pharmacists, industrial engineers, consumers and others with expertise in health care and management; b) reviewing their individual and collective performance.
Developing quality literacy by educating its members on: a) infrastructure of patient safety, healthcare quality and performance measurement, b) the role of the board, c) using to the extent possible existing organizations, tools and resources involved in promotion of healthcare quality and governance.
Overseeing, being accountable for hospital participation and performance related to national quality improvement efforts by: a) focusing on nationally-agreed upon priorities and those critical to own institution, b) participating in existing efforts such as the Leapfrog Group and other national performance reporting and benchmarking efforts, c) consistently reviewing data from national quality improvement efforts, d) calculating costs of poor performance and potential cost savings of quality improvements, e) evaluating performance in relation to safety, benefit, patient centeredness, timeliness, efficiency and equity, f) holding management accountable, seeking explanations and monitoring progress when safety and quality fall below expectations or national benchmarks, g) adopting management incentive programs for QI.
Center for Health Care Governance Building an Exceptional Board. Effective Practices for Health Care Governance - Report of the Blue Ribbon Panel on Health Care Governance
2007
US Hospitals
Report targets 5 areas for effective governance:
accountability board culture
board decision-making and information
key governance priorities and authority and responsibility
Institute for Healthcare Improvement Governance Leadership (Boards on Board): 5 Million Lives Campaign
2007
US Hospitals
In addition to specific actions related to the IHI Framework for Leadership of Improvement, the campaign asks boards to undertake 6 core activities in support of quality improvement:
Set specific aims to reduce harm
Collect data and stories and review progress towards safer care as the first agenda item at
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Source and Report Year Jurisdiction Highlights every board meeting. An initial assessment should consist of an initial chart audit and in-depth case study prepared by the CEO with assistance from nurse and physician leaders
Establish, update and monitor system-level measures such as risk-adjusted mortality
Commit to establishing and maintaining an environment that is respectful, fair and just for patients, families and staff
Learn about how the best boards work with executive and clinical leaders and set an expectation for similar levels of education and training for all staff and board
Monitor plan implementation and hold the executive team accountable for clear quality improvement targets.
At minimum, IHI advises boards to: 1) spend more than 25% of their meeting time on quality and safety issues; and 2) as a full-board conduct a conversation with at least one patient or family member who sustained serious harm at their institution. Safer Health Care Now!, the Canadian Patient Safety Institute‟s version of the 5 Million Lives Campaign recommends many of the same interventions to improve hospital quality of care.
Canadian Council on Health Services Accreditation Governance Check-Up. Guidance for Healthcare Organizations - with CCAF-FCVI Patient Safety Required Organizational Practices QMentum Governance and Leadership Accreditation Standards
1998 2006 2008
Canada Healthcare sector
Joint CCAF-FCVI/CCHSA document highlights need for the board to: 1) identify governance responsibilities and assess related capacity and effectiveness, 2) determine its information needs and the adequacy of current information systems, 3) actions it can take to create or influence the implementation of its governance agenda. Accreditation standards include 21 Required Organizational Practices (ROP‟s), several of which are board-related, including: 1) patient safety as a strategic priority, 2) quarterly board reports on patient safety 3) reporting system for actual and potential adverse events, 4) policy and process of disclosures of adverse events and 5) plan and process to assess client/patient safety issues within the organization and carry out improvements. 2008 accreditation standards focus on 5 core functions of governance: intelligence, formulating mission and vision, resourcing and instrumentation, managing relationships and control and monitoring. Specific standards are as follows:
Building knowledge through information: regularly reviewing and analyzing strategic information, regularly sharing key information internally and with external stakeholders
Developing clear direction: developing mission; carrying out strategic planning process to develop vision, goals and objectives; defining set of values and educating key stakeholders about them; developing and updating policies on ethics -related issues
Supporting achievement of direction: recruiting, selecting and monitoring CEO, guiding organization to achieve objectives and improve
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Source and Report Year Jurisdiction Highlights board performance, developing effective working relationships with executive team including clinical leadership, working with senior management to obtain and allocate appropriate resources
Managing positive relationships with external stakeholders: managing a broad network of external stakeholders, regularly and consistently communicating to build credibility, inspire commitment and promote support
Being accountable and achieving positive results: regularly monitoring and evaluating performance, demonstrating accountability, working with management to identify risk and promote ongoing quality improvement, having effective financial planning and control, fostering and supporting client safety culture throughout organization.
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Appendix 3.2 Key Recommendations from Canadian Healthcare
Accreditation Reports, 2002-2008
Theme Sample Accreditation Report Recommendations Quality Monitoring and Improvement
Develop quality improvement system to monitor, evaluate and improve services and outcomes
Establish clear and measurable goals and monitor achievement
Select and monitor indicators related to wait times, infection control, sentinel events, adverse events, near misses, human resources, outcomes of care, patient satisfaction and other aspects of quality
Benchmark performance with other organizations or industries
Conduct health service utilization reviews Safety Ensure disaster and emergency preparedness plans are in place and conduct
regular drills
Review processes for safe, efficient and effective use of medications and other therapeutics
Ensure formal, comprehensive and approved process is in place to identify, report, assess and manage risk
Develop process to identify, manage and prevent sentinel events and near misses
Ensure equipment, supplies, medical devices and space are used in efficient, safe and effective manner
Ensure staff are trained in infection control
Health Human Resources
Ensure credentialing, appointment and granting privileges are well -documented and timely
Develop comprehensive human resources plan that meets current and future needs
Ethics Develop formal processes to address, manage and resolve ethics issues Community Linkages
Develop and evaluate linkages and partnerships with other organizations and community to address needs
Communicate organization‟s role and services to community Oversight Manage finances and review contracted services
Clearly define and regularly review mission statement Develop/refine strategic plan
Regularly review bylaws and legislation Provide quarterly safety reports to board
Board Management
Define roles and responsibilities and scope of authority Evaluate performance with assistance of framework and indicators
Educate members Source: Canadian Council on Health Services Accreditation, www.accreditation.ca.
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Appendix 3.3 Highlights from Operational Reviews of Ontario Hospitals,
1997-2008
Area Themes Under the Public Hospitals Act, the Ontario Minister of Health has the power to appoint
Supervisors, Investigators and Inspectors through an Order-In-Council. Though not specified in law, the minister has also appointed Coaches, Intervenors and Ministe r‟s Designates to help hospitals to address performance issues. Reviews are generally conducted in keeping with terms of reference developed jointly by the ministry, hospital and lead reviewer.
Ideally, appointees are knowledgeable, experienced and well -respected. Many have been hospital CEOs or ministry of health executive leaders. Most use their networks to build the review team which generally includes a chief of staff or VP clinical programs as well as senior financial staff all generally drawn from several hospitals. External consulting companies such as HayGroup have provided technical support. An internal Ministry evaluation carried out in 2005 suggested that additional clinical expertise and nurse manager participation may be useful in future reviews.
Review reports vary in scope, depth and quality, and may include: hospital and community profiles; governance and management profiles; benchmark comparators; clinical service and performance profiles; departmental operations profile; recommendations for improvement including implementation timelines and monitoring processes.
Reports and analyses are based on data from a variety of sources including: standard clinical and financial datasets, benchmarking tools (e.g., HayGroup) and performance indicators generated by the hospital as well as external sources (e.g., HRRC, JPPC); analyses of strategic and operational plans and previous reviews; committee documents such as meeting minutes; board/senior leader/external stakeholder interviews or focus groups; patient, physician and staff surveys; and in limited cases, highlights of commissioned polls/surveys of the community and analyses of hospital -related media coverage.
General Many reviews dealt with financial or relationship issues arising from Health Services Restructuring Commission (HSRC) directions to amalgamate hospital corporations, close/merge/transfer programs/beds/sites or redevelop facilities.
More recent reviews were designed to facilitate compliance with the Ministry of Health‟s Balanced Budget directive. Some were conducted at the request of the board due to a perception that the hospital was at peak efficiency and the problem was one of inequity or underfunding.
A significant proportion of reviewed hospitals had undergone multiple and were ei ther unable to fully implement recommendations or these did not adequately address the underlying problem.
Recommendations have generally addressed: clinical utilization related to benchmarks, management capacity/decision-making, controls, organizational s tructure, administrative processes such as budgeting, criteria for priority-setting for hospital services, staff levels/mix/roles, compensation strategies, space and equipment utilization, purchasing practices/shared services, performance measurement, management and monitoring, workplace safety, working relationships between hospital and ministry and management and clinical staff. The sections below provide examples.
Financial Issues
Operational planning and budgeting processes (i.e., Limited use of business cases or other tools to analyze impact/costs of new/expanded programs or technologies)
Poor capital planning and monitoring High actual cost per weighted cases compared to peers/expected cost
Low productivity in relation to industry
Lack of growth in non-ministry revenues Working capital deficit and historical performance
Budget control overly centralized; limited devolution to managers Lack of physician practice impact analyses
Physician top-ups to assure coverage in ED, paediatrics, etc
Quality of human resources and financial (MIS) data
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Clinical Issues
Analysis of clinical efficiencies in relation to benchmark comparators (25th or 50
th
percentile)
Opportunities to improve clinical efficiencies and utilization management, including collaboration with other providers
Review of programs and services in relation to population needs
Patient flow processes
Clinical data quality Human resource planning; recruitment and retention of physicians and physician leaders
Medical staff dissatisfaction; division; poor relations with board/administration
Lack of physician engagement in budgeting; utilization management Lack of clarity of roles re: chief of staff/chiefs of departments/medical directors; specialists
Performance evaluation of physician leaders Governance Issues
Monitoring and Independence
Lack of clarity regarding balance of accountabilities to funder and community; over-focus on lobbying for additional funding rather than improving efficiency/quality/safety of services
Unclear communications with funder; proceeding with new programs or capital projects without approval
Poor monitoring and evaluation of management effectiveness, including CEO performance Board information systems: too much detail; too little/infrequent information; no trending or
benchmarking indicators; no balanced scorecard
Dormant quality assessment/risk management committees; laissez faire approach to credentialing and patient care; lack of communication between board and medical staff
Lack of board capacity for oversight i.e., lack of capital planning expertise in cases where hospital capital expansion associated with unexpected delays and cost overruns
Transparency & Decision-Making
Decision-making processes: range of options/consequences not presented/discussed; board members who ask tough questions seen as „difficult‟
Overuse of in-camera meetings; lack of transparency in board deliberations/decisions; poor stakeholder communication
Poor relations with hospital members/media/community
Mission, vision and strategic plan not current or not useful for guiding decisions Problems developing shared mission, vision and strategic plan following merger or HSRC
direction Membership Management Poor understanding of governance role and board responsibilities; poor or ineffective board
orientation and education
Unclear board nomination and selection processes Board size and composition: boards too large, too many appointed/ex officio members
acting as advocates for their area
Sources: Based on a review of 24 hospital operational or peer reviews (available from the author) and documents produced by the Ontario Ministry of Health and Long Term Care (2006), Ontario Hospital Association (2004) and Quigley & Scott (2004).
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Appendix 3.4 Operationalization of Board and Top Team Variables in
Hospital/Governance Studies: Examples
Variable Definition
Board Variables
Size - Number of members on hospital board (Weiner & Alexander, 1993; Weiner, Alexander & Shortell,
1996)
- Number of active members (Hodge & Piccolo, 2005)
Tenure - Average number of years on board (Callen, Klein & Tinkelman, 2003)
Independence - Insiders: Active board participation defined as voting privileges by members of the medical staff.
Voting and nonvoting status of CEO (Molinari, Morlock, Alexander & Lyles, 1993); change in
management membership on board, year over year (Goodstein & Boeker, 1991)
- Outsiders: presence of members of the business community w ith voting privileges (Molinari,
Morlock, Alexander & Lyles, 1993)
Board Activity /
Function* /
Engagement*
- Meeting Frequency: Frequency of strategic (f inance/budget, quality, nominating, planning,
executive) committee meetings. Number of board meetings per year (Callen, Klein & Tinkelman,
2003)
- Emphasis on strategic activity: diversif ication, mergers, joint ventures, strategic planning,
competitive positioning occupied most of board‟s time in last 12 months. 0=no, 1=yes (Weiner &
Alexander, 1993)
- Limit on board member terms: 0=no limit; 1=limit (Weiner & Alexander, 1993)
- Board member compensation excluding travel reimbursement 0=N, 1=Y (Weiner & Alexander,
1993)
- Board leadership for quality: comprised of a) monitoring of 10 quality reports including overall
adjusted and unadjusted mortality rates; condition-specif ic adjusted mortality rates, infection rates,
medication error rates, results of special QI studies and teams, patient satisfaction, unscheduled
readmissions to hospital and treatment unit w ithin hospital, other critical incident or adverse event;
and b) follow-up actions including requesting additional data collection, initiating a special study or
taking corrective action on an identif ied problem (Weiner, Shortell & Alexander, 1997)
Structure - Number of board committees (Brown & Iverson, 2004)
- Number of committees from list: f inance/budget, joint conference/professional affairs, quality
assurance, bylaws, community relations, nominating, bioethics, strategic/corporate planning,
personnel, executive (Weiner & Alexander, 1993); presence of 10 types of committees (Brown &
Iverson, 2004)
- Presence of strategic planning committee (Brow n & Iverson, 2004)
- Presence of quality committee (Jiang et al. 2008; Vaughn et al. 2006)
Governance
Configuration /
Model
- Corporate model: CEO role on board, formal CEO evaluation, board term limits, board member
compensation, focus on strategic activity, board size = 7, insider representation; occupational
heterogeneity = mean score of sample of hospitals scoring in 1st percentile of corporate ideal for
previous six characteristics (Alexander & Lee, 2006)
Turnover - % new board members year-over-year (Goodstein & Boeker, 1991)
- (number of new directors at t) + (number of directors that left board between t and t1) / 2 / (number
of directors at t1) (Eldenburg et al., 2004)
Diversity - Index of Dispersion encompassing gender, race, religion, education and functional background
(Abzug & Galaskiewicz, 2001)
- Occupational heterogeneity index calculated as % of board members in 14 mutually exclusive
groups, squared and summed. Groups included: physicians, other health professionals, hospital
CEO, religious representatives, lawyers, educators, bankers/f inanciers, independent business
people, corporate executives, farmers/ranchers, government off icials/agency representatives, labour
off icials, homemakers (Weiner & Alexander, 1993)
- Diffusion: presence of 5 types of stakeholders on committees (Brown & Iverson, 2004)
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Variable Definition
Composition - Corporate representation: number of corporate executives / total number of board members (Weiner
& Alexander, 1993)
- Medical representation: number of physicians w ith active staff privileges / total number of board
members (Weiner & Alexander, 1993)
- Male representation (Provan, 1980)
Pow er /
Netw orks
- Board prestige scale: % listed in social register, % living in high income areas (Provan, 1980)
- Board linkage scale: links to other human service agencies; links to United Way board (Provan,
1980)
- Perceived board power measured by asking Executive Director to rank 7 most powerful boards with
score based on number of times agency board was nominated (Provan, 1980)
- Number of institutional ties w ith accrediting bodies, national associations and insurance groups
(Alexander, Lee & Weiner, 2004)
Board Member
Selection
- Skills/Expertise: number of skills/expertise selection criteria used by hospital / total number of
selection criteria (Weiner & Alexander, 1993). Skills/expertise included: business/f inancial
background, knowledge of healthcare issues or administration, clinical background, legal skills.
Other selection criteria included: fundraising ability, ideology/values, community involvement,
political inf luence, regional/subgroup constituent representation, time available, other
- Diffusion of selection responsibility: number of bodies involved in selection of new board members,
i.e. nominating/executive committees, government, corporate membership or association, medical
staff, local community, hospital board, parent board (Weiner & Alexander, 1993)
Board
Effectiveness
- Board Self-Assessment Questionnaire (BSAQ), a 65 question tool developed and tested for use in
the US non-profit and community hospital sector (Jackson and Holland, 1998). Assesses 6
dimensions of board performance: contextual, educational, interpersonal, analytical, political and
strategic. Subsequent research appears to indicate that these items cluster into one „good
governance‟ factor (McDonagh, 2006)
- Governance Self-Assessment Checklist (GSAC), a 144-item instrument validated in the nonprofit
and public sector environment. Assesses performance related to board structure, culture, mission
and planning, f inancial stewardship, HR stewardship, performance monitoring, community
representation, risk management, board development, board management and decision-making,
and overall governance quotient. Also includes 15-item quick check which showed good correlation
with full instrument (Gill, Flynn & Reissing, 2005)
- Perceived effectiveness of board quality function: Board very effective in carrying out its quality
oversight function as measured by score of 5 or 6 on scale of 1 to 6) (Jiang, Lockee, Bass &
Fraser, 2008)
CEO / Top Management Team Variables
Top
Management
Team
- Top management team: number of top management team members identif ied by CEO as the inner
group of key executives primarily responsible for strategic direction of the hospital (Smith,
Houghton, Hood and Ryman, 2006:626); all corporate off icers who were also board members
(Finkelstein & Hambrick, 1990)
Professionalism - Fellow of American College of Healthcare Executives (Arndt & Bigelow, 1995)
Pow er and
Influence
- CEO influence in board member selection: number of organizational bodies involved in member
selection to which CEO belongs / total number of bodies involved in board member selection
(Weiner & Alexander, 1993)
- CEO role: 0=not member, 1=non voting member, 2=voting member, 3=board chair (Weiner and
Alexander, 1993). Does not attend board meetings, observer, non-voting member, voting member
(Alexander, 1988)
- CEO tenure: number of years in position (Weiner, Alexander & Shortell, 1996)
Leadership for
quality
- Number of CQI/TQM activities in w hich CEO personally participated from list of 13 possible
activities (Weiner, Shortell & Alexander, 1997)
Top Team
Pow er
- Average individual TMT member pow er score as rated by each member of the top management
team on a 7 point Likert scale; TMT pow er distribution calculated as standard deviation of team
member scores divided by mean power score (Smith, Houghton, Hood & Ryman, 2006)
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Variable Definition
Physician
Integration
- Physician involvement in management: physicians compensated for formal role in design,
management and sustainability of health systems, or advising decisions about implications of
managerial decisions on clinical process and outcomes or physicians. Excludes department
heads or those managing physicians in group practices. (Weiner, Shortell & Alexander, 1997)
- Physician involvement in governance: % Directors who were physicians with active clinical
privileges at the hospital and % Directors who were physicians-at-large (Weiner, Shortell and
Alexander, 1997); number of active staff physicians and physicians at large on the board (Weiner,
Alexander & Shortell, 1996) *term not necessarily used by author
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Appendix 3.5 Most Frequently Reported Governance Practices Reported
by Ontario Hospitals, 2005
Small
Hospitals (n=28)
Community Hospitals (n=63)
Teaching Hospitals (n=10)
All Hospitals (n=101)
Board Governance Survey
Publicly available document of board responsibilities
96% 100% 100% 99%
Publicly available document of chair responsibilities
100% 97% 100% 98%
Educational opportunities for board members
100% 97% 100% 98%
Strategic plan with goals and milestones
93% 98% 100% 97%
Board chair attends at least 1 meeting of every committee per year
89% 95% 90% 93%
Process to address potential conflicts of interest
96% 91% 90% 93%
Committee Terms of Reference documented and available to public
89% 94% 90% 92%
Annual plan to improve performance (n=100)
89% 92% 100% 92%
Nominations consider diversity 96% 89% 100% 92%
Comprehensive Board policies and practices manual (n=100)
85% 94% 80% 90%
Two-thirds minimum meeting attendance requirement
89% 87% 90% 88%
Clinical leaders involved in strategic planning
89% 87% 90% 88%
Nominations based on skills audit 87% 71% 92% 87% Independent audit committee 68% 89% 90% 83% Succession plan for board chair 86% 81% 70% 81%
Board uses criteria to evaluate effectiveness
86% 92% 80% 81%
Independent nominations committee 79% 79% 90% 81%
Audit members are financially literate; at least one has accounting or finance designation (n=100)
59% 87% 100% 81%
Board approved emergency plan (n=99)
89% 60% 90% 71%
Median number of 34 Governance Survey practices reported (min, max)
28
19 (13, 22) 20 (7, 22) 21 (14, 22) 20 (7, 22)
System Integration and Change Survey
Board has adopted patient safety as a written, strategic priority/goal (SIC 2006 49a)
43% 76% 100% 69%
28
Excludes 2 Small and 4 Community Hospitals with missing data for at least one practice.
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Appendix 3.6 Relationship between Governance Practices and Board
Characteristics
130
131
132
Appendix 3.7 Relationship between Governance Practices and Top
Management Team Characteristics
133
134
135
Appendix 3.8 Relationship between Governance Practices and Hospital
Performance
136
137
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CHAPTER 4
Linking Organizational Monitoring and Alignment Capacity and Hospital Performance
4.0 Introduction
Board governance has been the subject of much debate in recent years. In the Ontario hospital
sector, concerns over performance have led to numerous reviews of the role of boards and
senior leaders and more recently, legislative changes to promote greater accountability and
transparency. This exploratory study focuses on the intersection between board governance and
“organizational monitoring and alignment capacity” and asks the question: do these matter to
organizational performance? It begins with a review of the literature, conceptual model and
hypotheses. This is followed by a description of the data and the analyses undertaken. The
chapter concludes with the discussion of the findings and implications for policy and practice.
4.1 Literature Review
Three theories inform the bulk of the research on board governance: agency theory, institutional
theory and resource dependence theory. Agency theory (Jensen & Meckling 1976; Fama &
Jensen, 1983) holds that managers and other insiders engage in self-interested behaviours which
harm or reduce shareholder/stakeholder value. The role of the board is therefore to monitor
actions, decisions and other elements of organizational activity and align incentives so as to bring
the interests of those internal to the firm closer to those of the arms-length „owners.‟ It is
understood that there are costs associated with monitoring and the role of the board is not to
micro-manage but to use its powers to select senior managers that possess the right mix of
knowledge, skills and aptitudes and more broadly reward, punish and control management
activities so as to achieve the desired outcomes.
Where agency theory underscores the role of human agency in organizational action,
institutional theory (Selznick, 1948; DiMaggio, 1983; Scott, 1987, 2001) focuses on the impact of
broader social, political and economic determinants. It recognizes that organizations are
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complex entities, with strengths and weaknesses built up over time and in response to both
founding conditions and changing circumstances. The rules and norms that evolve over time
circumscribe individual and collective action, with path dependency the result. Thus, institutional
theory would hold that boards are not independent actors but reflections of their institutions
and arguably, of limited consequence to organizational performance.
Resource dependence and strategic choice theories (Pfeffer & Salancik, 1978; Child, 1972)
straddle the universe between these two competing views by valuing the importance of the
broader environment and suggesting that boards have a role to play in managing external
dependencies and linking to needed resources. Proponents of these theories argue that boards
matter to organizational performance both for their symbolic value as well as the networks,
advice and counsel, and strategic vision they are able to offer to senior leaders.
A core tenet of this study is that boards are a reflection of the unique capacities of their
organizations and executive teams. Institutional factors such size, age, teaching status and
urban/rural location are typically controlled for in governance studies. Such factors may be
characterized as elements of organizational capacity that have evolved over time and may affect
the mix and volume of services an organization is able to provide given the competitive
environment or broader economic conditions. More recently, the hospital governance literature
has begun to examine other aspects of organizational capacity related to how care is managed
and delivered that may affect performance. For example, uptake of clinical practice guidelines;
improved communication with patients and families/caregivers; and effective workplace
relationships are thought to have a positive impact on readmissions and patient satisfaction
(Medicare Payment Advisory Commission, 2007; Marley, Collier & Goldstein, 2004).
Consistent with resource dependence theory and strategic management perspectives, this study
proposes that boards and top management teams have a role to play in helping hospitals make
good decisions. Much of the research to date has focused on the links between organizational
performance and isolated variables such as board size, composition, structure and decisions
(Dalton, Daily, Johnson & Ellstrand, 1999; Molinari, Alexander, Morlock & Lyles, 1995;
Ibrahim, Angelidis & Howard, 2000; Golden & Zajac, 2001; Gautam & Goodstein, 1996;
Alexander, Lee & Weiner 2004; Provan 1987). Relatively few studies have focused on the links
between organizational performance and governance practices recommended by a growing
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number of sectoral, professional and government organizations. This study builds on the
research to date by examining the links between board practices and top team characteristics
(both hypothesized elements of governance capacity) and “organizational monitoring and
alignment capacity,” defined here as an “enterprise-wide orientation to performance
measurement, benchmarking and alignment to evidence-based practice.”
4.2 Conceptual Model and Hypotheses
Studies comparing high and low-performing hospitals (e.g., Mannion, Davies & Marshall, 2005;
Cejka Search & Solucient, 2005; Prybil, 2005) suggest that high performers:
are highly-attuned to changes in the external environment and able to align internal
resources in response to emerging evidence or best practice.
develop robust internal monitoring systems to achieve clear and measurable goals and set
the bar high by benchmarking both clinical and financial performance to external or
“best-of-breed” comparators.
have top teams that reflect, and in some cases, drive the focus on goal-setting,
performance measurement and alignment.
No systematic research has been undertaken in Canada on the relationship between hospital
performance, organizational ability to align, monitor and benchmark performance, and
governance capacity. This study aims to bridge this gap by testing the following hypotheses:
H1: Organizational monitoring and alignment capacity will be positively related to
governance practices.
H2: Organizational monitoring and alignment capacity will be positively related to
governance capacity.
H3: Organizational monitoring and alignment capacity will be positively related to
financial health, patient satisfaction, quality of care and overall performance.
Figure 4.1 summarizes the conceptual model and hypotheses tested in this study.
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Figure 4.1 Conceptual Model: Organizational Monitoring and Alignment Capacity
GOVERNANCE CAPACITY
Top Team Characteristics ORGANIZATIONAL MONITORING PERFORMANCE
& ALIGNMENT CAPACITY
Governance Practices
4.3 Research Methods
Measures
Hospital Performance
This study uses multiple measures of hospital performance. Table 4.1 summarizes the rationale
for the choice of measures. As described in Chapter 1, all performance measures are calculated
based on two fiscal years of data (2005/06 and 2006/07) to maximize reliability of the analyses,
particularly with respect to Small Hospitals.
Table 4.1 Rationale for Proposed Measures of Hospital Performance
Performance Domain
Measure Rationale
Quality Unplanned Readmissions within 30 days
Key recent studies of hospital governance have included similar quality indicators. Readmission indicators were included in hospital accountability agreements starting in 2005.
Patient Satisfaction
Hospital Report Indicators: Communication, Consideration, Responsiveness, Overall Impressions, Nursing Care, Physician Care
NRC+Picker Indicators
Comparable patient satisfaction data on some 90 hospitals has been available through the Ontario Hospital Report Research Collaborative for several years. Research carried out in Ontario suggests that hospital boards are assessing CEO performance in part on Patient Satisfaction. Relatively few governance studies have used user satisfaction as a performance measure, suggesting a gap in the research.
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Financial Performance
Operational Efficiency based on Actual versus Expected Cost per Equivalent Weighted Case
Total Margin
Current Ratio
Financial indicators are traditional markers of good performance and used often in the corporate and hospital governance research. In Ontario, an indicator based on actual and expected cost per weighted case has been used to allocate hospital growth funding for several years. According to Schraa (2007), financial performance measures are most frequently used by hospital boards to assess CEO performance. Additionally, Total Margin and Current Ratio having been included as performance indicators in Hospital Accountability Agreements since 2005.
Overall Performance
Composite measure reflecting peer group performance on quality, financial health and overall patient satisfaction.
Complimentary financial accountability performance measure reflecting adherence to balanced budget directive and financial solvency requirements
Good performance across domains would suggest that the board is able to effectively balance its control and service roles.
Quality of Care
Readmission rates are an important indicator of avoidable cost and quality of hospital and
community care (Friedman & Basu, 2004; Medicare Payment Advisory Commission, 2007).
Studies carried out in Europe, the US and elsewhere indicate that between 5% and 29% of all
hospitalizations are followed by a potentially avoidable readmission (Halfon, Eggli, Pretre-
Rohrbach, Meylan, Marazzi & Burnand, 2006; Hasan, 2001). Factors within hospital control
thought to reduce readmissions include: identification and prevention of adverse events;
improved in-hospital medical management of patients, including better uptake of clinical
practice guidelines; improved communication with patients and families/caregivers regarding
self-care, medication management, etc; improved discharge planning and follow up coordination
of care, including in some cases, provision of appropriate outpatient services; and improved
rehabilitation care (Hasan, 2001; Medicare Payment Advisory Commission, 2007).
In Canada, readmission rates have been used as a marker of hospital quality and outcomes for
several years (e.g., Hospital Report, 1988; CIHI 2002). Readmission Rates were included as
indicators in the hospital accountability agreement process in Ontario starting in 2005.
Performance outside a corridor triggers an escalating set of consequences under the legal
agreement, the most serious involving an operational or financial audit, or removal of the board.
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The readmissions measures used in the hospital agreement process were developed by the
Ontario Joint Policy and Planning Committee and differ from other similarly-named publicly
reported indicators in Ontario (JPPC, 2007). The JPPC measures consider any
urgent/unplanned readmission within 30 days of an index hospitalization, excluding deaths,
transfers and sign-outs against medical advice. Index hospitalizations are limited to case mix and
age groups with the highest readmission rates including:
AMI – CMGs 205-208, age >45
Stroke – CMG 13, age >45
Cardiac – CMGs 212, 213, 235, 237, 242, age >45
GI – CMGs 281, 285, 286, 289, 290, 294, 297, 323, 325, 326, 329, all ages
Congestive Heart Failure – CMG 222, age >45
COPD – CMGs 140, 142, age >45
Diabetes Mellitus – CMG 483, all ages
Pneumonia – CMG 143, all ages
The JPPC measures compare observed readmissions with a target or expected number of
readmissions. Expected readmissions are calculated by adding all predicted probabilities for
unplanned readmission to any Ontario acute care hospital after controlling for CMG, age, sex
and prior hospitalization. The JPPC has calculates Readmission rates by calendar year.
Expected and Observed readmissions to All Facilities for 127 hospital corporations by case mix
group and calendar year were obtained from the JPPC. For the purposes of this study, 2005/07
fiscal year rates for Readmission to Any Facility were calculated as follows:
Sum of Sum of Observed Readmissions - Expected Readmissions for Selected CMGs for Selected CMGs Readmission Rate = _________________________________________________________________ x 100
Sum of Expected Readmissions for Selected CMGs
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Patient Satisfaction
Patient-centredness is one of the characteristics of a high-performing health system as defined
by the Institute of Medicine and the Ontario Health Quality Council. Patient satisfaction is a
multi-dimensional construct reflecting patient involvement in decisions and management of their
care; availability, access to and outcomes of care; satisfaction with facilities and „hoteling‟
services; and perceptions of the interpersonal skill and technical competence of medical
professionals, nurses and other hospital staff (Hordacre, Taylor, Pirone & Adams, 2005). Patient
perceptions are informed by past experience, expectations of caregivers, timeliness and efficacy
of the intervention received, and interpersonal factors. For example, increasing age, lower
educational levels and non-emergency admission are associated with higher patient satisfaction;
female sex and living alone are associated with lower satisfaction (Hordacre at al., 2005).
Several empirical studies point to broader organizational factors as drivers of patient satisfaction.
A study by Marley, Collier & Goldstein (2004) found a positive relationship between patient
satisfaction and participatory leadership, process quality and clinical quality in a sample of 202
US acute care hospitals. A study of Veteran‟s Health Administration ambulatory care centres
found a strong relationship between patient satisfaction with care, employee „customer
orientation‟ and factors commonly associated with high performing work systems including: goal
alignment, communication, involvement, empowerment, teamwork, training, trust, creativity and
performance-based rewards (Harmon, Scotti & Behson, 2007). Interestingly, a study by the same
team also found a significant association between such work practices, increased employee
satisfaction and savings averaging $1.2 million per VHA facility in 1997 (Harmon, Scotti,
Behson, Farias, Petzel, Newman & Keashley, 2003). Hospital size has also been found to be
related to patient satisfaction with patients in smaller non-urban hospitals reporting higher
satisfaction (Hordacre, Taylor, Pirone and Adams, 2005) and those admitted to higher volume
hospitals, particularly non-teaching facilities, reporting lower satisfaction (Messina, Scotti, Gaini
& Zipp, 2009). Little research has been conducted on the relationship between patient
satisfaction and hospital board governance.
Numerous patient satisfaction public reporting schemes exist in the US, UK and elsewhere. In
Ontario, the Hospital Report Research Collaborative has published publicly comparable data for
several years on four aspects of patient satisfaction:
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Communication: patient views on the amount and quality of information and
communications they received about their condition, treatment, preparation for discharge
and care at home, and whether their family and friends were given sufficient information.
Consideration: patient views whether they were treated with respect, dignity and courtesy
Responsiveness: extent to which patients felt they got the care they needed in hospital and
how coordinated and integrated that care was when it was delivered.
Overall Impressions: views of overall hospital experience including the overall quality of care
and services they received and confidence in the doctors and nurses who cared for them.
Hospitals also have access to two caregiver-specific indicators (Physician Care and Nursing Care)
and eight Picker-based indicators (Overall Satisfaction, Coordination of Care and Access,
Physical Comfort, Respect for Patient Preferences and Courtesy, Information and Education,
Continuity and Transition, Family Involvement, Emotional Support) through the e-scorecard, a
password-protected website. These measures are based on responses to NRC+Picker Canada‟s
Measuring the Patient’s Experience Survey, a validated tool described in greater detail in the
Introduction. While no patient experience indicators have been included in hospital service
accountability agreements to date, they are expected to be added in future iterations. For the
purposes of this study, patient satisfaction scores obtained from the Hospital Report Research
Collaborative were averaged over two years (2005/06 and 2006/07).
Financial Performance
Sustainability is an important goal of healthcare systems worldwide. Health care consumes
10.6% of Canada‟s GDP, with hospitals accounting for over 28% of those resources (CIHI,
2008). In recent years, there has been an attempt to control the hospital cost curve through
measures such as joint purchasing, outsourcing of ancillary services, expansion of ambulatory
services to reduce reliance on costly inpatient care, adoption of more cost-effective medical
technologies and improved utilization management (e.g., Smitherman, 2004). Financial measures
are often used in healthcare and governance research.
In Ontario, cost per equivalent weighted case is an important marker of relative hospital
efficiency. This measure is calculated annually based on all the activity of small hospitals; acute,
day surgery and chronic care activity of large hospitals, and chronic care activity of stand alone
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chronic hospitals (JPPC, 2006). Stand-alone rehabilitation and specialty facilities are excluded.
The model draws on data from the CIHI Discharge Abstract Database and Chronic Care
Reporting System, Ontario Cost Distribution Methodology and Ontario Healthcare Reporting
System and complexity (“PAC10”) weights ca lculated annually by the ministry of health. It
adjusts for statistically significant factors beyond management control known to affect costs
(e.g., isolation, size, teaching activity). A weighted least squares regression model is used to
predict a hospital-specific expected cost per equivalent weighted case which is then compared to
the actual cost per equivalent weighted case. A negative value indicates relative efficiency; a
positive value indicates relative inefficiency. In 2005/06, the model was refined to provide more
stable year-over-year results reflective of actual changes in relative efficiency rather than
differences in data management and reporting practices (JPPC, 2007). Annual results were
published on the Joint Policy and Planning Committee website and included in Hospital Report
and hospital planning submission and accountability processes up to 2008. The model has also
used by the ministry of health to allocate over $1 billion in new hospital funding since 2001/02
(JPPC 2006). The Operational Efficiency measure in this study is a two year average for fiscal
years 2005/06 and 2006/07.
Overall Performance
Organizational performance is a multifaceted concept. In 1992, Kaplan and Norton proposed a
strategic approach to reconciling and achieving high levels of performance in four key areas:
financial management, customer perspective, business processes, and learning and growth. The
approach was adopted by the Hospital Report Research Collaborative to assess hospital
performance in Ontario and, with minor variations, by the provincial ministry of health in the
development of hospital and local health authority service agreements. Balanced scorecards are
also being used by hospitals to report on performance to local communities. Implicit in the
approach is that organizations may excel in some areas but not others. While this idea continues
to have merit, attention in recent years has shifted to promoting high-performance across a core
set of output and outcome measures, while making clear the inputs and processes required to
meet agreed upon levels of performance. In the health sector, trade-offs likely exist between
efficiency, quality of care and patient satisfaction. Yet research by The Commonwealth Fund
(e.g., Kroch et al.., 2007), Institute for Healthcare Quality (e.g., Martin et al.., 2009) and others
suggests that hospitals that provide high quality care, or report high patient satisfaction, may also
be more efficient.
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The Hospital Report Research Collaborative identifies as high performers, hospitals with above
average performance and no below average scores on selected indicators within each of its four
quadrants (system integration and change, clinical utilization and outcomes, patient and family
satisfaction and financial performance and condition). For the purposes of this study, a
composite measure was created based on hospital peer group rankings across the three domains:
financial performance, quality of care and patient satisfaction. Additionally, a complimentary
accountability performance indicator was developed to reflect hospital adherence to the
requirements to maintain a balanced budget and remain financially viable in each of the two
years (2005/6 and 2006/07). Consistent with ministry of health policy, Total Margin >0 and
Current Ratio > .8 were used as indicators of these two requirements. Table 4.2 provides a
summary of how the provincial ministry of health calculates these two measures in the Ontario
hospital sector.
Table 4.2 Operationalization of Total Margin and Current Ratio in Ontario Hospital Agreements
Indicator Definition Operationalization (MIS OHRS)
Total Margin
Numerator Total corporate revenues (excluding interdepartmental recoveries and
facility-related deferred revenues) minus Total Corporate Expenses and Facility-related Amortization Expenses
All fund types; all sector codes
Primary Accounts: 7* + 8*
Secondary Accounts: 1* to 9* (excluding 12171, 12195, 12196, 12197, 122*, 13002, 13102, 14102, 15102, 15103, 45100, 62800, 69571, 69700, 72000,
95020, 95040, 95060, 95065, 955*)
Denominator Total Corporate Revenues (excluding
interdepartmental recoveries and facility-related deferred revenues)
All fund types; all sector codes
Primary Accounts: 7* + 8*
Secondary Accounts: 1* (excluding 12171, 12195, 12196, 12197, 122*, 13002, 13102, 14102, 15102,
15103)
Current Ratio
Numerator Current Assets minus credits in current
asset accounts excluding bad debt plus debits in current liability accounts
All fund types; all sector codes
Primary Accounts: 1* (excluding credit balances in all 1* accounts except for bad debt [1*355]) + debit balances in 4* accounts
Secondary Accounts: NA
Denominator
Current Liabilities, excluding deferred
contributions minus debits in current liability accounts plus credits in current asset accounts (excluding bad debt)
Primary Accounts: 4* (excluding 4*8 and excluding
debit balances in 4* accounts) + credit balances in 1* accounts (excluding bad debts 1*355)
Secondary Accounts: NA
Source: 2007/08 Template Hospital Accountability Agreement, Schedule B, Performance Obligations, Joint Policy and Planning Committee, November 2006.
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Organizational Monitoring and Alignment Capacity
Few data specifically related to hospital processes of care are routinely collected in Ontario
hospitals. The Hospital Report System Integration and Change (SIC) survey captures a number of
practices related to performance measurement and the work environment that have been linked
to improved patient satisfaction and financial and clinical performance. Organizational capacity
measures for this study were developed based upon responses to questions on Use of
Standardized Protocols (Q29), Use of Data in Decision-Making (Q28), Utilization Management
(Q33) and Clinical Integration (Q34). These questions are hypothesized to reflect a historical
organizational orientation to performance monitoring, benchmarking and alignment to evidence-
based practice that may both result from and contribute to good governance.
SIC Question 28 asked respondents to indicate whether they tracked readmissions, infection
rates and other adverse events, and measures of appropriateness and efficiency including length
of stay. If these data were collected, respondents were asked to indicate who within the
organization received the data and whether external benchmarking was done. Each
subcomponent of this question was coded separately. Therefore a scale was constructed and
values recoded as follows:
0 = Data not collected
1 = Data collected and shared with senior medical staff group/group responsible for
quality of care
2 = Data collected and compared internally across specialties and/or to past
performance less than once per quarter/at least once per quarter
3 = Data collected and compared externally with other organizations.
Due to missing data related to services provided, only monitoring of Hospital-Acquired
Infection (I), Adverse drug reaction (D), In-hospital Mortality (M), Hospital-acquired injury (H),
Waiting time to Gain Access to Bed (W), Length of Stay (O) and Unplanned Readmission to the
Same Hospital (R) were retained for analyses. Infection rates were dropped due to high
correlation with Hospital-acquired Infections. The maximum score for this indicator was 21.
SIC Question 29 asked respondents to indicate which of 13 possible protocols they had
developed and what proportion of eligible patients were treated in accordance with these
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protocols. To logically tie this question to the quality of care measure used in this study, and
resolve issues with missing data some of which was due to hospital service mix, only seven
clinical areas – Stroke, Pneumonia, Diabetes, Heart Failure, Gastro-Intestinal Bleed, Asthma and
Acute Myocardial Infarction (AMI) – were retained for analysis. Each item had a maximum
score of 3 as follows:
0 = No protocol developed
1 = Protocol used for <25% of patients
2 = Protocol used in 25%-75% of patients
3 = Protocol used for >75% patients
The maximum score for this measure was 21.
SIC Question 33 asked respondents to indicate which of seven utilization management practices
were in effect in their hospital. The options were: measurement framework for utilization
management indicators, impact analysis and follow-up for new physicians, use of concurrent
utilization tools to determine appropriateness of acute admissions and continued days of stay,
linkages with finance and clinical departments for decision-making regarding utilization
activities, diagnostic utilization review of laboratory, pharmacy, and medical imaging physician
ordering practices, and use of physician peer review to assist in bed management. A summary
score was calculated reflecting the number of utilization practices selected. The maximum score
was 7. A secondary measure was calculated based on data recoded as follows:
1 = Fewer than 3 practices (Few)29
2 = 3 to 6 practices (Some)
3 = 7 practices (Most)
The naming of the recoded variables acknowledges that the list of practices is not exhaustive.
The maximum score for this second utilization management measure was 3.
SIC Question 34 assessed the extent to which physicians and nurses were involved in strategic
planning at the corporate level, in strategic management (i.e., practice/policy committees and/or
clinical governance) or the development of corporate performance indicators. The options were:
29
While this categorization differs slightly from the other subcomponents of Organizational Monitoring and
Alignment Capacity, all had scores >1.
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0 = This practice is not offered to non-managerial staff
1 = Few (<25%)
2 = Some (25-74%)
3 = Most (>75%)
Summary scores were created for physician integration (maximum score 9), nurse integration
(maximum score 9) and overall clinical integration i.e., both physicians and nurses (maximum
score 18).
The dimensions of Organizational Alignment Capacity captured in the Hospital Report System
Integration and Change Survey, 2006 are summarized in Appendix 4.1.
Governance Capacity
This study draws on survey data collected by the Hospital Report Research Collaborative in
2004/2005 to examine the linkages between organizational monitoring and alignment, and
governance capacity. As elaborated in Chapter 3, governance capacity includes both top team
characteristics and board practices related to Transparency and Decision-Making, Monitoring
and Independence, Membership Management, and Overall Oversight. Table 4.3 contains a
detailed list of the governance practices examined.
Table 4.3 Governance Practices
Elements of Interest
Governance Practices
Transparency and Decision-making
(max score=6)
The Board has a formal whistleblower policy to ensure that information regarding suspected corruption and incompetence throughout the organization reaches the appropriate party (BG Survey Q5.1)
The Board has a publicly available Code of Ethics by which it is governed that includes a process to review adherence to the Code (BG Survey Q5.3)
The Board publishes reports (quarterly or more frequently) describing organizational performance for its community and stakeholders (BG Survey Q8.2)
The Board devotes 25% or more of annual Board meeting time to long-term hospital strategic planning. (BG Survey Q2.2)
The Board uses a set of documented criteria when providing advice to management regarding proposals for major new programs and services. (BG Survey Q2.7)
The Board has approved a risk management plan that includes a process to identify, manage and minimize risks to the hospital‟s sustainability(BG Survey Q2.9)
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Elements of Interest
Governance Practices
Monitoring and Independence
(max score=6)
There is an opportunity at every Board meeting for Directors to meet privately, without the presence of management (BG Survey Q2.10)
The Board uses a review process to ensure the adequacy of the information it receives. (BG Survey Q8.1)
The board or board committees (including committee/task force looking at utilization), etc. review physician and staff satisfaction findings beyond initial verbal presentation (SIC 2006 23bp)
Board or board committees receive verbal presentation of patient satisfaction information and discuss results (SIC 2006 Q27bb)
Board or board committees review outcomes of healthy workplace policy/programs beyond initial verbal presentation (SIC 2006 Q40cp, recoded 4=1, other=0)
Board receives quarterly reports on patient safety, including changes/improvements following incident investigation and follow-up (SIC 2006 Q49b, recoded 2=1, other=0)
Membership
Management
(max score=8)
Director re-appointment is subject to a performance audit (led by the nominations committee or governance committee or another committee of the Board) against pre-determined indicators of performance. (BG Survey Q1.6)
The Board distributes letters of appointment to all Directors, outlining responsibilities and key terms and conditions of appointment. (BG Survey Q4.4)
The Board has implemented a mentoring process for all new Directors (BG Survey Q6.3)
All Directors are evaluated annually against a pre-determined set of performance indicators. (BG Survey Q7.1)
Performance measures to evaluate Director performance are re-evaluated at least annually to ensure ongoing relevance and validity. (BG Survey Q7.2)
The board has articulated a succession plan for standing committee chairs (BG Survey Q1.4)
The board has articulated a succession plan for the CEO (BG Survey Q1.3)
The organization has a succession plan for senior medical leadership (e.g. chief of staff, VP Medical Affairs) (SIC 2006 Q6m)
Overall
Governance Practices
(max score=24)
Equally weighted sum of three above scores
Hospital-level dichotomous responses were summed to create continuous measures of
Membership Management (maximum score = 8), Transparency and Decision-making (maximum
score = 6), and Monitoring and Independence (maximum score = 6). An overall measure of
governance oversight practices was created by summing the equally weighted scores of these
three subcomponents, for a maximum total of 24.
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This study also examines the impact of top team turnover, diversity, and knowledge and skills on
organizational monitoring and alignment capacity. Data were obtained from the Canadian
Health Services Executives Association (CCHSE), Canada Revenue Agency and the Ontario
Ministry of Finance Public Salary Disclosure dataset (see Chapter 3 for a more fulsome discussion
of governance capacity, including data sources, methodology and descriptive statistics). Some
hospitals had missing data for one or more elements of governance capacity further reducing the
sample available for some analyses.
Sample
This study draws on data from multiple sources including the Ontario Ministry of Health and
Long-Term Care Hospital Indicator Tool, hospital funding and accountability indicators
calculated by the Ontario Joint Policy and Planning Committee and three surveys carried out by
the Hospital Report Research Collaborative (NRC+Picker Canada Adult Inpatient Satisfaction
Survey, Board Governance Survey and the System Integration and Change Survey). These data sources
are summarized on Table 4.4; details are available in Chapter 1.
Table 4.4 Data and Sources
Source Data (Measures)
Ontario Hospital Report Research Collaborative www.hospitalreport.ca
Governance Survey (Governance Practices)
NRC+Picker Patient Satisfaction Survey (Hospital Performance)
System Integration and Change Survey (Organizational Capacity; Governance Practices)
Ontario Hospital Association
Ontario hospital list
Ontario Joint Policy and Planning Committee
Readmissions Within 30 Days (Quality Performance)
Operational Efficiency (Financial Performance)
Ontario Ministry of Health and Long-Term Care
www.mohltcfim.com
Hospital Indicator Tool (Accountability Performance: Current Ratio, Total Margin)
Master Number
Data were cleaned, aggregated and linked in MS Excel or MS Access and analysed in SPSS 18.0
for Windows. The unit of analysis was the hospital corporation. No single unique identifier,
including organization name, was used by all sources. In some cases, unique identifiers changed
due to mergers or corporate restructuring. Thus an index of organizations was created for each
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source. A master list containing various unique identifiers was then used to link/merge
organizational-level data. This list was cross-referenced with a hospital list obtained from the
Ontario Hospital Association.
Eleven partnerships/alliances involving 26 hospital corporations were uncovered during the data
due diligence process. For the purposes of this study, one alliance governed by a single board
that also serves as the board of the individual hospital corporations, and another alliance,
governed by a tri-board composed of members of the individual hospital corporations but which
reports to the ministry as a single entity and signs one funding and service agreement, were
treated as single corporate entities. Consistent with the organizational level of analysis, and to
maximize the number of cases in the final data set, members of all other alliances that continue
to exist as individual corporations and for which disaggregated data were available, were treated
as separate entities. The final sample consisted of 101 Ontario hospital corporations.
4.4 Results
Table 4.5 compares the characteristics of the sample in this study (n=101) with available data for
149 of 155 public hospitals in Ontario in 2005. Because patient satisfaction data are only
available for a smaller group of hospitals and the full model is tested using measures across all
three domains of performance (financial, quality and patient satisfaction), characteristics of that
subsample (n=83) are also provided.
Table 4.5 Sample Hospital Characteristics (Study 2)
Sample 1 (n=83) Sample 2 (n=101) Population (N=149) Hospital Size
Median (Mean) Min/Max Full Time Equivalent Staff
841 (1,279) 975 - 6,673
545 (1,105) 50 - 6,673
367 (918, 40-6,673)
Median (Mean), Min/Max Beds Staffed and in Operation
193 (266) 8 - 986
147 (229) 8 - 986
108 (209, 8-1,135)
Median (Mean) Min/Max Equivalent Weighted Cases
13,565 (18,700) 975 – 93,638
7,377 (15,907) 581-93,638 (n=100)
4,266 (12,594, 500-93,638) (n=140)
Median (Mean), Min/Max Audited Revenues
$103.8M ($174.6M) $7.9M - $1.14B
$66.5M ($152M) $5.7M - $1.14B) (n=90)
$39.7M ($118M, $4.4M-$1.14B) (n=133)
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Hospital Type30
Teaching Hospital 9 (11%) 9 (10%) 12 (8%)
Specialty, Rehab or Mental Health
0 1 (1%)1 22 (15%)
Community Hospital
60 (72%) 63 (62%) 67 (45%)
Small Hospital 14 (17%) 28 (27%) 48 (32%)
Ontario Region North 11 (13%) 22 (22%) 38 (26%)
East 21 (25%) 25 (25%) 31 (21%) Central 16 (19%) 17 (17%) 29 (19%) South 17 (20%) 19 (19%) 27 (18%)
West 18 (22%) 18 (18%) 24 (16%) Other
Alliance Member 9 (11%) 12 (12%) 24 (16%) Multi-Site Hospital 35 (42%) 36 (36%) 45 (30%)
Peer Review 33 (40%) 34 (34%) 40 (27%) Coroner Review 16 (19%) 18 (18%) 22 (15%)
As the above table shows, hospitals in this study tend to be larger - as measured by revenues,
weighted cases, full-time equivalent staff or number of beds staffed and in operation - than the
provincial average. In the case of revenues and weighted cases, the difference was statistically
significant (p<.01). It includes almost all acute teaching and community hospitals in Ontario,
particularly those located in the Eastern region of the province. It under-represents Small
Hospitals, most of which are single site facilities located in the North. It also excludes
chronic/rehabilitation facilities. Below are the results of univariate and bivariate analyses.
Descriptive statistics are contained in Appendix 4.2.
Organizational Monitoring & Alignment Capacity
Four measures of Organizational Capacity were developed based on the 2005 System Integration
and Change (SIC) Survey: Utilization Management, Data Use, Clinical Protocol Use and Clinical
Integration.
Clinical Integration. Eighty-five percent of respondents to the 2005 Board Governance Survey reported
involving clinical leaders directly and regularly in board strategic planning but the survey does
not provide information on the extent of this involvement. The SIC Clinical Integration measure
captures the breadth of nurse and physician involvement in strategic planning, strategic
30 Hospital type reflects the designation accorded by the provincial ministry of health. For ease of analyses and due to its membership in the council of academic health centres, the lone specialty hospital was treated as a teaching hospital in all
analyses. This categorization is consistent with the peer groups established by the Hospital Report Research Collaborative.
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management of the hospital and development of corporate performance indicators. The results
are summarized in Appendix 4.2, Table 2.
Teaching Hospitals scored slightly higher on nurse integration (average 5.1), than Community or
Small Hospitals, which averaged scores of 4.6 and 4.8 respectively out of a maximum of 9.
Community Hospitals had lower levels of physician integration than other peer groups, with an
average score of 5.1 versus 5.8 for Small and Teaching Hospitals.
Physician integration was higher than nurse integration across all peer groups. The difference in
reported involvement of these two groups may be due to legislated requirements related to
involvement of medical staff in hospital governance, smaller numbers of physicians versus
nurses, or the strategic importance that hospitals have placed on physicians given shortages in
recent years, particularly in rural areas.
In terms of area of clinical involvement, strategic planning was the area of most frequent
involvement; development of corporate indicators was the area of lowest involvement. A
composite measure of clinical integration reflecting only involvement in stra tegic management
and corporate indicator development shows wide variation across all peer groups, particularly
Teaching Hospitals.
Utilization Management. Utilization Management was captured in Question 33 of the SIC survey
which asked respondents to indicate which of the seven listed practices was used in their
organization. Ninety seven percent of sample hospitals indicated using at least one practice. One
in five (21%) indicated using all seven. Three-quarters of respondents reported having:
a measurement framework for utilization management indicators
linkages with the finance department for decision-making regarding utilization activities
linkages with the clinical department for decision-making regarding utilization activities
Diagnostic utilization review of laboratory, pharmacy and medical imaging physician
ordering practices.
Less frequently reported but still fairly common practices included:
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Use of concurrent utilization tools to determine appropriateness of acute admissions and
continued days of stay (46%)
Use of physician peer review to assist in bed management (54%)
Impact analysis and follow up with new physicians (66%)
There was wide variation in reported utilization management practices among hospitals and by
peer group. As Appendix 4.2, Table 3 shows, Small Hospitals reported using more utilization
management practices than Teaching or Community Hospitals, although there is wide variation.
Clinical Data Use. Clinical Data Use assessed the extent to which sample hospitals collected,
analysed and benchmarked clinical indicators in 2005. These indicators related to: hospital-
acquired sepsis, adverse drug reaction, in-hospital mortality, hospital-acquired injury, waiting
time for access to an inpatient bed, length of stay and readmission rates. All seven components
of Clinical Data Use were moderately to highly correlated, with Spearman‟s Rho correlation
coefficients ranging from .289 to .621 (p=.00).
Eleven percent of sample hospitals reported not collecting readmissions data in 2005; one in five
did not track wait time to gain access to an inpatient bed. Almost all were Small Hospitals. The
most commonly tracked and benchmarked clinical performance measure was length of stay.
Teaching Hospitals scored highly on all aspects of clinical data use and reported less variation in
clinical data use; while the opposite was true of Small Hospitals. Appendix 4.2, Table 4
summarizes the intensity of clinical data use by hospital peer group.
Use of Standardized Protocols. The final aspect of Organizational Monitoring and Alignment
Capacity reviewed in this study was Use of Standardized Protocols for Stroke, Pneumonia,
Diabetes, Heart Failure, Gastrointestinal Bleed, Asthma and Acute Myocardial Infarction.
Appendix 4.2, Table 5 contains the results.
Three quarters of sample hospitals reported using an AMI protocol to treat over 75% of
affected patients. All hospitals in the sample had a protocol in place for diabetes but over half
reported using it with fewer than 25% of eligible patients. Two thirds of hospitals reported using
a Stroke protocol, although Small Hospitals were less likely to report consistent use. Around half
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did not have a protocol for addressing pneumonia, heart failure or asthma. Eighty three percent
did not have a protocol for dealing with GI Bleeds. However, the majority of hospitals that had
protocols reported using them to treat the vast majority of patients with these conditions.
Community Hospitals were more likely than other peer groups to use protocols.
All components of the Protocol Use were moderately and positively correlated at the p<.01 level
with the exception of Diabetes Protocol Use which is only correlated with Asthma Protocol
Use, perhaps suggesting a stronger than average primary care orientation in the hospitals that
make more extensive use of this protocol.
Relationships among Organizational Capacity Variables
Additional analyses were undertaken to determine the relationships among the four theoretical
components of Organizational Capacity. Table 4.6 shows the results based on Spearman‟s rank
order correlations. Utilization Management, Clinical Data Use and Standardized Protocol Use
are all moderately correlated (p=.00). Hospitals that reported high use of Utilization
Management approaches were also likely to report benchmarking clinical data and using
standardized protocols. There were also small correlations between these measures and Nurse
Integration which failed to reach statistical significance after applying the Bonferroni adjustment.
No relationship was detected between Physician Integration and other measures of
Organizational Capacity, although hospitals that reported high levels of Physician Integration
also had high levels of Nurse Integration (rho=.780, p=.00).
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Table 4.6 Correlations among Organizational Capacity Components
Due to severely skewed data, factor analysis was not conducted. An overall measure of
Organizational Capacity was calculated based on intensity of standardized protocol use, intensity
of data use and intensity of utilization management (maximum score=63).
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Hospital Performance
Financial Performance
Operational efficiency of sample hospitals ranged from 28% above to 28% below expected cost,
with both teaching and community hospitals experiencing higher than expected costs.
In 2005/07, the average actual cost per equivalent weighted case in sample hospitals was $4,470,
slightly less than the average expected cost per equivalent weighted case of $4,487. However, as
Appendix 4.2 Table 6 shows, there was wide variation in unit cost and performance, with Small
Hospitals having the highest variation, and Teaching Hospitals the highest average cost.
An additional measure of financial performance was developed to reflect minimum funder
accountability requirements to maintain a balanced budget (i.e. Total Margin >0) and a Current
Ratio of .08 or greater in both 2005/06 and 2006/07. Three quarters of sample hospitals met
the Total Margin requirement and 61% met the Current Ratio requirement in each of the two
years reviewed. Slightly over half (54%) of sample hospitals met both requirements in both years
and these hospitals were significantly more efficient; with average equivalent weighted case costs
2.8% below expected compared to non-compliant hospitals which had average costs 2.1% above
expected (p=.013). More Community Hospitals than expected failed to meet these
accountability requirements, while the opposite was true of Small Hospitals (Chi-square (df 2,
101) = 9.883, p=.007, phi=.313)
Patient Satisfaction
Measures of patient satisfaction in this study are based on the 2005/06 and 2006/07
NRC+Picker Surveys. Two Small Hospitals and one Community Hospital in the sample did not
collect data in 2006/07; their patient satisfaction ratings are based on 2005/06 data only.
Appendix 4.2, Table 7a shows the results for the 6 Hospital Report measures. Overall
Impressions garnered the highest average score (85); Communication the lowest average score
(78). While the mean scores for Nursing and Physician Care were similar, satisfaction with
nursing care varied widely, with scores ranging from a low of 68 to a high of 89.
Appendix 4.2, Table 7b shows the results based on the 7 NCR+Picker measures. Physical
Comfort and Information and Education garnered the highest average scores with 88 and 85
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respectively. Continuity and Transition and Family Involvement garnered the lowest scores, with
73 and 79 respectively. There was wide variation in Overall Satisfaction, with scores ranging
from 68 to 92.
Correlational analyses were undertaken to determine if relationships existed among the patient
satisfaction measures. Data were checked to ensure that assumptions related to normality,
linearity and homoscedasticity were met. In order to meet the assumption of independence of
observations, separate analyses were run for the four primary Hospital Report measures and the
seven NRC+Picker measures as they are based on the same survey questions. As Table 4.7
shows, Hospital Report patient satisfaction measures are highly correlated (0.9, p<.00),
suggesting the presence of an underlying patient satisfaction factor. Similar results were obtained
for the NRC+Picker indicators. Principal components factor analysis (not shown) confirmed the
existence of one factor explaining 94% of the variance in patient satisfaction scores.
Table 4.7 Pearson Product Moment Correlations, Hospital Report Patient Satisfaction Measures
The Kruskal-Wallis Test revealed statistically-significant differences in Patient Satisfaction scores
across the three peer groups (p<.00). As Table 4.8 shows, Small Hospitals ranked consistently at
the top on Communication, Consideration, Responsiveness and Overall Impressions. Teaching
Hospitals performed worst in Consideration and Responsiveness. Community Hospitals were
more consistent in their performance; but ranked lower than the other peer groups in
Communication and Overall Impressions.
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Table 4.8 Patient Satisfaction Peer Group Mean Ranks
Quality of Care
Quality Performance was measured by Readmissions to All Hospitals Within 30 Days for
Specified CMGs. Between April 2005 and March 2007, sample hospitals saw an average 250
unplanned readmissions within 30 days of the index hospitalization annually, for a readmissions
rate 3% greater than expected. Detailed results are presented in Appendix 3.2 Table 8.
Readmissions varied widely by hospital type. Not surprisingly, Small Hospitals had the lowest
absolute number of observed readmissions but the highest variation in rates and the highest
mean readmission rates among the peer groups.
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Overall Performance
Prior to examining the relationships among the three performance domains in this study,
variables were analysed to look at the distribution of the data. Following Tabachnik and Fidell
(1996), three cases on the extreme left and eight cases on the extreme right of the Readmissions
distribution were recoded to fall closer to the next closest value in the distribution. A similar
approach was taken with Operational Efficiency resulting in the recoding of three outliers to the
next closest value on the distribution.
Partial and zero-order correlations were produced to determine if there was a relationship
among the three main performance variables in this study, Quality of Care, Financial
Performance and Patient Satisfaction. There was a small correlation between Patient Overall
Impressions, 2005/07 and Operational Efficiency (r=-.240, p=.03), that is, hospitals with lower
than expected costs per weighted case also had higher patient satisfaction. However, this
difference was not statistically significant once hospital size was taken into account. Operational
Efficiency was moderately correlated with Family Involvement (r=-.301, p=.00) and Physician
Care (r=-.317, p=.00). Small correlations were also detected between Operational Efficiency and
Coordination of Care, Information and Education and Overall Satisfaction; however, they failed
to reach statistical significance once the Bonferroni adjustment was applied.
No bivariate relationships were detected between Readmission Rates and Patient Satisfaction, or
between Readmission Rates and Operational Efficiency. However, hospitals that met minimum
financial accountability requirements in both 2005/06 and 2006/07 scored approximately 2
points higher on Patient Overall Impressions than hospitals that did not. As Figure 4.2 shows,
they also had much lower than average Readmission Rates (-7.2% versus 5.5%) and the
difference was statistically significant (p=.00).
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Figure 4.2 Relationship between Hospital Quality and Accountability Performance
To arrive at an overall measure of performance, sample hospital scores were divided into tertiles
based upon peer group rankings on Readmissions, Operational Efficiency and Overall
Impressions. Consistent with Hospital Report‟s approach, two groups of hospitals were created:
top performers (i.e., those with top tertile in at lest one domain and no bottom tertile
performance relative to their peer group) and the remaining sample population. Twenty-two of
the 92 hospitals (24%) for which data were available qualified as top performers, including 5
Small Hospitals, 15 Community Hospitals and 2 Teaching Hospitals. Four of these top
performing hospitals did not meet accountability agreement financial requirements in 2005/06
and/or 2006/07.
A mirror measure of bottom performers was created consisting of hospitals with bottom tertile
performance in at least one domain and no top tertile performance. Twenty-five of the 92
hospitals (27%) for which data were available fell into this category.
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A category of unbalanced performers – hospitals with at least one top tertile and at least one
bottom tertile performance – was also created. Thirty nine of 84 sample hospitals (45%) for
which data were available fell into this category.
There was almost no overlap across these three categories allowing a summary Performance
Profile measure to be created. Two hospitals were average performers across all three domains
and excluded from the analysis. Of the 84 hospitals for which there were data in all domains, 25
(30%) were designated bottom performers, 20 (24%) were top performers and 39 (46%) were
variable performers.
4.5 Model Testing
This section explores the relationships between components of Organizational Monitoring and
Alignment Capacity and Governance Capacity. Following Tabachnick and Fidell (1996, in
Pallant, 2001), data were checked to ensure the analysis met the minimum sample size
requirements31 as well as assumptions related to multicollinearity, outliers, normality, linearity,
homoscedasticity and independence of the residuals. Non-normal variables were transformed
using an appropriate function (e.g., square root, logarithm) prior to undertaking regression
analyses. Normal Probability Plots were inspected to ensure the standardized residuals produced
a reasonably straight diagonal line from the bottom left to the top right. Scatterplots were also
reviewed to determine if the distribution of the residuals resembled a rectangle, with most scores
concentrated along the centre and no clear or systematic pattern evident.
Regression analysis is sensitive to non-normal variables and very low or very high scores.
Univariate analyses were undertaken to identify outliers; extreme values were manually recoded
to fall closer to other values in the distribution. An inspection of the scatterplots produced by
the regression analyses did not reveal any values more than 3.3 or less than -3.3. Additionally, no
Mahalanobis distance produced in SPSS exceeded the critical chi-square values (13.8232, 16.2733
and 18.4734) set by Tabachnick and Fidell (1996) and reproduced in Pallant (2001, p. 144).
Tolerance is calculated using the formula 1-R.2 A low value indicates multiple correlation. In all
31 N > 50 + 8(m) where m=number of independent variables (Pallant, 2001, p. 136). 32 2 independent variables. 33 3 independent variables. 34 4 independent variables.
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three analyses presented below, Tolerance ranged from .613 to .892, indicating that
multicollinearity was not a problem.
Relationship between Organizational Monitoring & Alignment Capacity and Governance
Practices
Hypothesis 1 proposed a positive relationship between Organizational Monitoring and
Alignment Capacity and Governance Practices. Hierarchical linear regression was used to test
this hypothesis. Bivariate analyses showed a small but statistically significant relationship
between Organizational Capacity and Governance Oversight Practices (r=.284, p=.007). In
terms of the relationships between the components of both measures, Board Monitoring and
Independence was moderately correlated with Intensity of Data Use (rho=.399, p=.00) and
Utilization Management (rho=.307, p=.00). There was also a small positive relationship between
both these measures and Board Membership Management. For consistency and due to non-
normal organizational capacity component data, only summary measures of both variables were
used in the regression model. The Governance Oversight Practices summary measure was
entered as the dependent variable. Average Beds Staffed and In Operation in 2005/07,
normalized using the log 10 function, was entered as a predictor in Block 1 to control for
hospital size. Organizational Monitoring and Alignment Capacity was entered in Block 2.
Appendix 4.3 contains the detailed results.
Although the overall model explained 13% of the variance in Governance Oversight Scores,
Organizational Monitoring and Alignment Capacity accounted for only 2.1% of the explained
variance after controlling for organizational size and the beta value was not statistically
significant. Similar results were obtained were alternate measures of organizational size. Thus
there was no support for Hypothesis 1.
Relationship between Organizational Monitoring and Alignment Capacity and Governance
Capacity
Hypothesis 2 predicted a positive relationship between governance capacity and Organizational
Monitoring and Alignment Capacity. This hypothesis was tested using hierarchical linear
regression. Small correlations were detected between Utilization Management and Intensity of
Data Use and several board characteristics including board size (positive) and percentage of
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female board members (negative). Due to non-normal data, only the summary measure of
Organizational Monitoring and Alignment Capacity was entered as the Dependent Variable. Log
equivalent weighted cases (EWCs) were entered in Predictors Block 1 to control for hospital
size. Governance Oversight Practices and two board characteristics, Board Size and Percentage
of Female Board Members, were entered in Block 2. No relationship was detected between
Organizational Monitoring and Alignment Capacity and top management characteristics
including turnover, diversity, or knowledge and skills; therefore these were not included in the
model. Appendix 4.4 contains the detailed results.
Organizational size, as measured by log equivalent weighted cases, explained 31% of the variance
in Organizational Monitoring and Alignment Capacity. Governance Capacity, as indicated by
oversight practices and board size and diversity, explained an additional 3% but the beta value
was not statistically significant. Thus there was no support for Hypothesis 2.
Relationship between Organizational Monitoring and Alignment Capacity and Hospital
Performance
Hypothesis 3 proposed a relationship between Organizational Monitoring and Alignment
Capacity and Hospital Performance. Bivariate analyses (see Figure 4.3 below) showed that top
performing hospitals – that is, hospitals with no bottom tertile and at least one top tertile peer
group ranking on quality, patient satisfaction or operational efficiency - had a median
Organizational Monitoring and Alignment Capacity score 7 points higher than their peers. This
difference was statistically significant (p=.004).
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Figure 4.3 Relationship between Organizational Capacity and Peer Group Performance
There was also a slight difference in median Organizational Monitoring and Alignment Capacity
scores of hospitals that met accountability agreement financial requirements versus those that
did not but the difference was not statistically significant (see Figure 4.4 below). Interestingly,
the hospitals that met accountability requirements in both years, scored lower on average than
their non-compliant peers in Organizational Monitoring and Alignment Capacity. However, this
could be explained by organizational size. Small Hospitals were more likely than other hospitals
to perform well on the accountability measure but score lower on Organizational Capacity.
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Figure 4.4 Relationship between Organizational Capacity and Financial Accountability Performance
Bivariate analyses of the relationship between Organizational Monitoring and Alignment
Capacity and individual performance measures showed a moderate correlation with Average
Annual Readmission Rate, but not Patient Satisfaction or Operational Efficiency. That is,
hospitals with lower than expected readmission rates had higher Organizational Monitoring and
Alignment Capacity scores. Hierarchical linear regression was used to test how much variance in
performance was explained. Average Readmission Rate in 2005/07, corrected for outliers, was
entered as the dependent variable. Beds staffed and in operation in 2005/07 were entered in
Predictors Block 1; Organizational Monitoring and Alignment Capacity was entered in Block 2.
Appendix 4.5 contains the full results.
The full model explained 13% of the variance in Readmissions performance (F=8.582, df=97(2),
p=.00) and it was in the expected direction (i.e., lower Readmissions Rates were associated with
higher Organizational Capacity). However Organizational Monitoring and Alignment Capacity
only contributed 5% (p=.02), and the model included only one domain of performance. Thus
there was only partial support for Hypothesis 3.
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Exploratory analyses were undertaken to determine if one element of Governance Capacity,
governance practices, added any explanatory value to the Readmissions indicator beyond
Organizational Monitoring and Alignment Capacity. Although the full model was statistically
significant (F=4.785, df=3(86), p<.00), the unique contribution of Governance Practices was
very small (0.3%) and not statistically significant.
4.6 Discussion
This study explored the relationship between Organizational Monitoring and Alignment
Capacity and multiple measures of hospital performance including patient satisfaction, quality of
care (readmissions rate), financial health (operational efficiency), overall performance (a
summary measure reflecting peer group tertile performance across these domains), and
accountability performance (a measure reflecting adherence to minimum financial indicator
requirements in hospital accountability agreements).
Organizational Monitoring and Alignment Capacity was hypothesized to include uptake of
utilization management practices, intensity of clinical data use, intensity of standardized protocol
use in the treatment of common conditions such as stroke, pneumonia and asthma, and clinical
integration (i.e., physician and nurse involvement in strategic management and corporate
indicator development). No relationship was found between Physician Integration and the other
measures of Organizational Capacity, although Physician and Nurse Integration were correlated.
Clinical integration was therefore dropped from the final Organizational Monitoring and
Alignment measure.
This study tested the linkages between hospital performance, governance practices and
organizational monitoring and alignment capacity, that is, the ability of hospitals to monitor and
align internal systems and processes. In keeping with institutional theory, hospitals that exhibited
greater capacity for organizational monitoring and alignment were hypothesized to also report
more governance practices related to monitoring and independence, transparency and decision-
making and membership management. However, after accounting for organizational size, no
statistically significant relationship was detected between these variables. This finding suggests
that other considerations may be driving uptake of governance practices and these may differ
from those influencing organizational monitoring and alignment processes. Indeed boards may
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be adopting governance „best practices‟ promoted by funders, regulators or powerful board
members, without internal enabling structures to render them effective.
Hypothesis 2 proposed a relationship between governance capacity (i.e., governance practices
and board and top management characteristics) and Organizational Monitoring and Alignment
Capacity. Again, after accounting for hospital size, no statistically significant relationship was
detected. Thus, neither board size nor board diversity, as measured by proportion of women
board members, added explanatory value to the concept of governance capacity in predicting the
extent to which hospitals engage in practices related to utilization management, protocol use and
data use.
Finally Hypothesis 3 proposed that a relationship would exist between Organizational
Monitoring and Alignment Capacity and hospital performance. Top tertile hospitals did score
higher than their peers on financial accountability measures, but the difference was not
statistically significant. A negative relationship was detected between Organizational Monitoring
and Alignment Capacity and quality of care as indicated by hospital readmission rates, that is,
hospitals that reported greater use of data, utilization management practices and care protocols
also had lower readmission rates after accounting for organizational size, regardless of the
measure used. However, the effect size was quite small (.05), and no relationship was detected
between organizational capacity and other individual measures of performance. Thus it is
possible that this statistically significant finding may have been due to chance.
4.7 Conclusion
This study used a wide range of administrative and survey data from a sample of Ontario
hospitals to test three hypotheses informed by agency theory, institutional theory and resource
dependence theory. By far, the most significant predictor of Organizational Monitoring and
Alignment Capacity, governance practices and organizational performance was organizational
size, a finding consistent with institutional theory and published research, but not always fully
acknowledged by regulators, the media or the public at large.
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Perhaps the most surprising finding from the lay reader‟s perspective was the lack of correlation
among various domains of hospital performance examined in this study. Hospitals with lower
operational efficiency had higher patient satisfaction scores, but this difference was not
statistically significant once hospital size was taken into account. No bivariate relationships were
detected between Readmission Rates and Patient Satisfaction, or between Readmission Rates
and Operational Efficiency. Hospitals that met accountability requirements did score
approximately 2 points higher on Overall Impressions and 4% better on Operational Efficiency
than hospitals that did not. These differences were statistically significant according to the
Mann-Whitney test, however, both were also indicative of hospital size (i.e., Small Hospitals
tended to do better on both Patient Satisfaction and Financial Performance measures). And
while hospitals that met financial accountability requirements in 2005/2006 and 2006/07 were
likely to be more efficient than their peers, no relationship was detected between the financial
accountability performance measure and a lower than expected Readmission Rate, the other
requirement in the hospital accountability agreements.
This finding supports the „scorecard‟ approach to performance assessment and use of multiple
measures in hospital accountability agreements. In practice, monitoring of these agreements has
been heavily weighted to financial measures due to ongoing government interest in „bending the
healthcare cost curve‟. As a result, the two performance domains have probably not benefited
equally from funder or board oversight.
There was little support for the hypothesized explanatory value of Organizational Monitoring
and Alignment Capacity to most domains of hospital performance, with the exception of
Readmission Rates. Benbassat and Taragin (2000) point to a wide array of factors outside the
control of management that may influence hospital performance on global readmission rates.
This study suggests that use of care protocols, clinical data and utilization management practices
– all within the control of hospital leaders - may have a beneficial impact. Governance practices,
a key element of Governance Capacity, failed to add any explanatory value beyond the
organizational capacity measure. A possible explanation is that few hospital boards were
monitoring readmission rates in 2005. Only 13% of board respondents reported using this
indicator in hospital CEO performance evaluations compared to three quarters who were using
Total Margin and over half who were using cost per weighted case, the operational efficiency
measure (Schraa, 2007, p. 104). For policymakers and proponents of governance research, the
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conclusion from this study is that hospital performance is complex and, if boards do make a
contribution, it is likely quite small.
Measurement error and misspecification may explain some of the results. This study relied on
three surveys which are heavily dependent on the knowledge of respondents and vulnerable to
social desirability bias. It used data were collected for other purposes and with sizeable gaps in
coverage and quality. The organizational capacity and governance measures were theory-driven.
Although relationships were tested, the data available did not lend itself to factor analysis or
structural equation modeling. Finally, the sample was relatively small, with limited power35 to
detect small effect sizes.
Despite these caveats, this study sheds light on hospital performance and organizational and
board-level practices in Ontario. Nearly half of Ontario hospitals had extremes in performance;
that is, they concurrently ranked in the top tertile in at least one domain and in the bottom tertile
in at least one other. This suggests that Ontario hospitals – and their boards – may be having
difficulty balancing competing demands, an area ripe for further research. It would be helpful to
know how board conceptualizations of hospital performance change over time and whether the
existence of clarity or consensus among key stakeholders influences board or organizational
monitoring practices. It would also be helpful to know what specific organizational levers
hospital boards have at their disposal to optimize performance. To date, much of the focus in
the governance literature and in practice has been on organizational planning and CEO
performance monitoring. Clinicians, whether fee for service physicians, or salaried nurses and
allied health professionals, play a unique role in healthcare organizations and have a tremendous
impact on financial, quality and stakeholder performance. Yet the links between clinical and
organizational governance, particularly in publicly funded systems, are not well delineated.
Research in these areas would undoubtedly lead to refinements in data collection tools and
methodologies, possibly enabling more definitive conclusions to be made on the links between
organizational monitoring and alignment capacity and hospital performance.
35
According to www.danielsoper.com, the observed power of the three hierarchical regression analyses in this study
to detect a statistically significant effect size in the predictors in Block 2 ranged from 16% to 40%.
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Appendix 4.1 Dimensions of Organizational Alignment Capacity
Captured in Hospital Report System Integration and Change Survey,
2006
Dimension of Interest
Question Methodological Notes
Use of Standardized Protocols (SIC 2006 Q29)
For each of the following clinical areas (Stroke, Pneumonia, Diabetes, Heart Failure, Gastrointestinal Bleed, Gastroenteritis, Asthma, Carpal tunnel release surgery, AMI, Ceasarean section, Prostatectomy, Cholecystectomy, Hysterectomy), please indicate the extent to which standardized protocols (e.g. pre-printed orders, clinical practice guidelines, care pathways) are currently developed or used in your organization. Not implemented=0
Service offered but no standardized protocol exists=1
A standardized protocol is being developed and will be implemented in the next 6 months=2
Implemented and used on <25% of patients=3 Implemented and used on 25-75% of patients=4
Implemented and used on 75%+ of patients=5
To resolve problems with missing data and logically tie this question to the Readmissions indicator, only 7 clinical areas were retained for analysis: Stroke, Pneumonia, Diabetes, Heart Failure, Gastro-intestinal Bleed, Asthma and AMI. Values were recoded as follows: <2 recoded as 0; 3 recoded as 1; 4 recoded as 2; 5 recoded as 3. Each item had a maximum score of 3 as follows:
0 (No protocol developed),
1 (Protocol used for <25% of patients)
2 (Protocol used in 25%-75% of patients)
3 (Protocol used for 75+% patients). The maximum score for this indicator was 21.
Use and Dissemina-tion of Clinical Data (SIC 2006 Q28)
For each of the following clinical measures (Unplanned return to OR, Hospital-acquired infection or sepsis, Adverse drug reaction, Unplanned injury or unplanned repair of organ during surgery, Unplanned transfer to ICU/CCU, In-hospital mortality, Hospital-acquired injury, In-hospital complication rates beyond those measured by Hospital Report, Waiting time to gain access to inpatient bed, Infection rates, Length of stay, Unplanned readmission to same hospital, Measures of appropriateness other than CIHI, % of day surgery patients, % surgery/procedures completed on scheduled day), indicate extent to which data are currently collected, shared/used in your organization.
Data not collected=1
Data collected and shared with senior medical staff group/group responsible for quality of care=1
Data collected and compared internally across specialties and/or to past performance less than once per quarter/at least once per quarter=1
Data collected and compared externally with other orgs=1
Hospitals without an ICU and those without a minimum of 50 major surgical cases were excluded.
Each subcomponent of this question was coded separately. Therefore a scale was constructed and values recoded as follows:
Data not collected = 0
Data collected and shared with senior medical staff group/group responsible for quality of care=1
Data collected and compared internally across specialties and/or to past performance less than once per quarter/at least once per quarter=2
Data collected and compared externally with other orgs=3
Due to missing data related to services provided, only monitoring of Hospital-Acquired Infection (I), Adverse drug reaction (D), In-hospital Mortality (M), Hospital-acquired injury (H), Waiting time to Gain Access to Bed (W), Length of Stay (O) and Unplanned Readmission to the Same Hospital (R) were retained for analyses. Infection rates were dropped due to high correlation with Hospital-acquired Infections.
The maximum score for this indicator was 21.
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Utilization Management (SIC 2006 Q33)
Depending on a hospital‟s size, geographic location and resources, hospitals may engage in different Utilization Management strategies activities. Please indicate which of the following strategies your organization is currently engaged in:
Our organization is not engaged in any of the following strategies OR
Check all that apply (1 point each)
Establishment of a measurement framework for utilization management indicators
Impact analysis and follow-up for new physicians
Use of concurrent utilization tools to determine appropriateness of acute admissions and continued days of stay
Linkages with the Finance department for decision-making regarding utilization activities
Linkages with Clinical department for decision-making regarding utilization activities
Diagnostic utilization review of laboratory, pharmacy, and medical imaging physician ordering practices
Use of physician peer review to assist in bed management
A summary score was calculated reflecting the number of utilization practices checked. The maximum score was 7.
A secondary measure was calculated based on data recoded as follows:
1=Less than 3 practices (Few) 2=3 to 6 practices (Some)
3=7 practices (Most)
The naming of the recoded variables acknowledges that the list of practices is not exhaustive.
The maximum score for this secondary measure was 3.
Clinical Integration (SIC 2006 Q34)
Please indicate the percent of [physicians and nursing staff RNs, RPNs] currently involved in: a) strategic planning process at the corporate level, b) strategic management of the hospital. For example, practice/policy committees and/or clinical governance, c) development of corporate performance indicators. Staff involvement involves formalized two-way communication.
0=This practice is not offered to non-managerial staff
1=Few (<25%)
2=Some (25-74%) 3=Most (>75%)
Summary scores were created for physician integration (max score 9), nurse integration (max score 9) and overall clinical integration i.e., both physicians and nurses (max score 18).
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Appendix 4.2 Descriptive Statistics: Governance Practices and
Organizational Monitoring and Alignment Capacity
Table 1 provides descriptive statistics for governance practices by hospital peer group. Tables 2-
5 provide descriptive statistics for the hypothesized components of Organizational Monitoring
and Alignment Capacity (Clinical Integration, Utilization Management, Clinical Data Use and
Protocol Use). Tables 6-8 provide detailed results for the three performance measures used in
this study (Operational Efficiency, Patient Satisfaction and Readmissions Rate).
Table 1 Governance Practices by Hospital Peer Group
Small Hospitals (n=28)
Community Hospitals (n=63)
Teaching Hospitals (n=10)
All Hospitals (n=101)
Board Monitoring and Independence (max score=6) n 28 56 10 100
Mean 2.46 3.18 3.70 3.03 Median 2.00 3.00 4.00 3.00
Standard Deviation 1.401 1.521 1.160 1.494 Minimum 0 0 2 0
Maximum 6 6 5 6 Percentile 33.33 2.00 2.00 3.00 2.00
Percentile 66.66 3.00 4.00 4.33 4.00 Board Transparency and Decision-Making (max score=6)
n 26 55 10 92 Mean 2.92 3.11 3.70 3.12
Median 3.00 3.00 4.00 3.00 Standard Deviation 1.383 1.648 1.252 1.540
Minimum 0 0 1 0 Maximum 6 6 5 6 Percentile 33.33 2.00 2.00 3.00 3.00
Percentile 66.66 3.00 4.00 4.33 4.00 Board Membership Management (max score=8)
n 27 60 10 97 Mean 2.67 3.98 5.40 3.76
Median 3.00 4.00 6.00 4.00 Standard Deviation 1.840 2.038 1.776 2.100
Minimum 0 0 2 0 Maximum 6 8 7 8
Percentile 33.33 1.00 3.00 4.00 3.00 Percentile 66.66 4.00 5.00 7.00 5.00
Overall Governance Practices (max score=24) n 26 55 10 91 Mean 9.42 12.01 14.60 11.55
Median 9.67 11.67 15.17 11.67 Standard Deviation 4.380 4.284 2.628 4.416
Minimum 1 4 9 1 Maximum 18 22 19 22
Percentile 33.33 7.67 10.00 14.00 9.67 Percentile 66.66 12.00 14.11 15.56 13.78
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Table 2 Clinical Integration by Hospital Peer Group
Small Hospitals (n=28)
Community Hospitals (n=63)
Teaching Hospitals (n=10)
All Hospitals (n=101)
Nurse Integration (max score=9) Mean 4.8 4.6 5.1 4.7
Median 4 4 5.0 4 Standard Deviation 1.8 1.9 1.6 1.9
Minimum 2 0 3 0 Maximum 9 9 9 9
Percentile 33.33 4 4 4 4 Percentile 66.66 5 5 7 6 Physician Integration (max score=9)
Mean 5.8 5.1 5.8 5.4 Median 6 5 6.0 5
Standard Deviation 2.2 1.6 2.2 1.9 Minimum 3 3 3 3
Maximum 9 9 9 9 Percentile 33.33 4 4 5 4
Percentile 66.66 7 6 7 6 Clinical Integration (max score=12)
Mean 7 6.4 7.3 6.7 Median 7 6 7.5 6
Standard Deviation 2.7 2.2 3.0 2.4 Minimum 3 2 3 2
Maximum 12 12 12 12 Percentile 33.33 5.6 6 5.3 6 Percentile 66.66 8 7.7 9.3 8
Table 3 Utilization Management Practices by Hospital Peer Group
Small Hospitals (n=28)
Community Hospitals (n=63)
Teaching Hospitals (n=10)
All Hospitals (n=101)
Mean 5.6 4.8 3.5 4.9 Median 6 5 3.5 5
Standard Deviation 1.4 2 1.7 1.9 Minimum 1 0 1 0 Maximum 7 7 7 7
Percentile 33.33 5.7 4.3 2.7 4 Percentile 66.66 6 6 4 6
Table 4 Clinical Data Use by Hospital Peer Group
Small Hospitals (n=28)
Community Hospitals (n=63)
Teaching Hospitals (n=10)
All Hospitals (n=101)
Hospital Acquired Sepsis Mean 1.8 2.3 2.7 2.2
Median 2 3 3 2 Standard Deviation 1.1 .8 .5 .9 Minimum 0 0 2 0
Maximum 3 3 3 3 Adverse Drug Reaction
Mean 1.5 2 2.5 2 Median 1 2 2.5 2
Standard Deviation 1 .8 5 1 Minimum 0 0 2 0
Maximum 3 3 3 3 In-Hospital Mortality
Mean 1.3 2.1 2.8 2 Median 1 2 3 2
Standard Deviation 1 .8 .6 1
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Minimum 0 0 1 0 Maximum 3 3 3 3
Hospital-Acquired Injury Mean 1.8 2.3 2.7 2.2
Median 2 2 3 2 Standard Deviation .9 .7 .5 .8 Minimum 0 1 1 0
Maximum 3 3 3 3 Waiting Time for Access to Inpatient Bed
Mean .5 2.3 2.6 1.8 Median 0 3 3 2
Standard Deviation .9 1 .7 1.2 Minimum 0 0 1 0
Maximum 3 3 3 3 Length of Stay
Mean 2.2 2.8 3 2.6 Median 3 3 3 3
Standard Deviation 1 .6 0 .7 Minimum 0 1 3 0
Maximum 3 3 3 3 Readmission Rates Mean 1.2 2.4 2.8 2.1
Median 1 3 3 3 Standard Deviation 1.2 .8 .4 1.1
Minimum 0 0 2 0 Maximum 3 3 3 3
Intensity of Clinical Data Use Score (max score=21) Mean 10.3 16.4 19.1 15
Median 9.5 17 19.5 16 Standard Deviation 5 3.9 1.8 5
Minimum 3 7 16 3 Maximum 19 21 21 21
Percentile 33.33 7 15 18 14 Percentile 66.66 13 19 20.3 18
Table 5 Protocol Use by Hospital Peer Group
Small Hospitals (n=28)
Community Hospitals (n=63)
Teaching Hospitals (n=10)
All Hospitals (n=101)
Stroke
Mean 1.4 1.5 2.3 2 Median 1 2 3 3
Standard Deviation 1.4 1.3 1.3 1.4 Minimum 0 0 0 0
Maximum 3 3 3 3 Pneumonia Mean .75 1.5 1.2 .9
Median 0 2 0 0 Standard Deviation 1.2 1.3 1.5 1.4
Minimum 0 0 0 0 Maximum 3 3 3 3
Diabetes Mean 1.5 1.8 1.3 1.8
Median 1 1 1 1.5 Standard Deviation .8 .9 1.4 .9
Minimum 1 0 0 1 Maximum 3 3 3 3
Heart Failure Mean .71 1.2 .5 .9
Median 0 0 0 0
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Standard Deviation 1.3 1.3 .9 1.4 Minimum 0 0 0 0
Maximum 3 3 2 3 GI Bleed
Mean .3 .5 .4 .3 Median 0 0 0 0 Standard Deviation .9 .95 .8 .94
Minimum 0 0 0 0 Maximum 3 3 2 3
Asthma Mean .63 1.3 1.9 1.8
Median 0 1 2 3 Standard Deviation 1.2 1.4 1.2 1.5
Minimum 0 0 0 0 Maximum 3 3 3 3
AMI Mean 2.5 2.5 2.7 1.8
Median 3 3 3.0 2.5 Standard Deviation 1 .97 .9 1.4
Minimum 0 0 0 0 Maximum 3 3 3 3 Intensity of Protocol Use (max score=21)
Mean 7.8 10.7 9.5 9.8 (n=100) Median 7 11 7 9
Standard Deviation 4.7 4.9 5.7 5 Minimum 1 1 4 1
Maximum 18 21 21 21 Percentile 33.33 4.7 8 6 7
Percentile 66.66 9.7 12 11.6 12
Table 6 Ontario Hospital Operational Efficiency, 2005-2007
Small Hospitals
(n=28)
Community
Hospitals (n=63)
Teaching Hospitals
(n=9)†
All Hospitals
(n=100) †
Actual Cost Per Equivalent Weighted Case (C$)
Mean $4,274 $4,354 $5,867 $4,468
Median $4,222 $4,278 $6,099 $4,309
Std Deviation $617 $394 $482 $646
Minimum $3,106 $3,564 $5,006 $3,107
Maximum $5,704 $5,626 $6,338 $6,338
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Expected Cost Per Equivalent Weighted Case (C$)
Mean $4,458 $4,322 $5,717 $4,486
Median $4,408 $4,283 $5,743 $4,331
Std Deviation $168 $107 $492 $435
Minimum $4,244 $4,195 $4,916 $4,195
Maximum $4,879 $4,703 $6,492 $6,492
Operational Efficiency (ACPEWC-ECPEWC/ECPEWC x 100)
Mean -4.27% 0.73% 2.90% -0.47%
Median -5.53% -0.43% -0.19% -1.23%
Std Deviation 12.21% 8.64% 7.77% 9.91%
Minimum -27.74% -19.90 -6.04% -27.74%
Maximum 19.62% 28.16% 17.26% 28.16%
Percentiles 33.33 -1.12% 3.38% 6.69% 2.05%
Percentiles 66.66 -9.03% -2.18% -2.51% -3.62%
† Data are unavailable for one teaching hospital
Table 7a Patient Satisfaction Scores, Hospital Report Measures, 2005/07
Table 7b Patient Satisfaction Scores, NRC+Picker Measures, 2005/07
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Table 8 Unplanned Readmissions to Any Ontario Hospital for Selected CMGs, 2005/07
Small
Hospitals
(n=28)
Community
Hospitals
(n=63)
Teaching
Hospitals (n=10)
All Hospitals
(n=101)
Average Annual Observed Readmissions within 30 Days for Selected CMGs
Mean 46 309 457 250
Median 46 272 370 190
Std Deviation 22 222 320 241
Minimum 15 57 4 4
Maximum 84 1198 1026 1198
Average Annual Expected Readmissions within 30 Days for Selected CMGs
Mean 43 310 445 249
Median 45 281 354 190
Std Deviation 21 218 311 238
Minimum 12 57 8 8
Maximum 74 1089 1012 1089
Unplanned Readmission Rate to Any Hospital for Selected CMGs
(Observed – Expected / Expected Readmissions)
Mean 9.7% 0.3% -1.8% 2.4%
Median 7.7% -0.1% 2.6% 1.4%
Std Deviation 16.0% 9.4% 17.1% 13.0%
Minimum -15.5% -25.5% -48.1% -48.1%
Maximum 47.6% 28.6% 13.6% 47.6%
Percentiles 33.33 15.0% 3.2% 5.8% 5.7%
Percentiles 66.66 2.2% -2.9% -0.4% -2.3%
Hospitals with
Readmissionns Rate
< Expected
8 (29%)
34 (54%)
3 (30%)
45 (45%)
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Appendix 4.3 Relationship between Governance Oversight Practices and
Organizational Capacity Detailed Results
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Appendix 4.4 Relationship between Governance Capacity and
Organizational Capacity Detailed Results
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Appendix 4.5 Relationship between Performance and Organizational
Capacity Detailed Results
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CHAPTER 5
Conclusion
5.0 Overview
This chapter summarizes the key findings from the preceding papers, discusses limitations and
contributions of this research, and concludes with implications for hospital leaders, policymakers
and researchers.
5.1 Summary of Research Findings
Research Question 1: Do Boards Matter to Hospital Performance?
This dissertation began with the question: do boards matter to hospital performance? The thesis
underpinning the preceding three papers is: by themselves, probably not very much. What may
matter more is governance capacity – the overall ability of boards and their management teams to
work together to develop strategy, allocate resources, structure work and monitor performance,
and organizational monitoring and alignment capacity – the institutionalized ability to align, monitor
and benchmark performance. The relationship between governance capacity and organizational
monitoring and alignment capacity has not been well-studied. This dissertation addresses that
gap through two exploratory empirical studies, and a theory-driven paper that knits together
different strands of the literature into a holistic conceptual framework of organizational
governance.
Figure 5.1 below summarizes the findings from the two exploratory studies. For clarity, only
hypothesized relationships for which there was some evidence are depicted. The sections that
follow provide further details on hypotheses for which no evidence was found, or instances
where the findings were inconsistent with theory.
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Figure 5.1 Summary of Research Findings
The first study (Chapter 3) tests whether governance practices and board and top management
characteristics, both hypothesized components of governance capacity, are related to the one
domain of hospital performance boards are most likely to monitor, financial health. After
accounting for organizational size, a relationship in the expected direction was detected between
the summary one component of governance capacity and financial health. Indeed, governance
oversight practices explained approximately 10% of the variance in operational efficiency, a
finding in keeping with agency theory and to some extent, institutional theory as well.
Supplementary analyses (not shown) failed to detect a relationship between governance capacity
and other measures of hospital performance in this study, including Readmission Rates and
Patient Satisfaction, a finding not inconsistent with the literature. For example, Bradshaw,
Murray and Wolpin (1992) found that board emphasis on strategic planning and operational
oversight accounted for a relatively small proportion of explained variance in nonprofit financial
performance. However, subjective ratings of board performance were highly correlated with
subjective ratings of organizational performance, a finding common to several other nonprofit
studies (e.g., Herman & Renz, 1997).
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A relationship was also hypothesized to exist between governance practices and top
management team characteristics. CEO turnover and CCHSE designation were predictive of
higher governance practice scores, indeed they explained approximately 8% of the variance in
governance oversight, although only the latter made a statistically significant unique contribution
to the model. This finding is consistent with the normative literature which tends to emphasize
the important role of the CEO in building effective boards (Carver, 1992; Pointer & Orlikoff,
2002).
Finally, a positive relationship was hypothesized to exist between governance practices and
board composition. After accounting for hospital size, hospitals with municipal representatives
and higher proportions of women scored lower on one component of governance capacity -
Board Membership Management practices - than their peers. Indeed, their presence explained
11% of the variance in scores. Thus the model revealed a negative relationship between practices
and two specific elements of board diversity, although this relationship is not expected to hold
for all board attributes. For example, separate analyses revealed a positive relationship between
board size and board membership management practices, a finding consistent with Bradshaw,
Murray and Wolpin (1992).36
The second study (Chapter 4) developed and tested the concept of organizational monitoring and
alignment capacity in relation to governance and organizational performance. In keeping with
institutional theory, governance practices, including those related to monitoring and
independence, and transparency and decision-making, were expected to reflect organizational
monitoring and alignment capacity. However, after controlling for organizational size, no
relationship was detected.
Consistent with agency, strategic choice and upper echelons theories, hospitals that exhibited
greater governance capacity as measured by governance practices and top team attributes were
also expected to exhibit greater organizational monitoring and alignment capacity – i.e., score
higher on the use of clinical data, standardized protocols, utilization management practices and
36
Formalization was measured in two ways. The first assessed whether the board had term limits, formal
orientation or education programs. The second assessed the extent to which the board had comprehensive manuals,
formal attendance policy and descriptions of member and committee responsibilities (Bradshaw et al., 1992, p. 234).
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clinical integration. Again, after controlling for organizational size no support was found for this
hypothesis.
A relationship was hypothesized to exist between organizational monitoring and alignment
capacity and hospital performance. There was partial support for this hypothesis. After
accounting for organizational size, hospitals that reported greater use of data, utilization
management practices and care protocols also had lower readmission rates, a finding consistent
with institutional theory and published research (e.g., Vina et al., 2009). However, no
relationship was detected between organizational monitoring and alignment capacity and other
measures of performance including operational efficiency or patient satisfaction. A possible
explanation may be that these domains of performance are influenced by other, unmeasured
aspects of organizational monitoring and alignment capacity, or alternatively, by factors external
to the organization or operating at other levels of analysis. For example, use of care protocols, a
hypothesized component of organizational capacity, may not necessarily result in improvements
in aspects of hospital performance valued by patients. Indeed, research on patient satisfaction
has shown it to be conceptually distinct from quality of care, and influenced by myriad temporal,
interpersonal and individual factors, including the extent to which patient or caregiver
expectations are met (Gill & White, 2009; Chang et al., 2006).
Interestingly, „clinical integration‟ or the engagement of physicians and nurses in strategic
planning, strategic management and development of performance indicators, the fourth
hypothesized element of organizational monitoring and alignment capacity, was not re lated to
the other components of this measure, or any of the measures of hospital performance used in
this study. It is unclear why this is case, although research by Goes et al.. (1995) suggests that in
the case of physicians, the (positive or negative) impact of integration strategies on financial
performance may take several years to be felt. Since Ontario hospitals underwent significant
restructuring in the decade prior to 2005, it is possible that integration initiatives were disrupted
and their value discounted. It is also possible that clinical integration as measured in this study
has no impact on uptake of clinical protocols or hospital performance.
Finally, the domains of performance examined in this study were not correlated, a finding
consistent with competing values theory and supportive of Ontario‟s approach to monitor and
publicly report on multiple domains of hospital performance. An unexpected finding was that
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nearly half of Ontario hospitals had extremes in performance; that is, they ranked in the top peer
group tertile in at least one domain and in the bottom peer group tertile in at least one other.
And while hospitals that met financial accountability requirements in 2005/07 were likely to be
more efficient than their peers, no relationship was detected between these measures of
performance and a lower than expected readmission rate, the other requirement in the service
accountability agreements. This suggests that Ontario hospitals – and their boards - may be
having difficulty balancing competing demands. It also suggests the need for further research on
the trade-offs among domains of hospital performance and what roles boards and stakeholders
internal and external to the organization play in determining where the optimal balance lies.
An exploratory Ontario study found that hospital boards were more likely to monitor financial
indicators such as total margin and cost per weighted case than clinical indicators such as
unplanned readmissions. Indeed only 13% of boards reported taking readmission rates into
account when evaluating CEO performance, while three quarters reported using financial
indicators (Schraa, 2007, p. 104). Thus, there may be some support for agency theory in these
findings. If so, current efforts to make hospital boards more accountable for quality of care may
indeed lead to increased board attention to this area and over time, improved quality
performance, particularly among hospitals with relatively low levels of organizational monitoring
and alignment capacity.
Research Question 2: Do Existing Datasets Address Governance Research Needs?
A secondary goal of this dissertation was to assess the quality of existing governance-related
administrative and survey data. Much governance research undertaken in the US and elsewhere
has relied on board and performance data reported to various government and financial entities.
This study enabled the compilation and analysis of a wide range of corporate documents
including:
Bylaws for 110 hospitals and 3 alliances
More than 100 annual reports from 67 hospital corporations.
Hospital operational and governance reviews undertaken in Ontario in the past decade
A comprehensive collection of governance reports from national and international
sources listed in the Appendices to Chapters 2-4.
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It also enabled the compilation and analysis of untapped data sets of potential relevance to
governance research including:
Data on 1,235 individuals with a CHE/FCCHSE designation as of December 2008.
Data on 5,170 Ontario hospital leaders extracted from the Public Salary Disclosure
Dataset, 1999-2008.
Canada Revenue Agency Charities Listings data for 23,000 trustees on 166 Ontario
hospital corporations in existence between 1999 and 2008.
It was expected that these datasets would be relatively comprehensive and reliable. However, it
became apparent during the data preparation stage that linking data sets would prove
problematic due to divergent definitions of reporting entity, and changes to that corporate entity
over time. These challenges are discussed at length in Chapter 1. Additional investigation
revealed significant problems with missing or incomplete data, largely as a result of poor data
management practices of government entities. These issues are discussed in Chapters 3 and 4.
In summary, existing datasets do not adequately address governance research needs. Further
research using the Charities Listing data should be undertaken with caution given current CRA
data management practices. Governance survey data available in Ontario were of limited
explanatory value due to the large proportion of „best practices‟ that were enshrined in hospital
bylaws or reported as having been adopted in 2005. Corporate documents such as bylaws and
annual reports were informative but time-consuming to collect and analyse. Thus, it would be
helpful to have a centralized repository that would enable multiple researchers to contribute to
and build on the knowledge base over time.
5.2 Limitations
The conceptual framework developed and tested here drew on different strands of the literature
including institutional theory, resource dependence theory and agency theory. Institutional
theory suggests that much of what hospitals and their leaders do is environmentally-determined
and institutionally constrained. Nevertheless, within a limited repertoire of action, hospital
boards and their top management teams do make strategic choices related to how they spend
their time, organize their work, allocate resources, monitor outcomes and link to the broader
environment that can contribute to (or detract from) hospital performance. Resource
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dependence theory proposes that a key role of hospital boards is to minimize external
dependencies, link to powerful stakeholders and acquire resources from the broader
environment. From an agency theory perspective it is particularly important that boards monitor
management and align incentives so as to achieve high levels of performance in areas of value to
their “owners,” the patients, funders, donors, and others with a stake in hospital care. Based on
these theories, it was expected that a relationship would exist between hospital performance,
governance practices and top team characteristics. It was also hypothesized that hospital capacity
to monitor progress and align to best practice would contribute to both governance capacity and
hospital performance.
The two exploratory empirical studies failed to find a consistent, statistically significant
relationship between governance capacity, organizational monitoring and alignment capacity,
and key financial, quality and patient satisfaction measures of hospital performance. Indeed,
there was very little congruence among measures of hospital performance informed by the
literature or used for funder accountability and public reporting purposes.
The inability to detect the hypothesized findings in line with the theoretical model may be due to
several limitations of this study. First, it uses a cross-sectional, correlational design and relies on
a subset of hospitals for which data are available or that opted to participate in the Hospital
Report Research Collaborative. Therefore the sample was relatively small, limited to one
Canadian province, and biased in favour of larger acute care hospitals. Moreover, sample size
affects the statistical power of inferential tests. Ontario‟s hospital sector is populated by mature
organizations, operating in a highly regulated, oligopolistic environment. If a relationship exists
between governance capacity and quality, financial or patient satisfaction performance at a
specific point in time, it is likely to be small and virtually undetectable given the statistical
methods available and the sample size required. While observed power for most tests in this
study was around .80, the inability to detect statistically significant hypothesized relationships
may have been due to a sample size inadequate to detect a small effect size.
Secondly, the studies relied on administrative and survey data, both of which have documented
weaknesses. Surveys are vulnerable to social desirability bias and may not be fully representative.
For example, the Patient Satisfaction survey under-represents those with limited English or
French language literacy (e.g., recent or older immigrants) and psychiatric and obstetric patients,
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outpatients, ED patients and patients under 18 are excluded. The Governance Practices survey
relied on yes/no answers and, with the exception of board-related questions in the System
Integration and Change (SIC) surveys, only one year of data was available precluding more
complex statistical analyses, or analyses of changes over time in relation to performance.
Similarly, some SIC questions were long and complex, and the answers highly dependent on the
knowledge, experience or educated guesses of the person completing that section of the survey
in that particular year. Thus measurement error may have been at play, particularly with respect
to the governance-related questions in the SIC survey. There were also significant challenges
with missing, incorrect, duplicate or difficult to interpret governance and salary data obtained
from the Canada Revenue Agency and the Ontario Ministry of Finance respectively. To improve
reliability, the model was tested using multiple years of data (for example, performance measures
were averaged over two years). However, this approach may have diluted the results and not
fully addressed the underlying problem.
Thirdly, the choice of measures may not adequately reflect hospital performance in Ontario. The
quality measure used in this study was introduced in Ontario in 2005/07, and may be especially
problematic as there is disagreement about the extent to which hospitals have control over
readmissions given the variability in access to primary care across the province. Similarly, the
financial measures, particularly Operational Efficiency, may not adequately account for
differences in local demand for services or adequacy of historical funding levels.
Fourthly, there may have been misspecification of the variables. The empirical studies focused
on two relatively underdeveloped concepts in the literature. The measure of organizational
monitoring and alignment capacity is based on survey questions developed for a different
purpose and may not fully or adequately capture the concept of interest. The measures of
governance capacity, although based on theory, were also constrained by the type and scope of
available data. For example, lack of proper scale data or severely skewed measures which could
not be normalized, precluded the use of factor analysis (Munro, 2001).
Finally, the analytical approach used in the two exploratory studies may have produced spurious
results. Multiple statistical tests were conducted thereby increasing the possibility of generating a
statistically significant result simply by chance (although the Bonferroni correction tried to adjust
for this possibility). Furthermore, linear regression, particularly when used with small sample
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sizes, is highly sensitive to the presence of outliers and non-normal data. Some measures were
transformed or manipulated in accordance with published guidance. Data manipulation makes
the findings more difficult to interpret. It may also not have adequately corrected for skewed
data or homoscedasticity. In some cases, less powerful nonparametric tests were used, possibly
resulting in non-findings where relationships were indeed present. Thus, the two empirical
studies were vulnerable to both Type 1 and Type 2 errors.
5.3 Contribution
Despite these weaknesses, this dissertation extends previous research and contributes to the
knowledge base by bringing together and linking a wide array of archival and survey data to
develop a more comprehensive picture of hospital governance in Ontario, Canada‟s largest
province and the only one with local boards rather than regionalized health systems.
The two exploratory studies shed light on governance practices, board and management
characteristics and uptake of utilization management, protocol use, data use and clinical
integration. They advance two theoretical constructs - „governance capacity‟ and „organizational
monitoring and alignment capacity‟ - and test them in relation to a comprehensive set of
measures of hospital performance. The results are inconclusive perhaps indicative of the need to
develop more refined measures based on purposefully collected data. Governance may indeed
have an impact but it is likely small and only discernable over a much longer period of time than
current data allow, and using more reliable measures of governance and organizational capacity
that enable a higher degree of rigour to be brought to the analyses.
The multi-theoretic conceptual framework advanced in Chapter 2 draws on various strands of
the literature to offer an alternate perspective on the role of boards and their potential
contribution to organizational performance. Agency theory (Jensen & Meckling, 1976; Fama &
Jensen, 1983) argues that the role of boards is to monitor management and align incentives so as
to achieve high levels of performance in areas of value to their “owners.” Stakeholder theorists
(Freeman & Reed, 1983; Donaldson & Davis, 1991) focus on creating value for a broader array
of groups with a vested interest in organizational success. Resource dependence theorists
(Selznick, 1949; Pfeffer & Salancick, 1978) emphasize the role of the board as a link to external
resources and means by which to manage organizational dependencies. Stewardship theorists
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(Davis, Schoorman & Donaldson, 1997; Donaldson & Davis, 1991), like resource dependence
theorists, posit a broader and more active role for management that is not necessarily in conflict
with that of boards or the agglomeration of interests they represent.
Building on an integrative view of the organization as a nexus of networks and collaboration
(Baker & Branch, 2002), the conceptual framework posits that board governance is a bundle of
responsibilities circumscribed by organizational needs and environmental demands. In highly-
regulated environments such as healthcare, „governance space‟ is circumscribed. Many
stakeholders have a stronger pulse on singular aspects of organizational performance and most
have more time, resources and expertise to devote to oversight than the board. A key role of
boards in such „distributed governance‟ environments is to enable the accountability web to
operate more effectively.
Governors have an important role in helping their hospital to look at performance from an
integrated perspective by more closely reviewing, harmonizing and acting on the multi -factorial
performance information that is already provided to, and available from various stakeholders
within their accountability web. Historically, few hospitals have attempted to integrate publicly
reported measures of quality with those monitored for accreditation or compliance purposes.
Negative reports are treated as isolated findings and seldom analyzed for root causes. Similarly,
funders and regulators hold detailed performance information that they rarely consolidate,
analyse or use to make timely decisions. The striking commonality in studies of governance
failure is that many problems were evident long before massive failures became inevitable. The
accountability web provides boards and top management teams in tightly regulated
environments with timely, multivariate and actionable intelligence on performance.
There is little empirical evidence to justify the arbitrary line drawn between „independent‟ part -
time volunteer board members, and „insiders‟ – the senior executives and physicians (and to a
lesser extent, nurses) who populate hospital governance structures and control much of the
decision-making and decision-monitoring that occurs at that level. Indeed, drawing a hard line
between the two groups places unrealistic expectations on part-time volunteers while
underplaying the role of full-time professionals who lead these organizations and control much
of what happens at the board table. Governance relies heavily on the ability of both groups to
put relevant knowledge, skills and networks to good use and work together towards a common
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purpose. The argument posited here is that within distributed governance environments, it
matters little whether it is volunteer board members or salaried or fee for service insiders at the
apex of the organization who carry out the key functions of governance, as long as the
„governance space‟ is adequately defined and filled, and organizational activities and outcomes
are open to debate and scrutiny. Thus, the accountability fault line lies not in the “who” but in
the “what” of governance.
Ramsay, Fulop, Fresko and Rubenstein (2010) propose three roles for boards of healthcare
organizations: formulating strategy, demonstrating accountability and shaping organizational
culture. These are facilitated by “context” or external drivers over which the organization has
little control, “intelligence” or information about the environment and organizational
performance, and “engagement” or interaction between leaders and staff, the public and partner
organizations.
By tapping the accountability web, boards can help bridge divides, enable internal and external
stakeholders to more fully scrutinize organizational integrity, effectiveness and outcomes from
an integrated perspective, and use that intelligence to identify strategic and operational
opportunities for improvement or growth. This view is also consistent with the „generative
model‟ of governance which emphasizes the importance of knowledgeable and engaged board
members and thoughtful dialogue and deliberation (Chait & Taylor, 2005).
5.4 Implications and Directions for Future Research
The implications of the present research are threefold. For hospital leaders and policymakers, it
is reminder that the relationship between governance and hospital performance is tenuous and
not well understood. Hospitals are large, complex entities caught within an accountability web
that pulls them to and fro. Boards populated by individuals who touch the organization for a
few hours every month, and who have limited scope in decision-making or decision-monitoring
will certainly have a limited impact on broad measures of organizational performance. Even
when the upper echelons are acknowledged to be driving deliberations and decisions at the
board table and contributing to governance capacity, their impact on performance will likely be
constrained by institutional factors such as sector and stage in the organizational lifecycle.
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In the two studies, organizational size was by far the most reliable predictor of hospital
performance, organizational monitoring and alignment capacity, and governance practices;
although the relationship was not always in the same direction. This finding is consistent with
the literature. For example, Brown (2005, p. 331) found that nonprofit age and size accounted
for 8% of the variance in net revenue and board performance did not make a statistically
significant to the model.
Little correlation was detected between various domains of hospital performance, or indeed
between measures of performance within the same domain. Some would point to conceptual or
methodological challenges (Richard, Devinney, Yip & Johnson, 2009). Others would argue this
reflects a lack of consensus on what constitutes good performance or irreconcilable aspects of
performance (e.g, Herman & Renz, 1997). Currently, a wealth of information and data available
from the hospital accountability web goes untapped. Bringing these data sources together would
assist hospital boards and policymakers to create a more fulsome picture of performance and
identify important weaknesses, discordances, or priorities for alignment and integration.
For bureaucrats, the challenges of working with multiple data sources encountered in the course
of this research point to the need for greater care in managing existing administrative data. For
example, Canada Revenue Agency launched the Charities Listings over a decade ago in an effort
to promote greater transparency and accountability. Thousands of hours are spent each year
filling out forms and entering data, yet arbitrary administrative decisions have severely limited
the reliability, comprehensiveness and timeliness of these data, and consequently their usefulness
for research purposes. If these rich sources are to inform research or public policy, they must be
managed in such a way as to ensure data accuracy, reliability and accessibility.
For Canadian health care researchers and funders, this study documents the significant problems
in accessing and working with existing data sources. Given the policy interest in the links
between governance and performance, it reinforces the need to invest in a longitudinal program
of research and the development of a centralized and expanded repository of data, including
virtually untapped sources of historical value such as annual reports and hospital bylaws.
The conceptual framework elaborated in Chapter 2 suggests there may be value in further
researching and crystallizing the twin concepts of „governance capacity‟ and „organizational
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monitoring and alignment capacity.‟ Both concepts have the potential for wide application
although further elaboration and testing would be required. To date, little research has been
undertaken on mapping the „governance space,‟ or scope of action available in various sectors,
or to organizations at various stages of their life cycle. We also know very little about the extent
to which top teams occupy that governance space, and their relative success in influencing
performance over time through their shared decision-making and decision-monitoring roles.
Due to missing data and other challenges, this study was unable to look at top management
beyond the CEO, or board leaders beyond the chair. It would be interesting to study the role,
relationships and contribution to governance capacity and organizational performance of both
these groups. Significant variation in to top team composition was found across hospital types.
Further research is required on what role various groups play in governance deliberations and
whether process, structure or incentives influence outcomes. For example, do hospital
foundation representatives or major donors influence board decisions related to hospital
programs or services? Does the proportion of women top management team members influence
hospital governance deliberations or outcomes? Do physician and nurse leaders promote board
involvement in quality monitoring?
Few validated tools to assess board performance currently exist. The Board Self-Assessment
Questionnaire (BSAQ), and the Governance Self-Assessment Questionnaire (GSAQ) provide
useful starting points. Although both have been validated (Jackson & Holland, 1998; Gill, Flynn
& Reissing, 2005) and the former referenced extensively in the nonprofit literature, it is unclear
whether these tools adequately capture the elements of governance capacity proposed in this
study, particularly those related to transparency and decision-making, and monitoring and
independence; and top team „social capital.‟ Furthermore neither tool has been found to be a
reliable predictor of organizational performance, although some studies have found a
relationship between some BSAQ component scores and selected aspects of financial
performance, while others have detected a relationship between governance scores and
perceptions of organizational effectiveness (e.g., Brown, 2005, McDonagh, 2006). These studies
also found significant differences between board and top management team views of
organizational and board effectiveness. Thus, it may be useful to develop a tool that maps the
governance space occupied by boards and top management teams, assesses their collective
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governance capacity and relates the latter to multiple objective and subjective measures of
hospital performance.
There is also a dearth of research on levers within board control that build organizational
capacity, and result in improved hospital performance. The hypothesized components of
organizational monitoring and alignment capacity used in this study are largely reflective of
managerial or clinical decision-making, and evidence of their effectiveness is variable. More
research is required on the scope, content and impact of hospital board policies or decisions and
the efficacy with which these are implemented and monitored. For example it would be
interesting to know whether the extension of pay for performance to the Chief of Staff and
other members of the top management team beyond the CEO, lead to improvements in hospital
financial and quality performance. Research is also required on how hospital boards and
committees define good performance and whether the evolution of this definition has had an
impact on their control and service roles. In particular, does public reporting of key performance
indicators influence board or stakeholder perceptions or governance practices? Does increased
monitoring or investments in governance information systems lead to performance
improvements? It would also be useful to know what contribution, if any, board finance, audit,
quality and medical advisory committees make to hospital performance, and whether
assessments of committee effectiveness correlate strongly with objective measures of
organizational performance. A formal program of research on the organizational aspects of
healthcare governance in Canada would complement existing initiatives and contribute to an
international body of knowledge that is more sensitive to diverse policy environments and
ideally, better able to inform policy decisions.
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