Ask the expert: Should our organization allow physicians to sit on the governing board?

Traditionally, the Internal Revenue Service (IRS) has had ambivalent feelings about the role of “interested parties” in not-for-profit [501(c)(3)] entities. An interested party may be defined as someone who financially benefits from the organization, either directly or indirectly, and therefore, has potential conflicts of interest that may preclude that individual from making unbiased decisions on behalf of the organization. More than 20 years ago, the IRS did not allow more than 25% of voting members of governing boards to be made up of interested parties (e.g., employed physicians, CEO and other senior managers, community leaders who have direct business transactions with the organization above a predetermined amount). More recently, however, the IRS has raised this limit to 49%, acknowledging the important role that voting members of the governing board have in providing critical expertise to enhance the board’s overall understanding of healthcare issues. Why wouldn’t the board want individuals who are experts in their respective fields to enlighten other board members and support the board in making wise decisions involving extremely complex issues?

Many boards now understand that it is indeed important to incorporate the opinions of both employed and nonemployed physicians on the board. Both types of physicians have a unique perspective and potential conflict of interest. Independent physicians are both collaborators and competitors with the hospital and often compete for increasingly scarce higher-margin services, such as elective procedures and ancillary testing. Yet this group will often provide an insider–outsider perspective that may be invaluable. Employed physicians are not competitors; however, they receive direct payment from senior management and therefore may be biased in support of these individuals, even if they do not necessarily agree with their opinions from a clinical perspective. Finally, executive physician leadership may provide yet another valuable perspective by bringing best quality and safety practices to the attention of management and the board; physician leadership also holds other physicians accountable for the practice of medicine and documentation according to national standards and benchmarks.

This week’s question and answer are from Engage and Align the Medical Staff and Hospital Management: Expert Strategies and Field-Tested Tools by Jonathan H. Burroughs, MD, MBA, FACPE, CMSL.