Governance

The role of governance is very important in the character of institutions. In many healthcare institutions, including those in the not-for-profit sector, the board of trustees may be made up largely of prominent businesspeople with a great deal of experience in running large and successful businesses, as well as otherwise wealthy and influential members of the local social circle who may themselves be important philanthropic supporters of the hospital and able to draw others into making major donations. Thus, it is often a minority of individuals on the board who have direct experience with healthcare, such as physicians or nurses, or whose major concerns are with education or research. Therefore it is not surprising that as healthcare has become a trillion-dollar business in the United States, even not-for-profit hospitals and health systems have looked at the bottom line as a marker of how well they are doing. Even though there are no shareholders to pay, an excess of revenue over expenses allows a nonprofit institution to initiate new programs and, in many cases, to salt away substantial reserves that both provide interest income and allow for a cushion in case of adversity.

Because so much money is involved and because of the business orientation of much of hospital governance, it is not surprising that the investments in new programs or the capital investments that are made when excess funds are available are not always, or even primarily, directed toward care of the poor and underserved but are often directed toward ensuring a continuing stream of revenue for the hospital. This usually means investing in additional high-technology medical care that will be marketed to insured patients. For this reason it is not hard to see why the Internal Revenue Service in recent years has begun to ask whether the not-for-profit hospital sector really ought to remain tax exempt. In order to maintain their tax exemption, these institutions must demonstrate that they are communityservice organizations and that the educational research missions remain important to them, if not central.

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