Maryland Survey of Nonprofit Hospital Board Governance: Report to the Maryland General Assembly As submitted to Peter Hammen, Chairman, Health and Government Operations Committee

Full text

Maryland Survey of
Nonprofit Hospital Board Governance:
Report to the Maryland General Assembly
February 19, 2010

Maryland Survey of Nonprofit Hospital Board Governance
TABLE OF CONTENTS
Executive Summary ........................................................................................................................ 1
Introduction ................................................................................................................................... 6
Methods ......................................................................................................................................... 6
Literature Review....................................................................................................................... 7
Overview of Survey Methods .................................................................................................... 9
Hospital System Characteristics and Classification Method ................................................... 9
Report Structure ............................................................................................................................ 11
Chapter I. Governance Structure: Board Size, Composition, and Committee Structure.......... 13
Board Size and Composition .................................................................................................... 13
Board Member Recruitment .................................................................................................... 17
Terms of Service ........................................................................................................................ 18
Standing Committees ............................................................................................................... 19
Summary .................................................................................................................................... 22
Chapter II. Transparency .............................................................................................................. 23
Recommendations and National Benchmarks ........................................................................ 23
Maryland Survey Results ......................................................................................................... 24
Summary ................................................................................................................................... 26
Chapter III: Conflict of Interest Policy .......................................................................................... 27
Recommendations and Best Practices .................................................................................... 27
Maryland Survey Results ......................................................................................................... 28
National Benchmarks ............................................................................................................... 30
Summary .................................................................................................................................... 31
Chapter IV: Governance Policies and Practices ........................................................................... 32
Section 1: Financial Oversight ................................................................................................... 32
Section 2: Executive Compensation Oversight ...................................................................... 42
Section 3: Quality Oversight .................................................................................................... 47
Section 4: Community Benefit Program Oversight................................................................ 50
Section 5: Self-Governance ...................................................................................................... 53
Chapter V. Further Considerations ............................................................................................. 56

References ................................................................................................................................... 58
Appendices
I. Survey Instrument ................................................................................................................. 61
II. Maryland Nonprofit Hospitals ............................................................................................ 79
III. Maryland Trustee Disclosure Requirements .................................................................... 82
LIST OF TABLES
Table 1. Maryland: Total Number of Voting Board Members, Including Vacancies .................. 15
Table 2. Maryland: Composition of Voting Board Membership ................................................. 15
Table 3. Maryland: Inclusion of Members with Core Areas of Expertise ................................... 16
Table 4. Maryland: Board Member Terms of Service ................................................................. 18
Table 5. Maryland: Board Committee Structure ......................................................................... 21
Table 6. Maryland: Documents Made Available to the Public ................................................... 25
Table 7. Maryland: Conflict of Interest Policies .......................................................................... 29
Table 8. Maryland: Official Capacity of Hospital CEO to the Hospital Board ........................... 30
Table 9. Maryland: Practices Associated with Voluntary Sarbanes-Oxley Compliance ........... 35
Table 10. Maryland: Review and Approval of IRS Form 990 ......................................................37
Table 11. Maryland: Approval (or Review) of Financial Practices and Transactions ................ 38
Table 12. Maryland: Board Establishment of Written Financial Policies ................................... 39
Table 13. Maryland: Full Board Approval of Certain Financial Practices ................................... 39
Table 14. Maryland: Data Routinely Reported to the Full Board or Standing Committee....... 40
Table 15. Maryland: Monitoring and Approving Executive Compensation .............................. 44
Table 16. Maryland: Setting Executive Compensation Standards............................................. 45
Table 17. Maryland: Composition of the Executive Compensation Body ................................. 46
Table 18. Maryland: Quality Oversight Practices ........................................................................ 49
Table 19. Maryland Community Benefits Oversight Practices ................................................... 51
Table 20. Maryland: Self-Governance Practices ......................................................................... 54

1
Executive Summary
Introduction
Delegate Peter Hammen, Chairman of the House Health and Government Operations
Committee, requested the Maryland Health Services Cost Review Commission (HSCRC) to
undertake a study of hospital board governance policies and practices to inform the General
Assembly and the public regarding the stewardship of hospital resources. Chairman Hammen
asked that the study include the following: a review of existing literature on the principles for
good governance of nonprofit entities, identification of best practice standards, a survey of
Maryland hospital board governance, an examination of all of the HSCRC’s trustee disclosure
reports for a given year, and an evaluation of possible trustee conflicts of interest. The HSCRC
contracted with The Hilltop Institute at the University of Maryland, Baltimore County (UMBC)
to assist in this study.
Methods
The study involved three major tasks. First, Hilltop performed a review of the existing literature
to identify recommendations for best practices in hospital governance. This literature review
informed the second major task, development of a survey instrument on board governance
practices and policies. The survey was distributed to Maryland’s 45 nonprofit hospitals by the
HSCRC, and all hospitals completed the survey and responded to follow-up questions. Finally,
Hilltop reviewed the fiscal year (FY) 2008 trustee disclosure of interest statements submitted by
Maryland’s nonprofit hospitals and analyzed their content to evaluate the hospitals’ legal
compliance and the extent to which there might be conflicts of interest between trustees and the
institutions they govern as board members.
Survey and Literature Review Findings
The survey and literature review addressed governance policies and practices in the following
areas: governance structure, transparency, conflict of interest policy, financial oversight,
executive compensation, quality oversight, community benefits, and self-governance. A brief
summary of key findings in each of these areas follows.
Governance Structure: Board Size, Composition, and Committee Structure
 The composition of Maryland’s hospital boards are aligned with national trends and best
practices in many areas, including board size, physician representation, and recruitment
of board members with core areas of expertise, such as health care quality and financing.
Maryland’s boards exceed national benchmarks in racial/ethnic minority and female
membership.
 Maryland’s boards exceed national benchmarks by almost universally establishing
committees overseeing quality assurance/improvement and patient safety and establishing
committees overseeing community benefits at a higher rate.

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 Twelve hospitals reported difficulty in recruiting a sufficient number of desirable
candidates for board membership.
Transparency
 Based on the availability to the public of 20 key hospital documents, it appears that
Maryland hospitals maintain a level of transparency consistent with guidance from
the Maryland Association of Nonprofit Organizations.
 Maryland hospitals rely heavily on disclosure through public information offices,
rather than through hospital websites. This strategy requires that interested persons
have a basic level of knowledge regarding the documents they seek in order to make a
request for information.
Conflict of Interest Policy
 All but one hospital reported having a written conflict of interest policy.
 More than 90 percent of board policies contained the following key provisions:
requirements for the disclosure of potential conflicts of interest, conditions when
members must recuse themselves from discussions and voting, and guidance on what
may constitute a conflict of interest. Maryland is comparable to national benchmarks
in these areas.
 No Maryland board positions the CEO as the board chair and a voting board member,
which is a rare practice nationally.
Financial Oversight
 Almost all of Maryland’s boards have established whistle-blower policies and receive
routine reports on many types of financial data.
 For most hospitals—independent and member hospitals alike—authority resides with
the board to approve many or all of the financial transactions of concern to federal
and state policy makers, including real estate transactions, creation of subsidiary
entities, and joint ventures.
 All or all but one independent hospital boards: 1) are responsible for retaining and
replacing the hospital’s independent auditor; 2) have created a standing committee
with audit oversight; 3) meet independently with the external auditor at least
annually; and 4) require full board approval of long-range and annual capital and
financial plans. Member hospitals conduct these practices infrequently.
 Practices that are followed by fewer than half of all hospitals—independent and
system member hospitals alike—include: 1) adoption of policies that require
replacement of the independent auditor every five years at a minimum; 2) review and
approval of IRS Form 990 before submission to the IRS; 3) establish written policies

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governing the investment of assets, internal accounting systems and control
procedures, purchasing practices, and unrestricted current net assets.
 Many of the above from federal and state policy makers have not been tested in
surveys, so we do not know how Maryland hospitals perform relative to national
trends.
Executive Compensation Oversight
 Although the practice of full disclosure of executive compensation (salary and
nonsalary) to the full board is recommended in the literature, few boards in Maryland
conduct this practice. Because parent boards typically reserve oversight authority
over compensation practices, full transparency to the local hospital boards may not be
occurring.
 Maryland’s hospital boards have CEO performance expectations similar to boards
nationally, with more emphasis on financial performance and quality of care targets,
and less emphasis on community benefits targets.
Quality Oversight
 Overall, Maryland hospital boards meet or exceed national benchmarks for quality
oversight practice.
 Hospital boards in Maryland are nearly twice as likely as hospitals nationally to
conduct periodic review of morbidity and mortality rates.
Community Benefit Program Oversight
 Maryland boards engage in formal community needs assessment at a higher rate than
hospitals nationally.
 Maryland boards adopt measurable community benefit performance objectives at a
lower rate than hospitals nationally. However, additional comments provided by the
hospitals elaborated on new community benefits oversight initiatives, indicating that
community benefits oversight practices in Maryland are continuing to evolve.
Self-Governance
 Maryland boards are generally structured for success as measured by board
committee education/orientation and self-assessment.
 Almost all of Maryland’s boards conduct formal self-assessment, and the majority
does so at least every two years, which meets or exceeds national benchmarks.
 The majority of Maryland’s boards engage in formal orientation and ongoing
education, reflecting the recommendations in the literature.

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Trustee Disclosure Findings
HSCRC regulations require a nonprofit hospital annually to submit a list of its trustees, their
business addresses, and an indication of trustees who are “also an employee, partner, director, or
beneficial owner of 3 percent or more” of a business entity that transacted business with the
hospital worth $10,000 or more during the reporting period. Trustees, directors, and officers
associated with such transactions are required to provide specified information about the
transactions to the HSCRC. The HSCRC provides a template that may be used as a guide for
making these disclosures, but its use is not mandatory. Hilltop analyzed FY 2008 trustee
disclosure reports hospitals submitted to the HSCRC and found the following:
 For FY 2008, 44 of Maryland’s 45 nonprofit hospitals submitted trustee disclosure
reports with varying degrees of completeness.
 All 44 of the hospitals that reported provided a list of trustees, but only 38 (86 percent)
provided trustees’ addresses.
 Of the aggregate 908 trustees1
 Of the 38 hospitals indicating one or more trustees with reportable interests:
these 44 hospitals listed, 38 indicated a total of 178
trustees with reportable interests (20 percent of all trustees).
• 24 hospitals used the HSCRC’s reporting template or provided required data in a
similar manner.
• Less than half (40 percent) of disclosure of interest statements the hospitals
submitted were complete.
 The extent to which there may be conflicts of interest between trustees and the
institutions they govern cannot be assessed solely on the basis of information provided in
trustee disclosure of interest statements; these may, at most, indicate an apparent conflict
of interest that is the hospital board’s responsibility to investigate and, if appropriate, take
action to address.
Further Considerations
Many hospitals in larger systems report contractual arrangements between local hospital boards
and parent corporations in which the parent corporation, along with its board of trustees, holds
“reserved powers.” As a result, many boards of hospitals in larger systems retain limited
authority across several domains of governance. This is certainly not the case across all systems.
In some cases, local hospital boards appear to participate in both monitoring and decision-
making functions.
1 The term “trustee,” when used in the context of trustee disclosure, should be understood to include hospital
officers.

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The Maryland Survey on Nonprofit Hospital Board Governance limited its scope to the practices
of hospital boards, sought no detailed information regarding the practices of hospital and health
system boards and did not collect any information regarding the dynamics between hospital
boards. Therefore, the implications of “reserved powers” agreements for policy makers and
regulatory bodies interested in enhancing public accountability and increasing the community
benefit are arguably not well understood.
Several questions appear immediately relevant to the interests of policy makers, regulators, and
the public interest:
1) Is the composition of system boards, in terms of representation from major stakeholders,
including the community, adequate to ensure transparency in governance?
2) Are there some systems in which the local hospital boards serve in a capacity that is more
advisory in nature relative to the authority exerted at the system level?
3) Even when local hospital boards are limited in their decision making authority because of
system arrangements, are they provided adequate information regarding financial
practices, compensation practices, and financial performance, to monitor the financial
management of the hospital?
4) Are local hospital boards empowered to intervene in a meaningful way, if concerns arise
in these domains?
Further exploration into governance structures of hospital and health systems in Maryland is
recommended.

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Maryland Survey of Nonprofit Hospital Board Governance
Introduction
In September 2009, Delegate Peter Hammen, Chairman of the House Health and Government
Operations Committee, requested the Maryland Health Services Cost Review Commission
(HSCRC) to undertake a study of hospital board governance policies and practices to inform the
General Assembly and the public regarding the stewardship of hospital resources. The
governance areas of concern to Chairman Hammen were board composition, transparency,
conflict of interest, and financial oversight. Chairman Hammen asked the HSCRC to include the
following in this study:
 “Review of existing literature and related informative articles on the principles for good
governance of nonprofit entities
 Identification of best practice standards for nonprofit organizations
 Development of a survey tool to be submitted to each Maryland hospital inquiring about
current board practices and requirements
 Compilation of completed survey tool data and evaluation of Maryland hospital board
governance relative to identified best practice standards
 Examination of all of the HSCRC’s Trustee Disclosure Reports for a given year to
evaluate (a) the extent to which hospitals are complying with the Trustee Disclosure
Requirements of the HSCRC statute; (b) the extent to which there may be conflicts of
interest between trustees and the institutions in which they govern.”
The HSCRC contracted with The Hilltop Institute at the University of Maryland, Baltimore
County (UMBC) to assist in this study. The purpose of this report is to present the results of the
study.
Methods
This study involved three major tasks. First, Hilltop performed a review of the existing literature
to identify recommendations for best practices in hospital governance in the subject areas
requested by Chairman Hammen. This literature review informed the second major task, the
development of a survey instrument on governance practices. The survey was distributed to the
hospitals by the HSCRC after review by the Maryland Hospital Association (MHA). Survey
findings are presented in this report. Finally, Hilltop reviewed the annual trustee disclosure
reports submitted to the HSCRC by Maryland’s nonprofit hospitals in fiscal year (FY) 2008 and
analyzed their content for compliance with statute, regulations, and the template provided by the
HSCRC, as well as for the extent to which there may be conflicts of interest between trustees and
the institutions they govern as board members. The methods for the literature review and survey
are described in more detail below.

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Literature Review
Hilltop reviewed the literature on best practices and principles of good governance for nonprofit
organizations using industry reports, previous studies, journal articles, and state and federal
policies related to the governance of nonprofit organizations. The review emphasized the
governance of nonprofit hospitals and health systems in the subject areas requested by Chairman
Hammen. The literature informed the survey design, and key articles were shared with MHA
before the survey was fielded. The literature review also identified benchmarks from national
studies to use as a comparison to Maryland’s governance practices. A full list of references is
available at the end of the report. A summary of the key literature follows:
 The New Jersey Commission on Rationalizing Healthcare Resources Final Report
(New Jersey Commission on Rationalizing Healthcare Resources, 2008): Under the
governor’s executive order, this report studied the financial conditions of New Jersey’s
hospitals. Chapter 10 of this report outlined recommended best practices and suggestions
for regulatory reform for the governance of New Jersey’s hospitals. This report, in part,
provided the impetus for Chairman Hammen’s request.
 Building an Exceptional Board: Effective Practices for Healthcare Governance:
Report of the Blue Ribbon Panel on Healthcare Governance (Center for Healthcare
Governance, 2007): In 2005, the Health Research and Educational Trust (HRET) and the
Center for Healthcare Governance convened a Blue Ribbon Panel of hospital chief
executives, board members, governance researchers, and other experts to identify best
practices and recommendations for exceptional board governance. This report provides a
summary of these findings, as well as implementation tools to assist boards in adopting
these practices.
 Minority Staff Discussion Draft (Senate Finance Committee, 2004): This draft report
was released by Senate Finance Committee staff and includes recommended practices for
financial oversight of tax-exempt organizations.
 The Attorney General’s Guide for Board Members of Charitable Organizations
(Commonwealth of Massachusetts Office of Attorney General Martha Coakley,
2007): This guide provides recommendations for board members of nonprofit
organizations to ensure that they carry out their responsibilities for the organization’s
charitable mission. The report provides guidance on board member rights and
responsibilities, board composition, executive evaluation and compensation, conflicts of
interest, and financial oversight.
 Strengthening Transparency Governance Accountability of Charitable
Organizations (Panel on the Nonprofit Sector, 2006): This report summarizes the
findings of the Panel on the Nonprofit Sector, which was convened in 2004 to make
recommendations for good governance and ethical conduct for charitable organizations.
Relevant recommendations include transparency and disclosure of information, financial
oversight, and executive compensation.

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 Standards for Excellence: An Ethics and Accountability Code for the Nonprofit
Sector (Maryland Association of Nonprofit Organizations, 2009): This report outlines
54 standards for responsible governance and performance benchmarks for determining
how organizations are fulfilling their charitable obligations. These benchmarks are
centered on guiding principles for eight subject areas, including mission and program,
governing body, conflict of interest, human resources, financial and legal, openness, and
public policy.
 Report on Nonprofit Hospital Systems: Survey on Executive Compensation Policies
and Practices (U.S. Government Accountability Office, 2006): The United States
Government Accountability Office (GAO) surveyed 100 hospitals and health systems on
the methods used to determine executive compensation, the governance structures
surrounding executive compensation, and internal controls over these practices.
Although this report does not provide recommendations, the survey results are used
as benchmarks for comparison with Maryland’s hospitals.
 Hospital Governance: Initial Summary Report of 2005 Survey of CEOS and Board
Chairs (HRET 2005 Survey, Margolin et al., 2006): This report presents the results of
a survey of 4,865 CEOs of nonfederal acute care community hospitals on the structure
and operations of the hospital board, including governance, board composition,
committees, board management, board relationships, operations, and accountability. The
survey results are used as benchmarks for comparison with Maryland’s hospitals.
 The Governance Institute’s 2009 Biennial Survey of Hospitals and Healthcare
Systems: Governance Structure and Practices: Results, Analysis, and Evaluation
(The Governance Institute, 2009): This report presents the results of a survey of 4,250
hospitals and health care systems on governance structure (board composition, committee
structure, and board meeting time) and governance practices. The report measures the
adoption of best practices selected for each survey fielding, and, in 2009, these practices
were related to compliance, financial oversight, duties of care and loyalty, board self-
assessment/development, and advocacy. The survey results are used as benchmarks
for comparison with Maryland’s hospitals.
 Governance in Nonprofit Community Health Systems: An Initial Report on CEO
Perspectives (Prybil et al., 2008): This study presents the results of a survey of 201
community health systems regarding the structures, practices, and cultures of nonprofit,
nongovernmental community health system governing boards and compares them with
selected benchmarks of good governance. The survey results are used as benchmarks
for comparison with Maryland’s hospitals.
 Governance in High-Performing Community Health Systems: A Report on CEO
and Trustee Views (Prybil et al., 2009): This report is a follow-up to the 2008 report
described above. In addition to presenting the survey results, this report compares
governance practices with the health systems’ operating performance. The survey results
are used as benchmarks for comparison with Maryland’s hospitals.

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Overview of Survey Methods
The survey instrument was developed in November and December 2009 and was derived from
existing surveys of hospital and health system governance practices. In some cases where no
existing survey had inquired about current practice related to a recommendation, survey
questions were designed to directly compare to specific recommendations identified in the
literature. A senior member from MHA reviewed the survey instrument, provided written
comments, and participated in a 90-minute meeting to discuss these written comments. Many of
MHA’s comments were incorporated. The survey asked respondents to address the governance
policies and practices of the hospital’s board. It did not address the governance policies and
practices of the board of a parent company or health system. In cases where the parent or system
board met an oversight responsibility on behalf of the hospitals, the survey solicited information
regarding the authority of the hospital board, not the system board. The details of governance
practices and board composition of the parent or system board were not collected. In short, the
scope of the survey did not obtain complete information about the governance practices of
system boards. Further understanding of system-level practices is material to understanding the
governance of nonprofit hospitals that belong to systems.
The survey questions addressed board composition, transparency, conflict of interest policies,
self-governance functions, financial oversight, executive compensation, and community benefits.
The survey instrument is included in Appendix I of this report.
The 2009 Maryland Survey of Hospital Governance was fielded to the CEO of each of the 44
nonprofit acute care hospitals in Maryland and one quasi-governmental entity, Garrett County
Memorial Hospital Center. Southern Maryland Hospital Center is a for-profit hospital and was
not asked to participate in the survey. The survey was distributed in December 2009 via emailed
electronic documents by HSCRC staff. The HSCRC conducted follow-up with several hospitals
for clarification on relationships between the hospitals and their parent companies/health
systems. All hospitals completed the survey and responded to follow-up questions.
Hospital System Characteristics and Classification Method
Appendix II provides a complete list of hospitals responding to the survey and their system
characteristics. Two changes to hospital structures occurred in 2009. Braddock and Cumberland
hospitals merged to become a single hospital, Western Maryland Health System. Previously a
multi-hospital system, this entity is now a sole-hospital system with one governing board.
Western Maryland is classified as an independent hospital. The University of Maryland Medical
System (UMMS) merged with the Upper Chesapeake Health System, which includes Harford
Memorial and Upper Chesapeake Medical Center. These hospitals are therefore shown in
Appendix I as part of the UMMS system.
Thirty-five acute care hospitals in Maryland belong to a larger system with a separate parent
board. The relationship between governing boards varies based on the type of system. Systems
can be characterized as multi-hospital systems or sole-hospital systems. Twenty-nine hospitals in
Maryland are members of a multi-hospital system. Moreover, hospitals may belong to a system

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headquartered in Maryland, or a system with out-of-state system headquarters. Three hospitals
are the only in-state member of their system with headquarters out-of-state. Finally, the system
may have a parent or corporate board that is a separate entity from the hospital board, meaning
that the parent board is composed of a separate group of individuals than the hospital board
membership. This is predominantly the case. Five hospitals reported membership in a larger
health system, but also indicated that the parent board is composed of the same individuals that
comprise the local hospital board. In these cases, the hospital is the dominant entity. For the
purposes of this analysis, hospitals with this structure were classified as independent hospitals
rather than as part of a system. They are listed under “Health Systems” in Appendix II.
System membership affected responses to several survey topics. Most member hospitals that are
part of larger systems, led by a parent corporation, explained that the system or parent
corporation board holds certain “reserved powers.”In general, reserve powers refer to powers
that otherwise would be exercised by the hospital board (also referred to as the “local” board).
Powers that a system board reserves to itself typically include, for example: approval of major
transactions, large capital expenditures, or changes to the affiliated hospital’s corporate bylaws
(Bader et al., 2007).
Member hospitals did not systematically elaborate on the details of the scope of authority
reserved by their parent corporations, and among those that did, explanations varied widely.
Respondents commonly indicated that parent corporations reserved powers in the area of
executive compensation and audit oversight. Some additional examples are provided below:
“[Parent corporation] serves as the sole member [comparable to a shareholder of a
for-profit corporation] of [the local hospital] corporation and… has reserved
certain powers to itself...[including] appointment of members of [the local
hospital’s] board of directors; appointment and retention of the President;
approval of operating and capital budgets; borrowing and issuance of debt
instruments; management and investment of assets; approval of [local hospital]
strategic and operating plans; review and approval of executive compensation
plans; appointment and retention of independent auditors; oversight of internal
audit and compliance functions; and review and approval of ‘significant
transactions’ (e.g., mergers, acquisitions, dissolution).”
* * *
“The parent company, [name], maintains some system level oversight over most
governance functions, but most decisions are made locally.”
* * *
“Because of the allocation of responsibilities between the [local] Hospital and its
parent organization, the survey seems unlikely to provide a complete and accurate
picture of the way in which the Hospital’s activities are overseen. The Hospital’s
parent organization has a robust governance process, and … many important

11
governance functions are performed by the Board of Directors and Board-level
committees of the parent organization.”
According to research conducted by the Center for Healthcare Governance (2007), hospitals that
are members of a system will operate within a “hierarchical governance” structure, in which
multiple boards relate. Parent boards are likely to oversee and coordinate functions of member
boards (Center for Healthcare Governance, 2007). Typically, certain authorities may be
centralized at the parent or system level, whereas other aspects of decision making are
decentralized to the members. This hierarchical oversight structure recognizes that standards
(such as quality policy) and goals (such as strategic plans and certain performance targets) are
best established at the system level.
The shared oversight responsibilities established within these hierarchical governing structures
has implications for interpreting the Maryland survey results. One of the primary concerns of
Chairman Hammen was financial oversight, which is typically a shared responsibility between
the system board and its local hospital member boards. Local hospital boards reported almost
unanimously that parent boards determined audit oversight practices and executive compensation
practices. In these sections of the report, survey results reflect the practices of the local boards
and not parent boards. Where the survey solicited information about the role of the parent board,
these results are incorporated. A complete picture of governance practices that impact local
hospitals requires that additional information be collected from parent companies and parent
boards regarding their governance practices.
One hospital has a unique governance structure that affects its classification. This hospital
reported that the governance structure of its sole hospital health system included a local hospital
board, a parent board composed of the same individuals, and a separate corporate board. This
structure is unique to the health systems present in Maryland. This hospital was classified as a
system member because it has a corporate board separate from the hospital board.
Based on this understanding of board governance structures, the analysis classified hospitals into
the following categories based on system board structure: (1) independent hospitals (n=15), (2)
member hospitals (n=30), and (3) all hospitals (n=45).
The “member” category includes all hospitals reporting ownership by a parent company or
health system that also indicated existence of a separate parent board composed of different
individuals than the individuals comprising the hospital board (n=30). The “independent”
category includes hospitals not reporting system ownership (n=10). In addition, this category
includes hospitals that indicated belonging to a larger health system in which the parent board
was composed of the same individuals as the hospital board (n=5).
Report Structure
This report is divided into five chapters. The first four chapters present the results of the
Maryland Survey of Hospital Governance. Chapter I discusses board size, composition,
committee structure, terms of service for board members, and member recruitment. Chapter II

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discusses public transparency, primarily public access to pertinent governance documents.
Chapter III discusses conflict of interest polices. Chapter IV includes the following governance
practices: financial, executive compensation, quality, community benefits, and self-governance.
Each section includes a brief review of the literature, recommendations from the literature, and
industry-selected best practices. This is followed by presentation of Maryland survey results,
and, finally, a listing of national benchmarks. The final chapter describes some governance
issues for further considerations. The results of the trustee disclosure report analysis are included
in Appendix III of this report.

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Chapter I. Governance Structure: Board Size, Composition, and Committee
Structure
“All boards should consider enriching their membership with greater racial and gender
diversity; they also should consider the appointment of highly-respected and experienced
nursing leaders as voting members of the board to complement physician members and
strengthen clinical input in board deliberations (Prybil et al., 2009, p. 41).”
“The composition of hospital boards helps ensure that the hospital is responsive and
accountable to the community. Hospital boards should ensure that they are representative of key
stakeholders complemented by adequate technical expertise in key areas of oversight. (New
Jersey Commission on Rationalizing Health Care Resources, 2008, p. 150).”
Board Size and Composition
Hospital boards face challenges in trying to balance board size, diversity in membership,
representation from core constituents, inclusion of members with core areas of expertise, and
members free of conflicts of interest. Different sized hospitals (e.g., based on operating revenue
or number of beds) may require different-sized boards. Although there has been a trend toward
decreased board size (Prybil et al., 2008), the size of a board should be evaluated in relation to its
composition and other board bylaws and practices.
Public accountability is facilitated through the inclusion of members who represent key
community constituents, such as local minority/ethnic and immigrant communities, women, and
community members generally. Constituent representation and diversity in membership should
be balanced by the inclusion of key hospital stakeholders (e.g., officials and staff), board
members with core expertise in oversight responsibilities, and independent membership. Core
areas of expertise identified by industry experts include health care quality and delivery,
financial, and legal expertise (Center for Healthcare Governance, 2007). Not all constituents can
be served through direct representation on the board, so boards must have a process to prioritize
stakeholder interests.
In health care systems, board composition at the level of the parent company is geared to serve
system-wide strategies. In contrast, representation of stakeholders and constituents is perceived
as a priority for member boards at the local level (Center for Healthcare Governance, 2007).
Recommendations and Best Practices
Recommendations for best practices related to board size and composition, as found in the
literature, include the following:
 Voting membership should be between 9 and 17 members (Center for Healthcare
Governance, 2007).

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 Representation from physicians and nurses that can represent the broader medical staff
community and advance the hospital’s mission is encouraged (Center for Healthcare
Governance, 2007).
 Representation from nursing staff is encouraged to counterbalance other hospital
stakeholders often represented (e.g., physicians) (New Jersey Commission on
Rationalizing Health Care Resources, 2008).
 Nursing representation is not recognized as a benchmark of good governance, but “given
the importance of nursing in the provision of patient care,” increased engagement of
nurses on boards is anticipated in the future (Prybil et al. 2009, p. 8).
 Good governance is supported by substantial gender diversity (at least 21 percent) and
substantial racial diversity (at least 9 percent) in board composition (Prybil et al., 2009).
Maryland Survey Results
The Maryland survey found the following:
 Forty-nine percent of hospital boards are composed of a voting membership between 9
and 17 members, including vacancies. Boards of member hospitals tend to be larger than
boards of independent hospitals. Board sizes range from 9 to 44 (see Table 1).
 The number of physicians on the board ranges from 0 to 6 physicians (2.9 on average),
not including the medical staff president, who is also typically a voting member (see
Table 1). Thirty-one boards include at least three physicians. These are virtually all
physicians without hospital privileges.
 Most hospital boards (69 percent) have no nurse representation (see Table 2).
 Boards tend to be dominated by members representing the community (i.e., general
public), who comprise 72 percent of voting board membership, on average (see Table 2).
Sixty percent of boards include 11 or more community leaders (see Table 2).
 On average, Maryland boards include four female members. Sixty percent of boards
include at least four female members (See Table 2).
 On average, Maryland boards include two leaders representing local ethnic or minority
communities (these members might also be women) (See Table 2).
 Thirty-three Maryland hospitals (73 percent) reported that board membership included
members with three core areas of expertise, including 7 independent hospitals and 24
member hospitals (See Table 3).

15
Table 1. Maryland: Total Number of Voting Board Members, Including Vacancies
Number of Voting Board
Members, Including
Vacancies
Maryland Survey
All Hospitals
(N=45)
Independent
Hospitals
(N=15)
Member
Hospitals
(N=30)
N (%)
N
N
1 to 8
0
0
0
9 to 17
22 (49%)
9
13
More than 17
23 (51%)
6
17
Average
18
15.9
19.1
Range (Min. to Max.)
9-44
9-24
11-44
Table 2. Maryland: Composition of Voting Board Membership
Composition of Voting Board
Membership
Maryland Survey
All
Hospitals
(N=45)
Independent
Hospitals
(N=15)
Member
Hospitals
(N=30)
Physicians1
Average
2.9
2.4
3.1
Range
0-6
0-5
0-6
Average percentage of all members2
17%
15%
18%
Nurses (staff and other)
Average
0.4
0.3
0.4
Range
0-3
0-1
0-3
Average percentage of all members
2%
2%
2%
Community members/leaders
Average
12.5
10.3
13.6
Range
2-41
2-15
4-41
Average percentage of all members
72%
70%
72%
Local minority/ethnic leaders
Average
2.1
1.3
2.5
Range
0-10
0-10
0-7
Average percentage of all members
13%
10%
15%
Females
Average
4.2
4.2
4.1
Range
0-11
1-9
0-11
Average percent of all members
24%
28%
22%
1 Includes physicians with or without admission privileges. Excludes Chief Medical Officer and Medical Staff President.
2 Calculated as the average percentage of all voting members.

16
Table 3. Maryland: Inclusion of Members with Core Areas of Expertise
Core Areas of Expertise
Maryland Survey
All
Hospitals
(N=45)
Independent
Hospitals
(N=15)
Member
Hospitals
(N=30)
N (%)
N
N
Board currently retains members with the
following expertise:
Health care quality and delivery
44 (98%)
14
30
Legal
35 (78%)
11
24
Health care financial and accounting
43 (96%)
13
30
If no financial expertise (n=2):
2
Board contracts with an independent
financial advisor 2 (100%) 2
National Benchmarks
National benchmarks related to board size and composition include the following:
 Eleven percent of nonprofit hospital boards had fewer than 6 members, and 11 percent
had 21 or more board members, with an average of 13 members ( HRET 2005 Survey,
Margolin et al., 2006). No benchmark survey provided data on the percentage of boards
that met the recommended size of 9 to 17 members.
 Independent hospitals and member hospitals, respectively, reported an average of 14.4
and 14.5 voting board members (including vacant positions). Larger hospitals reported
larger boards (The Governance Institute 2009 Biennial Survey, 2009).
 Physicians comprise about 20 percent of hospital board membership nationally (Prybil et
al., 2008).
 Less than 3 percent of boards nationally (independent and systems) have nursing
representation (Prybil et al, 2008).
 Female board members comprised on average 23 percent of nonprofit hospital board
membership nationally, including vacancies (HRET Survey 2005 Survey, Margolin et al.,
2006).
 On average, member boards had 4 female and 1 ethnic minority voting members, and
independent boards had 3 female and 1 ethnic minority voting members (The Governance
Institute 2009 Biennial Survey, 2009).
 High-performing system boards include a substantially higher proportion of women (30
percent) compared with low-performing boards (14 percent) (Prybil et al., 2009).

17
Board Member Recruitment
Some hospitals may find it challenging to secure competent membership that balances all of
these interests—size, expertise, representation, and independence—on an ongoing basis. The
challenge may be even greater in rural areas or for hospitals that are in financial distress. Small
boards may have more difficulty meeting composition standards that support good governance
and public accountability: representation of core stakeholders, retention of core expertise, and a
sufficiently independent membership. Such limitations could be offset by other board practices,
such as the retention of expert consultants.
Recommendations and Best Practices
Recommendations for best practices in board member recruitment, as found in the literature,
include the following:
 Conduct a stakeholder analysis to identify emerging stakeholders and provide clarity and
focus to the board’s priorities (Center for Healthcare Governance, 2007).
 Adopt written criteria specifying areas of knowledge, skills, and perspectives needed on
the board, and then use these criteria when recruiting and re-electing board members (The
Governance Institute, 2009).
 “Publish a notice of board membership openings at a time and in a manner calculated
to generate meaningful community input (e.g., local newspapers, hospital website,
and other forms of outreach that would be expected to reach target representational
constituency). The notice should identify the target representational constituency
and/or expertise category, as relevant, that the board seeks to satisfy with the noticed
appointment (New Jersey Commission on Rationalizing Health Care Resources,
2008, p.154).”
Maryland Survey Results
The Maryland survey found the following:
 Overall, 12 of 45 Maryland hospitals reported difficulty in recruiting members to their
respective boards.
 Of the 12 citing difficulties, 8 cited difficulties recruiting minority members, and 3 said
they were unable to find qualified community representatives. Two hospitals reported a
need for qualified members in quality control, legal, or banking. Two hospitals reported
either rural location or general instability as factors in recruitment difficulty.
The Maryland survey asked about the publication of notices of board membership openings (1)
on the hospital website and (2) in other public media, such as local newspapers, hospital
publications, or other forms of outreach expected to broadly reach target representational
constituencies. The Maryland survey found the following:

18
 Only six hospitals (13 percent) published a notice of board membership openings through
public media other than the hospital website. None of the boards used its website to
recruit new members.
 A very small number of hospitals conducted other forms of targeted outreach.
 Of the 12 boards citing difficulty recruiting members, only 2 used public media to
publish notices of board membership openings.
Terms of Service
How terms of service are established and limited may influence board culture broadly. Bylaws
that do not establish terms of service may give the CEO or board chair too much influence over
the board composition. Term limits reinforce the integrity of the full board, rather than place
individual members in charge (Center for Healthcare Governance, 2007). An absence of
staggered terms may undermine board continuity (New Jersey Commission on Rationalizing
Healthcare Resources, 2008). Although hospitals may face external constraints that make it
difficult to meet compositional standards for good governance, standards related to terms of
service and continuity can be met by any hospital.
Maryland Survey Results
The Maryland Survey found the following:
 Most Maryland boards (93 percent) stagger the terms of board members.
 All Maryland board members are limited to a fixed term.
 The majority of board member terms (78 percent) are limited to three consecutive terms
of three years each.
Table 4. Maryland: Board Member Terms of Service
Terms of Service
Maryland Survey
All Hospitals
(N=45)
Independent
Hospitals
(N=15)
Member
Hospitals
(N=30)
N (%)
N
N
Terms of board members are
staggered
42 (93%)
15
27
Board members are limited to
a fixed term 45 (100%) 15 30
Terms are limited to 3
consecutive terms of 3 years 35 (78%) 11 24

19
National Benchmarks
National benchmarks related to board terms of service include the following:
 Eighty-five percent of nonprofit hospital boards limited board members (other than board
officers) to a fixed length, and 67 percent limited the number of consecutive terms
(HRET 2005 Survey, Margolin et al., 2006).
 Ninety-two percent and 94 percent of independent and member boards, respectively, have
defined terms for the length of elected service (The Governance Institute 2009 Biennial
Survey, 2009). The median length of term was 3 years for both board types (The
Governance Institute 2009 Biennial Survey, 2009).
 Approximately 65 percent and 77 percent of independent and member boards,
respectively, have bylaws that limit the maximum number of consecutive terms (The
Governance Institute 2009 Biennial Survey, 2009).
Standing Committees
There is consensus in the literature that boards should have standing committees for specific
governance functions, such as finance and audit (Center for Healthcare Governance, 2007; The
Governance Institute, 2009; Prybil et al., 2008; Prybil et al., 2009).
Recommendations and Best Practices
Recommendations for best practices in board committee structure, as found in the literature,
include the following:
 Boards should have standing board committees with clear oversight responsibility for the
following functions: external audit, internal audit, executive compensation, board
education and development functions, community benefit programs, and patient care
quality and safety (Prybil et al., 2008).
 Standing committee responsibilities should be clearly defined in a written document
(Center for Healthcare Governance, 2007).
 Each standing committee should have a charge, annual objectives, an annual work plan,
and a mechanism for evaluating its performance (Center for Healthcare Governance,
2007).
Maryland Survey Results
The Maryland survey inquired generally regarding whether or not boards have standing
committees with clearly defined responsibilities and, more specifically, about committee
functions. The Maryland survey found the following:
 Nearly all boards (93 percent) have clearly defined, written responsibilities for standing
committees.

20
 The five most frequently reported board committees are quality assurance/improvement
(96 percent), patient safety (91 percent), executive (76 percent), finance/budget (76
percent), and ethics/compliance (71 percent).
 The least frequently reported board committee is community benefit (40 percent).

21
Table 5. Maryland: Board Committee Structure
Maryland Survey
All Hospitals
(N=45)
Independent
Hospitals
(N=15)
Member
Hospitals
(N=30)
N (%)
N
N
Standing committees have clearly defined
responsibilities that are spelled out in a written
document (i.e., charter) that has been approved by
the board
42 (93%) 15 27
Board has a standing committee with clear
oversight responsibility for the governance
function
Executive
34 (76%)
10
24
Finance/budget
34 (76%)
15
19
External audit 27 (60%) 15 12
Internal audit
23 (51%)
12
11
Strategic planning 28 (62%) 10 18
Executive compensation
23 (51%)
14
9
Patient safety 41 (91%) 13 28
Quality assurance/quality improvement 43 (96%) 14 29
Ethics or compliance 32 (71%) 14 18
Community benefits program
18 (40%)
8
10
Board governance (i.e., self-governance) 28 (62%) 12 16
Board education and development
24 (53%)
10
14
National Benchmarks
National benchmarks related to committee structure include the following:
 Frequently reported committees in the 2005 HRET Survey include finance/budget (75
percent), executive (72 percent), and quality assurance (59 percent) (Margolin et al.,
2006).

22
 The 2009 Biennial Survey found that 78 percent of independent hospitals and 83 percent
of member hospitals have standing committees for quality assurance (The Governance
Institute, 2009).
 Eighty-three percent and 76 percent of independent and member boards, respectively, had
an executive committee in the 2009 Biennial Survey (The Governance Institute, 2009).
 Only 10 percent of independent and 23 percent of member hospitals had standing
committees for community benefits in the 2009 Biennial Survey (The Governance
Institute, 2009).
Summary
In many respects, the composition of most nonprofit hospital boards in Maryland tends to be in
line with national trends and best practices. Areas where Maryland hospitals are aligned with
national trends and best practices include board size, physician representation, and recruitment of
board members with core areas of expertise, such as health care quality and financing. Both
independent and member hospitals significantly surpass national practices in some areas.
Maryland boards tend to be weighted more heavily with racial/ethnic minority community
leaders and female voting membership; and exceed national benchmarks in terms of service
practice. As could be expected given the wide variation in corporate structures across hospitals in
Maryland, there is also considerable variation in the number and choice of board committees in
Maryland. However, Maryland hospitals exceed national benchmarks by almost universally
establishing committees overseeing quality assurance or quality improvement and patient safety,
and establishing committees overseeing community benefits at a far higher rate (40 percent of
Maryland boards have community benefit committees compared with 10 to 23 percent of boards
nationally).
Survey results raise two outstanding questions. The literature review did not find consensus
regarding the role nurses should play in board governance. On the one hand, several sources
strongly recommended representation by nurses on hospital boards, acknowledging nurses as a
key constituency, a resource for quality oversight, and as a counterbalance to physician interests.
On the other hand, industry sources did not identify nursing representation as a best practice, and
few hospitals nationally appear to include nurses as board members. Maryland hospitals fall in
line with these national practices. The outstanding question is whether or not an enhanced role of
nurses in board governance could enhance quality oversight or provide other advantages in board
governance.
Finally, twelve hospitals reported difficulty in recruiting candidates for board membership with
certain desirable qualities or qualifications, although the types of candidates sought varied.
Maintaining a board composed of qualified members and representing diverse stakeholder
groups may be particularly challenging for hospitals in rural areas or hospitals facing chronic
financial distress or instability. Given the limited outreach many hospitals in Maryland appear to
engage in, enhanced public awareness campaigns in targeted communities or assistance with
targeted outreach by the HSCRC might improve the pool of qualified candidates seeking board
member service.

23
Chapter II. Transparency
“Transparency helps ensure community accountability. Hospital boards should maximize
transparency of financial performance data and measures of clinical quality (New Jersey
Commission on Rationalizing Health Care Resources, 2008, p.22).”
Openness is one of eight guiding principles promoted by the Maryland Association of Nonprofit
Organizations (Maryland Association of Nonprofit Organizations, 2009). As this association
indicates in its preamble, although nonprofits may be private corporations, they operate for
“public purposes with public support” (Maryland Association of Nonprofit Organizations, 2009,
p.8). Generally, a nonprofit should be “accessible and responsive to members of the public who
express interest in the affairs of the organization” (Maryland Association of Nonprofit
Organizations, 2009).
The principle of transparency has been interpreted more broadly by the New Jersey Commission
on Rationalizing Health Care Resources as openness between multiple agents of the
organization: between management and the board, board committees and the entire board, and
between the hospital and community (2008). Within the board, transparency involves
committees reporting decisions and recommendations to the full board. Between the board and
the community, it involves activities such as the consideration of confidentiality provisions in
bylaws, sufficient notice of closure or financial stability, and public accessibility of information
through hospital websites and public information offices (New Jersey Commission on
Rationalizing Health Care Resources, 2008). Similarly, the Massachusetts Attorney General
notes the importance of transparency within the board because board members need access to
appropriate information in order to carry out their duties (Office of Attorney General Martha
Coakley, 2007).
The principle of transparency is more than documenting organizational performance to the
public. It is about the commitment to earning and maintaining the public’s trust in the institution
generally. According to the Blue Ribbon Panel on Health Care Governance, this commitment is
demonstrated through “understanding traditional and emerging stakeholders and constituents,”
and “promoting transparency in reporting to stakeholders about the organization’s performance”
(Center for Health Care Governance, 2007, p.12).”
Recommendations and National Benchmarks
Transparency has not recently been selected by national surveys as a focus. Industry sources
provided virtually no benchmarks in this area. The following is one available benchmark on the
subject:
 Forty-three percent of independent boards and 55 percent of member boards (48 percent
of system boards) reported adoption of a policy that requires reporting of quality/safety
performance to the general public (The Governance Institute Biennial 2009 Survey,
2009).

24
 Several sources recommend that nonprofits should also make available to the public:
• A mission statement; articles of incorporation; lists of board members, their terms,
and biographies; bylaws; three most recent U.S. Internal Revenue Service (IRS) form
990s and annual reports; management compensation; and conflict of interest policies
(New Jersey Commission on Rationalizing Health Care Resources, 2008).
• Information about the organization’s “mission, program activities, and finances”
(Maryland Association of Nonprofit Organizations, 2009).
• Tax-exemption application, annual tax return (must be available for 3 years after the
due date in the return), and all schedules, attachments, and supporting documents
associated with the tax return made available for public inspection and copying upon
request (IRS, 2009).
• Financial reports to stakeholders such as rating agencies, medical staff, and
department heads, as well as an account of the level of community benefits provided,
clinical quality reports, patient safety outcomes, and patient satisfaction surveys to the
public (Center for Healthcare Governance, 2007).
Maryland Survey Results
The Maryland survey provided a list of 20 documents and asked each hospital to indicate
whether it makes each document available to the public, either through the hospital website or
through the public information office upon request (Table 6).
The Maryland survey found the following:
 Documents most commonly made available on hospital websites were the names of board
members, clinical quality measures (other than patient safety), and the level of
community benefits the organization provided in the most recent year.
 Most hospitals made most of the 20 documents available at least through the public
information office upon request.
 Virtually all hospitals made available the articles of incorporation and mission statement,
the three most recent IRS 990 forms, the hospital’s financial assistance and/or debt
collection policies for under-and uninsured patients, and the level of community benefits
through at least one venue.
 The documents hospitals were least likely to make available were the audit letters of IRS
Form 990 and the hospital’s charge master.

25
Table 6. Maryland: Documents Made Available to the Public
Document or Information
Maryland Survey
All Maryland Hospitals
(N=45)
Document is Available Through
Website
Public
Information
Office
At least one
of these
N (%)
N (%)
N (%)
Articles of incorporation, including
corporate mission statement
7 (16%)
37 (82%)
40 (89%)
Names of members of the Board
22 (49%)
31 (69%)
40 (89%)
Board member terms in office
1 (2%)
30 (67%)
31 (69%)
Brief biography of each board member
2 (4%)
28 (62%)
29 (65%)
Board bylaws
0 (0%)
30 (67%)
30 (67%)
Medical staff bylaws
3 (7%)
27 (60%)
28 (62%)
Most recent IRS Form 990
1 (2%)
42 (93%)
43 (96%)
Three most recent IRS Forms 990
0 (0%)
43 (96%)
43 (96%)
Audits of IRS Form 990
0 (0%)
20 (44%)
20 (44%)
Both salary and nonsalary compensation of
the top four executives (other than the CEO) 0 (0%) 26 (58%) 26 (58%)
Most recent annual report 15 (33%) 28 (62%) 36 (80%)
Three most recent annual reports
7 (16%)
32 (71%)
33 (73%)
Board’s conflict of interest policy
2 (4%)
33 (73%)
33 (73%)
Strategic plans (board approved)
9 (20%)
20 (44%)
25 (56%)
Hospital’s charge master
0 (0%)
15 (33%)
15 (33%)
Hospital’s financial assistance and debt
collection policies
17 (38%)
37 (82%)
44 (98%)
Any patient safety measures (i.e.,
medication errors) 16 (36%) 18 (40%) 26 (58%)
Any clinical quality measures (not patient
safety)
20 (44%)
19 (42%)
31 (69%)
Level of community benefits the organization
provided in the most recent year
20 (44%)
34 (76%)
43 (96%)
Identity and location of out-of-state corporate
parents (relevant for three hospitals)
3 (7%)
0 (0%)
3 (7%)

26
Summary
Based on the availability to the public of 20 key hospital documents, it appears that Maryland
hospitals maintain a level of transparency in line with the principle of openness promoted by the
Maryland Association of Nonprofit Organizations. Maryland hospitals appear to make available
quality/patient safety measures at rates comparable to the related national benchmark regarding
adoption of policies requiring public disclosure of these measures. However, Maryland hospitals
rely heavily on disclosure through public information offices, rather than through hospital
websites. This strategy requires that interested persons have a basic level of knowledge regarding
the documents they seek in order to make a request for information, and thus may limit access to
members of the general public. Websites provide a venue that is searchable, and therefore is
logically a more accessible venue for public disclosure than public information offices. Because
there is no benchmark data on the content of hospital websites nationally, we do not know how
Maryland hospitals compare with national trends in this respect.

27
Chapter III: Conflict of Interest Policy
"Conflicts of interest among nonprofit insiders have led to substantial litigation, embarrassment,
and statutory reform for nonprofit boards. Every external agency—public and private—having
authority over nonprofit organizations has expressed concern about the effects of conflicts and
dualities of interest, especially in healthcare (Bryant et al., 2007, p.7). “
The IRS defines a conflict of interest as a situation in which “a person in a position of authority
over an organization, such as a director, officer, or manager, may benefit personally from a
decision he or she could make (IRS Form 10232
Structural elements also may create an opportunity for hospital directors or officers to have
undue influence on board activities and decisions. Boards have to balance the demands for
expertise and leadership with sufficient representation from persons free of conflicts of interest.
Finally, positioning the hospital CEO as the board chair and voting member of the board may
create an opportunity for undue influence by the CEO, and typically among charitable, nonprofit
organizations, the CEO and board chair are separate positions (Prybil et al., 2009).
Instructions, 2009, p. 9).” Although adopting a
conflict of interest policy is not required by the IRS, it does recommend that nonprofit
organizations adopt such policies to protect the organization from “impropriety involving
officers, directors, or trustees” (IRS, 2009, no page number). By doing so, the board
demonstrates its intent to fulfill a nonprofit corporation’s duty to the community and helps to
ensure that the tax-exempt organization operates within its charitable mission (IRS, 2009). There
is also consensus in the industry literature that nonprofits should have a written conflict of
interest policy (Bryant et al., 2007; The Governance Institute, 2009; Maryland Association of
Nonprofit Organizations, 2009; New Jersey Commission on Rationalizing Health Care
Resources, 2008).
Recommendations and Best Practices
The literature on best practices recommends that conflict of interest policies include several
common elements:
 Procedures for the disclosure of interest (The Governance Institute, 2009; IRS, 2009;
Maryland Association of Nonprofit Organizations, 2009; Office of Attorney General
Martha Coakley, 2007; Wiehl, 2004)
 Procedures for handling the disclosed interests (The Governance Institute, 2009; IRS,
2009; Maryland Association of Nonprofit Organizations, 2009; Office of Attorney
General Martha Coakley, 2007; Wiehl, 2004)
2 IRS Form 1023 is the Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue
Code.

28
 Procedures for violations of conflict of interest policies (The Governance Institute, 2009;
IRS, 2009)
 Disclosure of all interests (IRS, 2009; Maryland Association of Nonprofit Organizations,
2009; Office of Attorney General Martha Coakley, 2007)
There appears to be near consensus that nonprofit trustees should disclose all interests that may
potentially give rise to an actual conflict of interest or even create a perception that a conflict
exists. Conflicts of interest that should be disclosed do not have to be monetary or involve a
tangible benefit and instead could include situations in which a board member holds positions in
organizations with conflicting goals (Wiehl, 2004). The disclosure of an interest does not
necessarily constitute a conflict of interest, and an acknowledged conflict does not necessarily
require corrective action. Once a potentially conflicting interest is disclosed, noninterested board
members should discuss and vote on how to proceed with the transaction (IRS, 2009; Maryland
Association of Nonprofit Organizations, 2009; Office of Attorney General Martha Coakley,
2007; Wiehl, 2004).
Less often adopted but recommended practices include:
 Adopting disabling guidelines “that define specific criteria for when a director’s material
conflict is so great that the director should no longer serve on the board (The Governance
Institute, 2009, p.30).”
 Adopting a definition of an independent director with measurable standards (The
Governance Institute, 2009).
Maryland Survey Results
Table 7 displays the results of survey questions regarding conflict of interest policies. The
Maryland survey found the following:
 All but one hospital board reported having a written conflict of interest policy.
 Forty-one boards (91 percent) reported including three recommended elements in the
conflict of interest policy: 1) requirements for the disclosures of potential conflicts of
interest, 2) conditions when members must recuse themselves from particular discussions
and voting, and 3) guidance on what may constitute a conflict of interest.
 Three quarters of the boards required disclosure of conflicts of interest to the entire
board, though only half of the boards require that prospective new members be screened
for actual or potential conflicts of interest.

29
Table 7. Maryland: Conflict of Interest Policies
Maryland Survey
Conflict of Interest Policies
All Hospitals
(N=45)
Independent
Hospitals
(N=15)
Member
Hospitals
(N=30)
Board has a written conflict of interest policy
that covers all members of the board 44 (98%) 15 29
Board has a written conflict of interest policy
that covers members of the Executive
Compensation Body
33 (73%)
10
9*
Written conflict of interest policy:
(1) Requires disclosures of potential
conflicts of interest
44 (98%)
15
29
(2) Outlines conditions when members must
recuse themselves from particular
discussions and voting
41 (91%)
13
28
(3) Provides guidance on what may
constitute a conflicting situation 43 (96%) 14 29
(4) Requires at least the annual written
disclosure of all actual and potential
conflicts of interest by each officer
and director
44 (98%)
14
30
(5) Requires that all disclosed conflicts
and/or dualities of interest be
disclosed to the entire board and not
just to the chair, the CEO, and/or
legal counsel
34 (76%)
13
21
(6) Requires that prospective members
first be screened or questioned
regarding actual or potential conflicts
or dualities of interest before being
formally invited to stand for election
to the board
22 (49%)
6
16
* Only nine member hospitals reported having an executive compensation committee. All of these hospitals
reporting having a written conflict of interest policy for this body. The survey did not collect information on the
conflict of interest policies at the parent board level.

30
With respect to the independence of board membership, the Maryland survey found the
following:
 Based on the total voting membership and independent membership reported by
Maryland hospitals, 44 of 45 hospitals reportedly met the standard that at least one fifth
of voting members are independent, based on one industry definition.3
Table 8 presents data on the official capacity of the hospital CEO in relation to the hospital
board. The Maryland survey found the following:
 None of the boards position the CEO as both the board chair and a voting member of the
board, but most boards (80 percent) include the CEO as a voting board member.
Table 8. Maryland: Official Capacity of Hospital CEO to the Hospital Board
Official Capacity of Hospital Chief
Executive Officer (CEO)
on the Hospital Board
Maryland Survey
All Hospitals
(N=45)
Independent
Hospitals
(N=15)
Member
Hospitals
(N=30)
N (%) N N
Voting member and board chair
0 (0%)
0
0
Voting board member
36 (80%)
12
24
Nonvoting board member
7 (16%)
1
6
Not a member of the board
2 (4%)
2
0
National Benchmarks
National benchmarks related to conflict of interest include the following:
 The GAO report found that all hospital systems surveyed reported having a conflict of
interest policy, and this policy also covers members of the executive compensation body
and requires disclosure of potential conflicts (GAO, 2006)
3 Independence of membership was measured in the Maryland survey using the 2007 definition by the Panel on the
Nonprofit Sector: “Independent members should not (1) be compensated by the organization as employees or
independent contractors, (2) have their compensation determined by individuals who are compensated by the
organization, (3) receive, directly or indirectly, material financial benefits from the organization except as a member
of the charitable class served by the organization, and (4) be related to anyone described (as a spouse, sibling,
parent, or child) or reside with any person so described” (Panel on the Nonprofit Sector, 2007, p. 23)

31
 The GAO report found that almost all conflict of interest policies included the three core
provisions discussed above (GAO, 2006).
 The 2009 Biennial Survey found that 50 percent and 73 percent of independent and
member hospitals, respectively, position the CEO as a voting board member. The survey
did not ask about chairmanship (The Governance Institute, 2009).
 The HRET 2005 Survey found few nonprofit hospital boards that positioned the CEO as
the chair, president, or vice chair of the board (6 percent). Instead, boards predominantly
positioned the CEO as a full voting member (45 percent) and not a board officer
(Margolin et al., 2006).
Summary
Maryland hospital boards meet or exceed most national benchmarks measured in the Maryland
survey pertaining to conflict of interest policies. All but one hospital reported having a written
conflict of interest policy, and more than 90 percent of board policies contained three key
provisions, a finding that is comparable to the findings from the GAO survey. No Maryland
board positions the CEO as the board chair and a voting board member, a very rare practice
nationally as well. All but one hospital reported that at least one-fifth of the board membership
was independent, or free of conflicts of interest, based on one industry definition applied in the
Maryland survey from the Panel on the Nonprofit Sector.
This examination of conflict of interest policies did not examine other provisions that are
considered important by industry leaders, including adoption of a “disabling” guideline that
specifies when a conflict of interest is so great that severance from board service is warranted.
As part of the survey fielding in Maryland, a copy of all conflict of interest policies was
collected. Based on survey responses, it appears that conflict of interest policies are typically
established at the system level for hospitals that are part of multi-hospital systems. Thus, further
examination of policy content is possible.
Finally, it is not known what standard of independence is typically applied by governing boards
in practice. One system commented on behalf of its member hospitals about the difficulty of
meeting certain standards of an “independent director”, citing the “economic realities of current
physician reimbursement in Maryland,” which has expanded the scope of physician contracting
and increased the need for physician collaboration in hospital governance at the same time.
Hospitals face two competing goals as a result: independence of directors and physician
collaboration. Therefore, the definition of independence set forth by the Panel on the Nonprofit
Sector might be less useful than other definitions that acknowledge the specific context of
hospital governance.

32
Chapter IV: Governance Policies and Practices
This chapter of the report focuses on governance practices and policies, which refer to the
board’s fiduciary duties of care, loyalty, and obedience, as well as core responsibilities (The
Governance Institute, 2009). The specific governance practices explored in the survey are
financial oversight, executive compensation oversight, quality oversight, community benefit
oversight, and self-governance. The subsequent sections of this chapter address each of these
topics. The first section addresses the board’s leadership role in overseeing the organization’s
finances, including audit oversight. The financial section is followed by a discussion of the
board’s role in determining, evaluating, and monitoring executive compensation, a key aspect of
financial oversight. The quality section involves the board’s responsibility for patient safety and
the quality of care delivered. The community benefits section addresses the board’s
responsibilities for establishing and evaluating the organization’s community benefit program.
The final section discusses self-governance, which refers to policies the board puts in place to
ensure effective functioning of its own activities.
This chapter reflects selected topics of interest to Chairman Hammen and the HSCRC, and
should not be considered an exhaustive discussion of all board governance policies and practices.
Other components of governance practices and policies not addressed in this report include
advocacy efforts with legislators, donors, and other key stakeholders; board member
compensation; and board culture.
Section 1: Financial Oversight
Financial oversight is a key duty of governing boards in both the nonprofit and for-profit sectors.
Many of the recommendations and trends in practice related to financial oversight stem from
scandals in the for-profit and non-profit arenas of corporate governance. Historical analysis of
the collapse of the energy giant Enron pointed to multiple failings by the board of directors,
among them the failure to carefully monitor significant financial transactions, heavy reliance on
management controls and procedures that proved inadequate in hindsight; and failure to request
and review information sufficient to understand financial transactions (Wiehl, 2004).4
Crises in corporate governance have also hit the nonprofit sector. In the case of Alleghany Health
Education and Research Foundation, the failure to adequately oversee and monitor financial
dealings resulted in bankruptcy (Wiehl, 2004). In the cases of Red Cross International and
Washington, D.C. United Way, the impact was crises in public accountability and reputation
more generally (Wiehl, 2004). In the case of Allina Health System, questions arose over
executive compensation practices that were not pursuant to a charitable mission; the board of
directors’ inadequate review of executive compensation; and a lack of independence among
4 William Powers, Jr., Report of Investigation by the Special Investigative Committee of the Board of
Directors of Enron Corp. (Feb. 1, 2002), as summarized by Wiehl (2004).

33
financial consultants (Wiehl, 2004). As a result of these and other nonprofit scandals,
accountability standards for nonprofit entities also have been questioned (Wiehl, 2004).
The federal response to several major for-profit corporate governance scandals involving
publicly traded companies, including Enron, was enactment of the Sarbanes-Oxley Act of 2002
(Wiehl, 2004). Sarbanes-Oxley established sweeping changes in board oversight and
accountability in the for-profit sector, including enhanced auditor oversight, certification of
financial reports, and certain whistle-blower protections. Although this law does not apply to
nonprofit corporations, debates over how best to assure nonprofit sector accountability have been
anchored in the provisions of Sarbanes-Oxley that could be modified to apply to nonprofit
corporations. In addition to a legislative response, the Internal Revenue Service has recently
revised instructions for the IRS Form 990. Form 990 is the required information return for all
tax-exempt nonprofit entities, filed annually.
Industry leaders now encourage boards of health care organizations to adhere to the principles
outlined in the Sarbanes-Oxley Act (Center for Healthcare Governance, 2007), or at a minimum,
to consider which elements of the Sarbanes-Oxley Act are worth pursuing (Bryant et al., 2007).
Experts explain that regardless of specific procedures, the overarching objective of implementing
a voluntary compliance program would be to eliminate the “ability of some individuals to control
information in secret” (Bryant et al. 2007). Generally, provisions recommended by state and
federal initiatives seek to “enhance the independence of governing boards from senior
management; increase board accountability to communities and other key stakeholders; and
reduce conflicts of financial interest between board members and the organization they govern”
(Alexander et al. 2008, P. 200). How an organization interprets compliance and implements
specific procedures and practices may vary based on the organization’s governing structure or
other characteristics.
At the state level, California, Massachusetts, New Hampshire, Maine, Connecticut, and Kansas
have enacted legislation imposing stricter financial reporting requirements on nonprofit
organizations (Baker, 2005). California’s Nonprofit Integrity Act of 2004 appears to be the most
comprehensive of this legislation, imposing numerous board requirements on all charitable
corporations with gross revenues of $2 million or more (Lockyer, 2004). In addition, state
Attorneys General, particularly in Massachusetts and Minnesota, have played a role in
scrutinizing governance practices by nonprofit organizations and setting forth their own set of
recommendations to ensure governance integrity (Office of Attorney General Martha Coakley,
2007; Wiehl, 2004).
Recommendations and Best Practices Related to Voluntary Sarbanes-Oxley Compliance
Voluntary compliance with Sarbanes-Oxley centers on audit oversight, audit committee
structure, the certification of financial statements, and whistle-blower protections.
Recommendations related to voluntary Sarbanes-Oxley compliance, as found in the literature,
include the following:
 An independent auditor must be hired by the board and each such auditor may be retained
only 5 years (Senate Finance Committee, 2004).

34
 The board’s Audit and Compliance Committee should ensure replacement of the
independent auditor at least every 4 years (New Jersey Commission on Rationalizing
Healthcare Resources, 2008).
 All members of the board’s audit committee should be independent (The Center for
Healthcare Governance, 2007).
 The Governance Institute identifies the following as best practices for the board
committee responsible for audit oversight, also recommended by the Senate Finance
Committee:
1) Excludes all members of senior management as voting members
2) Meets independently with the external auditor at least annually
3) Has sole authority to select and replace the external auditor
4) Has sole authority to authorize independent reviews performed by another
party if required. (Governance Institute, 2008; Senate Finance Committee,
2004, P. 12).
 The board, either directly or through its committees, should require that the hospital’s
financial statements be certified annually by both the CEO and CFO (Bryant et al., 2007).
 Boards should establish whistle-blower policies. (IRS, 2009; Senate Finance Committee,
2004). The Governance Institute also recognizes establishment of a whistle-blower policy
as a best practice (The Governance Institute, 2009).
Maryland Survey Results Related to Voluntary Sarbanes-Oxley Compliance
Table 9 below presents findings related to voluntary Sarbanes-Oxley compliance by Maryland
hospitals. Most member hospitals in Maryland (24 of 30) reported that the parent organization
reserves authority for audit oversight functions, thus a complete picture of oversight practice
requires further inquiry. Key findings from the Maryland survey include:
 More than half (56 percent) of Maryland’s boards are responsible for retaining and
replacing the hospital’s independent auditor.
 Only one board requires auditor replacement every five years. (Policies regarding auditor
replacement were collected from all but two member boards on behalf of the system
where necessary).
 All 15 independent hospitals reported having an audit committee. Only 10 of 30 member
hospitals reported having a standing committee that provides audit oversight.
 Of the 25 hospitals that have an audit committee, 14 (56 percent) met all four standards
listed in Table 9, and all but one met at least one standard.
 Fifty-six percent of boards (25) require the hospital’s financial statement to be annually
certified by the CEO and CFO.
 All but one hospital reported that the board has established a whistle-blower policy.

35
Table 9. Maryland: Practices Associated with Voluntary Sarbanes-Oxley Compliance
Voluntary Sarbanes-Oxley Compliance
Maryland Survey
All Hospitals
(N=45)
Independent
Hospitals
(N=15)
Member
Hospitals
(N=30)
Audit Oversight
N (%)
N
N
A. Board is responsible for retaining and
replacing the hospital’s independent auditor
1
25 (56%)
15
10
Board policies regarding the independent
auditor:
(1) Require replacement every 5 years at a
minimum
1 (2%)
1
0
(2) Require replacement less frequently
6 (13%)
0
6
(3) Re-bid required, not replacement
8 (18%)
2
6
(4) No requirement
28 (62%)
12
16
(5) Cannot ascertain; parent has sole
authority
2 (4%)
--
2 (4%)
B. Board has a standing committee with audit
oversight functions.
25 (56%)
15
10
The Audit Committee2:
Among boards with a standing committee
with audit oversight (N=25)
(1) Excludes all members of senior
management (the CEO and other top
four executives) as voting members
20 (80%)
12
8
(2) Meets independently with the external
auditor at least annually
23 (92%)
14
9
(3) Has sole authority to select and replace
the external auditor
18 (40%)
12
6
(4) Has sole authority to authorize
independent reviews performed by
another party (other than the external
auditor) if required
18 (72%)
12
6
Meets all four standards above (1-4)
14 (56%)
9
5
C. Board Certification of Financial Statements
Among all boards (N=45)
Board requires hospital’s financial
statements to be certified annually by both
the CFO and CEO 25 (56%) 11 14
D. Establishment of Whistle-blower Policy
Hospital has established procedures for
employees to report in confidence any
suspected financial impropriety or misuse of
the charity’s resources
44 (98%)
14
30
1 Even though many member hospitals reported that the parent organization reserves authority for audit oversight functions, all
but two hospitals provided information on the system’s practice regarding the replacement of the auditor. Thus, data are provided
for all 45 hospitals, with two not responding.
2 Items regarding the audit committee are restricted to hospitals that reported creation of a standing committee with audit
oversight functions.

36
National Benchmarks Related to Voluntary Sarbanes-Oxley Compliance
National benchmarks related to voluntary Sarbanes-Oxley compliance include the following:
 Eighty-four percent of independent hospital boards and 89 percent of member boards had
a written external audit policy that makes the board responsible for approving the auditor
as well as approving the process for audit oversight (The Governance Institute, 2009
Biennial Survey, 2009).
 Sixty-six percent of independent hospitals and 75 percent of member hospitals had
created a separate audit committee (or committee by another name with audit oversight)
to oversee external and internal audit functions (The Governance Institute 2009 Biennial
Survey, 2009).
 Fifty-three percent of independent hospitals and 57 percent of member hospitals reported
adoption of a policy that specifies that the audit committee must be composed entirely of
independent persons (The Governance Institute 2009 Biennial Survey, 2009).
 Eighty-eight percent of independent hospital boards and 92 percent of member boards
reported having approved a whistle-blower policy specifying certain protections (The
Governance Institute 2009 Biennial Survey, 2009).
Recommendations and Best Practices Related to IRS Form 990 Review and Approval
At this time, the Internal Revenue Service does not require board approval of the Form 990 prior
to filing. Two entities have provided recommendations regarding the board’s role in the review
and approval process:
 The New Jersey Commission on Rationalizing Health Care Resources recommends that
boards review and approve the Form 990 before submission to the IRS (2008).
 The Senate Finance Committee recommends that the Form 990 require that the CEO
declare under penalties of perjury that the CEO has put in place processes and procedures
to ensure that the organization’s federal information return and tax return (including
Form 990T) complies with the Internal Revenue Code (2004).
Maryland Survey Results Related to IRS Form 990 Review and Approval
Maryland’s results related to board review and approval of the IRS Form 990 include the
following:
 All Maryland hospitals reported that they put in place processes and procedures to ensure
that the organization’s federal information return and tax return (including Form 990T)
complies with the Internal Revenue Code (data not shown).
 Twelve hospital boards (27 percent) review and approve the Form 990 before submission
to the IRS, and 36 percent review but do not approve the form. The review and approval

37
of Form 990 may take place at the system level if the hospital is a member of a system.
The survey did not collect information on system level practice.
Table 10. Maryland: Review and Approval of IRS Form 990
Review and Approval of IRS Form 990
Maryland Survey
All Hospitals
(N=45)
Independent
Hospitals
(N=15)
Member
Hospitals
(N=30)
N (%)
N
N
Board reviews but does not approve before
submission
16 (36%)
4
12
Board reviews and approves before submission
12 (27%)
4
8
Provided a copy before submission
6 (14%)
1
5
Provided a copy after submission
9 (20%)
5
4
No response
1 (2%)
0
1
Government entity (does not submit Form 990)
1 (2%)
1
0
Recommendations and Best Practices for Other Financial Oversight Activities
Recommendations related to other financial oversight activities, as found in the literature,
include the following:
 The Senate Finance Committee and the Maryland Association of Nonprofit Organizations
recommend that boards should establish and approve 1) written policies for investment of
the assets of the hospital; 2) internal accounting systems and control procedures; 3)
purchasing practices; and 4) unrestricted current net assets (Senate Finance Committee,
2004; Maryland Association of Nonprofit Organizations, 2009).
 The Senate Finance Committee recommends that boards should review and approve the
following: 1) the auditing and accounting principles and practices used in preparing the
organization’s financial statements; 2) significant investments, joint ventures, and
business transactions; and 3) the organization’s budget and financial objectives (Senate
Finance Committee, 2004, p.12).
 The Massachusetts Office of the Attorney General Martha Coakley recommends that
boards should require review and approval on 1) large and significant grants or contracts;
2) transactions involving real estate; 3) borrowing or sale/disposal of large assets (MA
Office of Attorney General Martha Coakley, 2007).
 New Jersey Commission recommends that boards should review and approve the
findings of the hospital’s annual audit and long-range and annual capital and financial
plans (New Jersey Commission on Rationalizing Health Care Resources, 2008). Full
board approval of the findings of the hospital’s annual audit and management letter is
recommended by the Maryland Association of Nonprofit Organizations (2009).

38
Maryland Survey Results Related to Other Financial Oversight Activities
Table 11 provides a list of financial practices and transactions that the Senate Finance Committee
recommends for board review and approval. The Maryland survey found:
 Half of the boards review or approve all of the financial practices listed in Table 11. Most
of the boards that do not review or approve these practices are members of a larger
system.
Table 11. Maryland: Approval (or Review) of Financial Practices and Transactions
Approval (or Review) of Financial
Practices and Activities
Maryland Survey
All Hospitals
(N=45)
Independent
Hospitals
(N=15)
Member
Hospitals
(N=30)
N (%)
N
N
Board approves the following:
(1) Auditing and accounting principles
and practices used in preparing the
hospital’s financial statements
24 (53%)
11
13
(2) Large or significant grants or
contracts
30 (67%)
12
18
(3) Transactions involving real estate
33 (73%)
14
19
(4) Borrowing or sale/disposal of large
assets
35 (78%)
15
20
(5) Creation of subsidiary entities
31 (69%)
15
16
(6) Joint ventures
30 (67%)
14
16
(7) Organizations’ budget and financial
objectives
35 (78%)
15
20
Approves all of the above 21 (47%)
9
12
Approves some of the above 14 (31%)
6
8
Reviews some of the above 2 (4%)
-
2
Reviews none of the above 8 (18%)
-
8
Table 12 lists four financial policies that the Senate Finance Committee recommends that boards
establish and approve. The Maryland survey found that:
 Across all four policies in Table 12, only 8 hospitals (18 percent) include as board duties
establishing and approving all four policies, while another 29 (64 percent) establish or
approve at least some of the four policies.

39
 Eight (18 percent) hospital boards do not establish or approve any of these policies.
These eight hospitals are all members of larger systems.
Table 12. Maryland: Board Establishment of Written Financial Policies
Board Establishes Written Financial Policies
Governing the Following
Maryland Survey
All Hospitals
(N=45)
Independent
Hospitals
(N=15)
Member
Hospitals
(N=30)
N (%) N N
(1) Investment of the assets of the
hospital 24 (53%) 9 15
(2) Internal accounting systems and
control procedures 21 (47%) 8 13
(3) Purchasing practices
8 (18%)
3
5
(4) Unrestricted current net assets 19 (42%) 8 11
Establish and approve all four above
8 (18%)
3
5
Establish or approve some of the above 29 (64%) 12 17
Do not establish or approve any above
8 (18%)
0
8
* The Maryland survey asked each board whether it established, approved, or did not establish or approve each policy. Where the
board checked “establish” but did not check “approve,” we counted that response as meaning “established and approved.”
Table 13 lists two financial practices that are recommended for full board approval. The
Maryland survey found:
 Fifty-one percent of boards approve the findings of the hospital’s annual audit.
 Sixty-seven percent of boards approve long-range and annual capital and financial plans.
Table 13. Maryland: Full Board Approval of Certain Financial Practices
Full Board Approves the Following
Maryland Survey
All Hospitals
(N=45)
Independent
Hospitals
(N=15)
Member
Hospitals
(N=30)
N (%)
N
N
Findings of the hospital’s annual audit and
management letter 23 (51%) 12 11
Long-range and annual capital and financial
plans
30 (67%)
15
15
Full board approves both
21 (47%)
12
9
Full board approves neither
2(4%)
-
2
Parent company/system approves
11 (24%)
N/A
11

40
National Benchmarks Related to Full Board Approval of Financial Practices
National benchmarks related to full board approval of financial practices include the following:
 The Governance Institute 2009 Biennial Survey found that 100 percent of boards
responding (all types) approved the organization’s capital and financial plans (The
Governance Institute, 2009).
 The HRET 2005 survey found that 95 percent of boards receive routine financial reports
on budget performance and financial statistics, 94 percent receive routine reports on
operating statistics, and 90 percent receive routine reports on capital planning (Margolin
et al., 2006).
Maryland Survey Results Related to Financial Reporting
Table 14 lists four types of financial data that are recommended for routine review by the board
or a standing committee. The Maryland survey found:
 Most Maryland hospital boards (87 percent) receive routine reports related to budget
performance, financial statements, operating statistics, and capital planning, and 82
percent receive all four of these routine reports.(See Table 14).
Table 14. Maryland: Data Routinely Reported to the Full Board or Standing Committee
Data that Are Routinely Reported to the Full
Board or Standing Committee
Maryland Survey
All Hospitals
(N=45)
Independent
Hospitals
(N=15)
Subsidiary
Hospitals
(N=30)
Budget performance 39 (87%) 15 24
Financial statements 39 (87%) 15 24
Operating statistics 39 (87%) 15 24
Capital planning 39 (87%) 15 22
All four types of data reported 37 (82%) 15 22
Some of four reported 8 (18%) 0 8
Summary
Financial oversight is one area of governance where independent hospitals and members of
larger systems tend to diverge in practice. Only two policies are almost universally practiced by
both independent and member hospitals: establishment of whistle-blower policies and routine
reporting to the board of certain financial data, although fewer member hospitals are receiving all
types of financial data compared to independent hospitals. In addition, most hospitals—
independent and member hospitals alike—approve many or all of the financial transactions of
concern to federal and state policy makers, including large and significant grants and contracts,

41
real estate transactions, borrowing or sale of large assets, creation of subsidiary entities, and joint
ventures.
In some other areas, practices diverge. Independent hospitals perform well against some
recommended practices and national benchmarks where they exist, while members of larger
systems engage in the practice very infrequently. All or all but one independent hospital boards:
1) are responsible for retaining and replacing the hospitals’ independent auditor;
2) have created a standing committee with audit oversight;
3) meet independently with the external auditor at least annually;
4) require full board approval of long-range and annual capital and financial plans.
In contrast, no more than half of the system member hospitals engage in these recommended
practices. Where national benchmarks are available — creating an audit committee is one
example—system members in Maryland fall far short of national trends among system members.
Less than half of system members require annual certification of financial statements by the CEO
and CFO, a practice recommended by the Maryland Association of Nonprofit Organizations.
Financial oversight practices by Maryland boards are not aligned with some of the recommended
practices. Practices that are followed by fewer than half of all hospitals—independent and system
member hospitals alike—include:
1) adoption of policies that require replacement of the independent auditor every five years
at a minimum (one hospital meets the practice);
2) review and approval of IRS Form 990 before submission to the IRS (12 hospitals meet
this practice);
3) establish written policies governing the investment of assets, internal accounting systems
and control procedures, purchasing practices, and unrestricted current net assets (8
hospitals establish and approve all four).
The above recommendations from the Senate Finance Committee and the New Jersey
Commission on Rationalizing Health Care Resources have not been tested against national
practices in other surveys, so we do not know how Maryland hospitals perform relative to
national trends.
As previously mentioned, member boards do not typically play a significant role in audit
oversight functions, functions that are cited as a reserve power held by some system boards,
according to hospital feedback. Other member hospitals appear to have substantial audit
oversight authority, so contractual relationships between parent and local boards clearly varies
by system. The full extent of governance practices that affect system member hospitals is not
known, because the scope of the Maryland survey did not examine the specifics of system level
practices. Where survey respondents provided clarification regarding system practices, some
system boards did engage in recommended practices on behalf of member hospitals, thus further
information about system practices would be useful to determine the extent of practice variation.

42
Section 2: Executive Compensation Oversight
“The importance of governance control of executive compensation programs is increasingly
recognized. The level of public interest in executive compensation is growing, and governmental
rules and sanctions have become more demanding” (Prybil et al., 2008, p. 9).
Background
Insufficient board oversight of executive compensation can have major consequences. One
example was the Minnesota Attorney General’s investigation of Allina, a nonprofit organization
formed through the merger of the state’s largest health maintenance organization (HMO) and
numerous health care facilities (Wiehl, 2004). The Attorney General’s investigation found that
the organization had spent millions of dollars on executive benefits that did not further the
organization’s mission, and the board of directors did not adequately review compensation nor
monitor executives’ activities (Wiehl, 2004).
Executive compensation practices have also been scrutinized by Congress and the IRS. In
response to a request from the Chairman of the Congress’s House Ways and Means Committee,
the GAO conducted an extensive survey of executive compensation practices in 2005 and found
that hospitals commonly reported certain policies: having committee or full-board responsibility
for determining executive compensation, having conflict of interest policies that include
executive compensation, and the use of market data in determining executive compensation
(GAO, 2006).
State-level policies regarding nonprofit executive compensation are limited. One exception is
California’s Nonprofit Integrity Act of 2004, which requires the governing board or a board
committee to review and approve the compensation of the president/CEO and treasurer/CFO
(Lockyer, 2004). This review and approval must occur at the initial hiring, whenever the
executive’s term is renewed, and whenever compensation is modified (Lockyer, 2004). The
Massachusetts Attorney General has also issued guidance on executive compensation in
charitable organizations. This guidance recommends that all board members should be aware of
the compensation of the CEO and other members of senior management, including nonsalary
benefits; the full board should vote on executive compensation; and compensation should be
based on the executive’s performance, comparable compensation in the field, and other factors,
such as the impact on the organization’s mission (Coakley, 2007).
Recommendations and Best Practices
Recommendations and best practices found in the literature review include:
 The full board should be provided information about the complete compensation package
for the CEO and other senior managers, including salary, and the value of any non-salary
compensation; and authority to approve the compensation of senior managers should
reside with the full board (Massachusetts Office of Attorney General Martha Coakley,
2007).

43
 All members of the executive compensation body should be independent, and where
executives are assigned to support the work of this committee, they should not drive the
work (Center for Healthcare Governance Blue Ribbon Panel).
 CEO compensation should be linked to performance, and performance should be
evaluated annually. The board and CEO should engage in 360-degree evaluations, where
both provide comprehensive input into the evaluation (Center for Healthcare Governance
Blue Ribbon Panel).
 Boards should be informed of all aspects of executive compensation, including cash (base
salary, bonuses, severance, paid time off, and other cash), benefits (health, life, social
security, unemployment, pension, etc.), and supplemental executive benefits
(supplemental executive retirement plans, supplemental life insurance, additional paid
time, etc.), and perquisites (club memberships, legal assistance, car allowance, etc.)
(Cohn, 2008; Healthcare Financial Management Association [HFMA]).
 Use an “executive compensation tally sheet” to review compensation components such as
supplemental retirement plans, determine what portion of an executive’s salary is paid as
a bonus or incentive, and what portion comes from employer-provided contributions.
Quantifying these liabilities to include future and potential costs, not just current-year
costs, can aid financial managers with financial planning and budgets (Cohn, 2008).
 The board requires that the CEO’s compensation package is based, in part, on the CEO
performance evaluation and that quality-related goals are included in the incentive
compensation plan for senior executives (The Governance Institute).
 The board or a board committee routinely reviews the compensation for executives to
ensure appropriateness and alignment with statutory and regulatory guidelines (The
Governance Institute).
Maryland Survey Results Related to Monitoring and Approving Executive Compensation
 Seventeen of 45 Maryland hospital boards (38 percent) receive information about the
CEO’s complete compensation package, including 9 independent hospitals and 8 member
boards (See Table 15).
 Twelve hospital boards (27 percent) receive information about the compensation
packages for the other top four executives (See Table 15).
 Nine hospitals (seven independent and two members) reported that compensation of the
CEO is approved by the full board (rather than a committee or a parent board) (See Table
15).

44
Table 15. Maryland: Monitoring and Approving Executive Compensation
Monitoring and Approving Executive
Compensation
2009 Maryland Survey
All
Hospitals
(N=45)
Independent
Hospitals
(N=15)
Subsidiary
Hospitals
(N=30)
N (%)
N
N
Full board is provided with information
about the complete compensation package
for:
CEO 17 (38%) 9 8
Other top four executives
12 (27%)
6
6
Full board approves:
Compensation of the CEO
9 (20%)
7
2
Compensation of the other top four
executives
6 (13%)
5
1
Maryland Survey Results Related to Setting Executive Compensation Standards
Virtually all hospitals in Maryland that belong to larger systems indicated that executive
compensation was set by the parent board and not the local hospital boards. Thus we do not have
complete data on the use of performance expectations and targets for these hospitals or systems,
where such practices are set. These data are presented only for independent hospitals (Table 16).
Among independent hospitals (see Table 16), the Maryland survey found:
 All 15 independent hospital boards reported that the board had established written
performance expectations with clear objectives or criteria for the CEO.
 All 15 independent hospital boards regularly included performance expectations related
to financial performance; all but 1related to clinical quality, whereas fewer boards (10)
reported targets related to community benefits.
 In setting compensation for the CEO, all 15 independent hospital boards formally
considered data on comparable hospital CEO compensation and performance targets,
whereas all but one considered the mission of the hospital.

45
Table 16. Maryland: Setting Executive Compensation Standards
Setting Executive Compensation Standards
Maryland
Survey
Independent
Hospitals
(N=15)
N
Board has established written performance expectations with clear
objectives or criteria for the CEO
15
Performance expectation regularly includes targets related to:
(1) Financial performance
15
(2) Clinical quality 14
(3) Community benefits 10
In setting compensation for the CEO, the following are formally
considered:
(1) Data on comparable hospital CEO compensation
15
(2) Performance targets
15
(3) Mission
14
National Benchmarks Related to Setting Executive Compensation Standards
National benchmarks related to setting executive compensation standards include the following:
 Ninety-two percent of independent boards and 89 percent of member boards nationally
routinely have the full board, or a board committee, review the compensation for
executives to ensure appropriateness and alignment with statutory and regulatory
guidelines (The Governance Institute 2009 Biennial Survey, 2009).
 All responding hospital systems surveyed by the GAO reported reliance on comparable
market data of total compensation and benefits before making compensation
determinations for the hospital CEO (GAO, 2006). Ninety percent of independent boards
and 93 percent of member boards relied on market data in a national benchmark survey
(The Governance Institute 2009 Biennial Survey, 2009).
 Ninety percent of independent boards and 93 percent of member boards required that
compensation be linked to performance (The Governance Institute 2009 Biennial Survey,
2009).

46
 About half (49 percent) of independent systems and 90 percent of systems with parent
organizations regularly included community benefits targets in CEO performance
expectations (Prybil et al., 2008). All systems included financial and virtually all included
patient quality/safety targets in performance expectations (Prybil et al., 2008).
Maryland Survey Results Related to Composition of the Executive Compensation Body
The data in Table 17 is limited to boards with a standing committee with executive compensation
oversight functions. The Maryland survey found the following:
 Of all 45 nonprofit hospitals, 23 have a standing committee with executive oversight
functions. Only 9 of 30 member hospitals reported having such a committee. One
independent hospital explained that these functions were conducted by the full board.
 Of the 23 hospitals boards with an executive compensation committee, 19 (83 percent) do
not include the CEO as a member, and only 2 (both member hospitals) include the CEO
as a voting member.
 Almost all independent hospitals (13 of 15) and member hospitals with an executive
compensation committee (20 of 23) indicated that all members of the executive
compensation body are independent. We do not have complete information about the
independence of oversight bodies at the parent company level.
Table 17. Maryland: Composition of the Executive Compensation Body
Composition of the Executive
Compensation Body
Maryland Survey
All
Hospitals
Independent
Hospitals
Subsidiary
Hospitals
N (%)
N
N
Board has a standing committee
responsible for executive compensation
oversight 23 14 9
Official capacity of hospital CEO
on the executive compensation body
1
Among boards with a standing committee with
executive compensation oversight
2
Voting member 2 (9%) 0 2
Nonvoting member
2 (9%)
2
0
Not a member 19 (83%) 13 7
All voting members of the executive
compensation body hospital are
independent
20 (87%)
13
7
1The executive compensation body is equivalent to the committee that provides executive compensation oversight among all
respondents with the exception of one independent hospital for which the full board conducts oversight of this function.

47
Responses in this table are restricted to hospitals with executive compensation committees.
2Only nine member hospitals reported having an executive compensation committee. Data in table reflect composition of these
committees at the local hospital level. We did not collect information on the composition at the parent board level.
National Benchmarks Related to the Composition of the Executive Compensation Body
National benchmarks related to the composition of the executive compensation body include the
following:
 Eleven of 65 responding hospital systems surveyed by the GAO indicated that either the
CEO or one of the other top four executives was a voting member of the executive
compensation body. However, no system indicated that such executives with voting
privileges attended meetings when his or her own compensation was being discussed
(GAO, 2006).5
 Eighty-one percent of independent boards and 74 percent of member boards had
delegated its executive compensation oversight function to a body composed solely of
independent directors of the board (The Governance Institute 2009 Biennial Survey,
2009).
Summary
Although the practice of full disclosure of executive compensation (salary and nonsalary) to the
full board is recommended by the HFMA and the Massachusetts Attorney General, few boards in
Maryland conduct this practice. Because parent boards typically reserve oversight authority over
compensation practices, full transparency to the local hospital boards may not be occurring. It is
an outstanding question as to whether this is a concern of public interest. Further understanding
of the composition of parent boards and their executive compensation bodies is warranted to
explore this question. Maryland’s hospital boards have similar CEO performance expectations to
boards nationally, with an emphasis on financial performance and quality of care targets, and less
emphasis on community benefits targets. Compensation oversight even by independent hospital
boards appears to be a responsibility reserved for committees. There are insufficient data from
national survey data to ascertain how Maryland hospitals are performing relative to national
trends in this respect.
Section 3: Quality Oversight
Beginning in the 1960s, numerous court cases have established that hospitals have an obligation
to oversee the quality of care they provide (Kaput, 2005). A series of Institute of Medicine
reports issued between 1999 and 2003 show that the quality of care delivered at hospitals viewed
nationwide is uneven and needs improvement (Prybil et al., 2009). It since has become widely
5 Senator Charles Grassley (R-IA), chairman of the Senate Finance Committee, identified these voting privileges as
an area of concern (Sonnenschein, Nath, & Rosenthal, July 31, 2006).

48
accepted that the hospital board is the natural choice for quality oversight because of its
responsibility to assure quality and its authority over medical staff and administration (Gautam,
2005). Further, the Joint Commission, a hospital accreditation body, stresses in its guidance on
hospital leadership that “the governing body is ultimately responsible for the safety and quality
of care, treatment and services” (Joint Commission, 2007). In addition, boards of nonprofit
hospitals have the responsibility to ensure the board’s own high-level performance in its duties
(Gautam, 2005).
Recommendations and Best Practices
Recommendations for best practices related to quality oversight, as found in the literature,
include the following:
 Boards should facilitate the institution of quality standards and benchmarks and should
establish an overarching quality-improvement committee to assure the quality of patient
care (Gautam, 2005).
 Boards should participate at least annually in education regarding issues related to its
responsibility for quality of care (The Governance Institute, 2009).
 Boards should receive formal, written, quality reports on a regular basis (Prybil et al.,
2008).
 Boards should routinely review a performance “dashboard” or “balanced scorecard” of
critical quality indicators that highlights significant trends and variances that may require
corrective action or follow-up reports (The Governance Institute, 2009).
Maryland Survey Results
Table 18 provides the results related to quality oversight practices. The Maryland Survey found:
 One hundred percent of Maryland hospitals have a standing committee responsible for
quality oversight.
 Nearly 100 percent of Maryland hospitals have adopted all best practices in quality
oversight that hospitals were asked to report on in the survey.
 Boards, either through a standing committee or through full board review, are less likely
to review mortality rates than other types of quality-related data.

49
Table 18. Maryland: Quality Oversight Practices
Quality Oversight Practice
Maryland Survey
All Hospitals
(N=45)
Independent
Hospitals
(N=15)
Member
Hospitals
(N=30)
N (%)
N
N
Board has a standing committee responsible for
quality oversight
45 (100%)
15
30
Board or a standing committee establishes annual
objectives and goals in relation to clinical quality
44 (98%)
14
30
Board annually participates in opportunities for board
member education and training regarding its quality
responsibilities and issues
44 (98%)
14
30
Does the board regularly receive formal written
reports on performance in relation to established
measures and standards for the quality of patient care?
45 (100%)
15
30
Data that are routinely reported to the full board or
standing committee
Patient satisfaction surveys
45 (100%)
15
30
Quality indicators
45 (100%)
15
30
Patient safety
45 (100%)
15
30
Morbidity rates
43 (96%)
13
30
Mortality rates
41 (91%)
13
28
National Benchmarks
National benchmarks related to quality oversight include the following:
 Nearly 90 percent of hospital boards had a committee dedicated to quality and patient
safety (Prybil et al., 2008).
 Just less than 83 percent of independent boards and slightly less than 93 percent of
member boards participate at least annually in education regarding issues related to its
responsibility for quality of care (The Governance Institute 2009 Biennial Survey, 2009).

50
 About 97 percent of hospital boards regularly receive formal written reports on system-
level, hospital-specific performance in relation to established measures and standards for
the quality of patient care (Prybil et al., 2009).
 More than 96 percent of both independent and member boards (and 97.6 percent of
system boards) routinely review a performance dashboard and review these measures at
least quarterly (The Governance Institute 2009 Biennial Survey, 2009).
Summary
Overall, Maryland hospital boards meet or exceed national benchmarks for quality oversight
practice. One notable achievement by Maryland hospitals relative to their national peers is the
near universal periodic review of morbidity and mortality rates. Hospital boards in Maryland are
nearly twice as likely to review these data as hospital boards nationally.
Section 4: Community Benefit Program Oversight
Maryland’s 45 nonprofit hospitals are required to submit annual community benefit reports to the
HSCRC. The specific obligations are set forth in Health General Article, §19-303 Annotated
Code of Maryland, which requires each nonprofit hospital to: (a) identify the community health
care needs in its service area (drawing upon resources such as needs assessments and
consultations with local leaders, health officers, and physicians); and (b) submit a community
benefits report that documents the hospital’s various community benefits initiatives, its
expenditures on each, the objective of each initiative, and the efforts taken by the hospital to
evaluate the effectiveness of each initiative.
Maryland’s community benefit reporting statute is silent on what role, if any, the hospital’s board
should have in this process. The law places a duty on each nonprofit hospital to submit an annual
community benefit report to the HSCRC, but it does not specify the extent to which the board
should be involved. The survey sought to learn the extent to which the hospital boards
participated in the process of fulfilling the hospital’s duties under community benefit reporting
law.
Recommendations and Best Practices
Recommendations for best practices related to community benefit oversight, as found in the
literature, include the following:
 Boards should require a periodic community health needs assessment to understand the
health issues of the communities served (The Governance Institute, 2009).
 As a system-level practice, boards should regularly discuss their community benefit
responsibilities and programs, and have a formal written policy that defines overall
guidelines for the system’s community benefit programs (Prybil et al., 2009).
 Boards should have a community benefit plan that spells out measurable system-wide
objectives for the organization’s community benefit program (Prybil et al., 2009).

51
 Boards should be regularly presented with performance data on system-wide objectives
for the organization’s community benefit program (Prybil et al., 2009).
 Boards should adopt community benefit policies that include a statement of commitment,
oversight process, definition of community benefit, measurement goals and methodology,
financial assistance policy, and commitment to transparency (The Governance Institute
2009 Biennial Survey, 2009).
Maryland Survey Results
Table 19 presents findings related to community benefits oversight practices. The Maryland
Survey found the following:
 Most of Maryland’s boards (84 percent) engage in formal community needs assessments
in order to allocate resources.
 Twenty-nine percent of boards have formal, written policies that define overall guidelines
for the community benefit program, and 24 percent have a formal community benefit
plan with measurable objectives.
 Half of Maryland’s boards are regularly presented with performance data on their
community benefits program.
Table 19. Maryland Community Benefits Oversight Practices
Community Benefits Oversight Practice
Maryland Survey
All Hospitals
(N=45)
Independent
Hospitals
(n=15)
Member
Hospitals
(n=30)
N (%) N N
Board has adopted a formal, written policy that
defines overall guidelines for the system’s
community benefit program 13 (29%) 2 11
Board (or a standing committee) is regularly
presented with performance data on
measurable objectives regarding its community
benefit program
22 (49%)
11
11
Board (or its parent company/system) has
adopted a formal community benefit plan that
spells out measurable objectives for the
organization’s community benefit program
11 (24%)
2
9
Board (or its parent company/system) engages
in a formal assessment process designed to
determine community needs to which system
resources should be allocated 38 (84%) 14 24

52
National Benchmarks
Only two benchmarks related to community benefits oversight were identified from surveys of
hospital boards:
 Sixty percent of independent boards and 75 percent of member boards require a periodic
community health needs assessment to understand the health issues of the communities
served. Between 15 and 26 percent of the remaining boards reported considering this
practice, suggesting this is an emerging best practice (The Governance Institute 2009
Biennial Survey, 2009).
 Forty-six percent of independent boards and 76 percent of member boards had adopted
community benefit policies that included a statement of commitment, oversight process,
definition of community benefit, measurement goals and methodology, financial
assistance policy, and commitment to transparency (The Governance Institute 2009
Biennial Survey, 2009).
Most national benchmarks related to community benefit oversight are from surveys of system
boards. These include the following:
 All (100 percent) high-performing system boards engage in a formal assessment process
to determine the best way to allocate system resources to different community needs,
though this varies by frequency of assessment and whether or not the system collaborates
with other local organizations. Only 36 percent of low-performing systems met this best
practice (HRET 2005 Survey, Margolin et al., 2006).
 Ninety percent of high-performing systems reported that their community health system
board has a formal written policy that defines overall guidelines for the system’s
community benefit programs. Only 27 percent of low-performing systems met this best
practice (Prybil et al., 2009).
 All (100 percent) high-performing systems reported having a community benefit plan that
spells out measurable system-wide objectives for the organization’s community benefit
program, though it varies regarding whether or not the plan is formal or informal. Only
27 percent of low-performing systems met this best practice (Prybil et al., 2009).
 According to the CEOs of systems, 90 percent of high-performing systems regularly
discuss their systems’ community benefit responsibilities and programs, as compared
with 36 percent of low performers (Prybil et al., 2009).
 Ninety percent of high-performing systems reported that they regularly present the
community health system board with performance data on measurable system-wide
objectives for the organization’s community benefit program. Only 36 percent of low-
performing systems met this best practice (Prybil et al., 2009).

53
Summary
Maryland’s board oversight practices of community benefits programs are similar to hospitals
nationally in some areas, but there is room for improvement in others. Maryland boards engage
in formal community needs assessment at a somewhat higher rate, compared to hospitals
nationally. Two potential areas for improvement in Maryland are the development of a written
policy that defines overall guidelines for community benefit programs and adoption of
measurable community benefit performance objectives. Less than one-third of Maryland’s
boards have adopted each these practices, a far lower rate of adoption compared to boards
nationally. Benchmark data suggest that establishing performance objectives is a system-wide
practice recommendation, and so survey results may not reflect all activity occurring at the
system level. However, both independent hospitals and members of larger systems fall short on
these two benchmarks.
Section 5: Self-Governance
Self-governance refers to activities that ensure effective functioning of the board and includes
structural choices and practices, such as board self-assessment (of the full board and performance
evaluation of individual board members), orientation of new board members, and ongoing
education.
Recommendations and Best Practices
Recommendations for best practices related to self-governance, as found in the literature, include
the following:
 Boards should have a formal self-assessment process to support effective governance
(Center for Healthcare Governance, 2007; The Governance Institute, 2009; Maryland
Association of Nonprofit Organizations, 2009; Office of Attorney General Martha
Coakley, 2007).
 New members should receive a formal orientation (Center for Healthcare Governance,
2007; The Governance Institute, 2009; Maryland Association of Nonprofit Organizations,
2009; Office of Attorney General Martha Coakley, 2007).
 Boards should provide formal, ongoing education (Center for Healthcare Governance,
2007; The Governance Institute, 2009; Maryland Association of Nonprofit Organizations,
2009; Office of Attorney General Martha Coakley, 2007).
 Boards should periodically review bylaws and other policies (The Governance Institute,
2009).
 The board education plan should be included in the budget (The Governance Institute,
2009).

54
Maryland Survey Results
Table 20 presents the survey results for self-governance practices. The Maryland survey found:
 All but one of Maryland’s hospital boards have engaged in a formal assessment of how
well it is carrying out its own duties within the past five years. Nearly half engage in this
process annually.
 Most Maryland boards (90 percent) require periodic review of bylaws and other policies.
 Ninety-three percent of boards have a formal orientation and education program, 71
percent develop annual education plans, and 81 percent include this education plan in
their budget.
Table 20. Maryland: Self-Governance Practices
Self-Governance Practices
Maryland Survey
All Hospitals
(N=45)
Independent
Hospitals
(N=15)
Member
Hospitals
(N=30)
N (%) N N
Board engages in formal assessment of how
well it is carrying out its own duties:
Annually 20 (44%) 6 14
Every 2 years 12 (27%) 5 7
Less frequently than every 2 years 12 (27%) 3 9
Has not engaged in formal assessment in
past 5 years
1 (2%) 1 0
Standing committees have clearly defined
responsibilities that are spelled out in a
written document (i.e., charter) that has been
approved by the board
42 (93%) 15 27
Board requires that its bylaws and other
important board self-governance policies be
reviewed periodically for recommendations
regarding enhancements
40 (89%) 14 26
Board has a formal program for its own
orientation and ongoing education 42 (93%) 14 28
Board develops an annual board education
plan
32 (71%) 13 19
Board education plan is reflected in the
organization’s budget for board activities and
support (provided board develops an annual
board education plan)
26 (81%) 11 15

55
National Benchmarks
National benchmarks related to self-governance include the following:
 The 2009 Biennial Survey found that most independent boards (81 percent) and member
boards (86 percent) engage in a formal process to evaluate its own performance at least
every 2 years. System boards are more likely (90 percent) to adhere to this practice. Most
other responding hospitals indicated that they were considering it (The Governance
Institute, 2009).
 The 2007 Survey of Nonprofit Health Systems reported that 90 percent of all community
health system (and similar results by system status) boards engage in formal assessment
of how well it is carrying out its own duties, with most of these boards conducting this
assessment annually (Prybil et al., 2008).
 Findings on high-performance boards found that 100 percent of high-performing systems
reportedly formally evaluate their own performance compared with 91 percent of mid-
range–performing systems and 64 percent of low-performing systems. Of those systems
that reported evaluating their own performance, most do so on an annual or biennial
basis. Overall, 95 percent of high-performing system trustees reportedly evaluate their
own performance (Prybil et al., 2009).
Summary
Maryland boards are generally structured for success as measured by board committee
education/orientation and self-assessment. Almost all of Maryland’s boards conduct formal self-
assessment, and the majority does so at least every two years, which meets or exceeds national
survey results. The majority of Maryland’s boards engage in formal orientation and ongoing
education, reflecting the recommendations in the literature.

56
Chapter V. Further Considerations
Several observations and questions arise from this report. A principle observation is that
nonprofit hospital governance structures are complex and diverse in Maryland, reflecting
national trends. We found in Maryland that many systems report contractual arrangements
between local hospital boards and parent corporations in which the parent corporation, along
with its board of trustees, holds “reserved powers.” As a result, many boards of hospitals in
larger systems retain limited authority across several domains of governance, including limited
decision making authority over financial matters generally, and specifically more limited
participation in audit functions and in establishing executive compensation. This is certainly not
the case across all systems. In some cases, local hospital boards appear to participate in both
monitoring and decision-making functions by: establishing standing committees with
finance/budget, audit, and executive compensation oversight; approving many of the practices
that govern hospital management; and receiving information routinely regarding many financial
matters and executive compensation. Again, this reflects diversity both in governance structures
and in strategic choices.
In other respects, local hospital boards universally appear to play an integral role in quality
oversight, with standing committees overseeing patient safety and clinical quality/quality
assurance, and following most of the best practices identified in the literature. In fact, both
independent and member boards exceed national trends in reviewing an array of patient safety,
quality, and morbidity measures on a routine basis. Thus, it appears that systems have made
strategic choices about how to best utilize local hospital board members skills and input. In some
domains, local hospital boards participate fully. In other domains, they do not.
The Maryland Survey on Nonprofit Hospital Board Governance limited its scope to the practices
of hospital boards, sought no detail regarding the practices of hospital and health system boards,
and did not collect any information regarding the dynamics between hospital boards and system
boards in hierarchical governance structures. Therefore, the implications of “reserved powers”
agreements for policy makers and regulatory bodies interested in enhancing public accountability
and increasing the community benefit are arguably not well understood.
Several questions appear immediately relevant to the interests of policy makers, regulators, and
the public interest:
1) Is the composition of system boards adequate to ensure transparency in governance,
through representation from major stakeholders, including the community?
2) Are there some systems in which the local hospital boards serve in a capacity that is more
advisory in nature relative to the authority exerted at the system level?
3) When local hospital boards are limited in their decision making authority because of
system arrangements, is it in the public interest that local boards have greater
involvement in monitoring financial management practices of the hospital? If so, which
practices are most critical that member hospital boards adhere?

57
4) Are local hospital boards empowered to intervene in a meaningful way, if concerns arise
in these domains?
Additional information would be helpful to better understand the governance strategy of systems
that establish a parent and local hospital boards that are composed of the same persons:
5) What are the advantages or disadvantages of structuring boards using this “dual
membership” in terms of both system efficiency and public accountability?
6) How do the bylaws and committee structure of parent boards and local hospital boards
differ?
Further exploration into governance structures of hospital and health systems in Maryland is
recommended. The objective of this inquiry would be:
 To document system board structures and board composition, and directly compare these
to the structures and composition of member hospital boards;
 To document the specific governance practices by system boards that were inquired about
in the Maryland survey and for which member hospitals reported the parent company or
system holds “sole authority.”
 To understand more broadly the dynamics in authority, decision making, monitoring, and
exchange of information between hospital officers, member hospital boards and their
committees, and system boards.
The overarching concern of this continued line of inquiry would be to better understand the
implications for exercising appropriate policy and regulatory oversight of nonprofit hospitals.

58
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Appendix I. Survey Instrument
Instructions for Completing This Questionnaire
In response to a request dated September 8, 2009, from Del. Peter Hammen, Chairman of the
House Health and Government Operations Committee, the Health Services Cost Review
Commission (HSCRC) is conducting a survey related to non-profit hospital governance in
Maryland. In the process, we expect to educate the industry, and our Commission, about best
practices in hospital governance. We hope this will begin a dialogue about how we can work
together to enhance good hospital governance in Maryland.
As the CEO of a Maryland hospital, HSCRC is requesting your full participation to coordinate
completion of this questionnaire on behalf of your hospital.
All questions relate to the governance policies and practices of your hospital’s Board of
Trustees, not its parent company or health system. All questions that refer to the Board refer to
your hospital’s Board, its by-laws, charter, and governance policies and practices.
Most survey questions require detailed knowledge of board policies and practices. To ensure
the most accurate response to survey questions, we ask that you forward a copy of the survey
to your hospital’s Board Chair now and consult with the Chair where necessary.
Please provide the contact information for your Board Chair below so that we may contact
them to clarify any responses, if necessary:
Name of Hospital:
Name of Board Chair:
Phone number:
Email:
Most of the questions in this survey can be answered easily by checking boxes or filling in
blanks, which are shaded gray. A few questions require entry of numbers.
 Please use your mouse to navigate throughout the survey by clicking on the field or
check box you wish to answer. Do not use the “Tab” or “Enter” keys as they may cause
formatting problems.
 To select a check box, simply click on the center of the box.
 To change or deselect a response, simply click on the check box and the “X” will
disappear.
 The survey provides space for comments after many questions and at the end of the
survey. Please use this space to clarify your responses or provide other feedback. Please
note that these blanks expand to fit your answer.

62
Any questions about the survey should be submitted to Amanda Greene
(agreene@hscrc.state.md.us) by December 22, 2009. We will compile questions from all
hospitals and distribute to all survey participants via e-mail.
If your hospital has a parent company or is part of a health system, the Board of this company
or system may meet certain oversight responsibilities on behalf of your hospital. To better
understand shared oversight responsibility with parent companies and systems, we may follow
up with your parent company or health system to ask for clarification on specific items. Please
check here if this describes your organizational structure.
Please provide the name of the parent company or health system, its CEO, and Board Chair.
Name of Parent Company or Health System
CEO Name:
Board Chair Name:
Mailing Address: Mailing Address:
Email:
Email:
Phone #:
Phone #:
Name of Assistant: Name of Assistant:
In certain cases, survey responses allow you to indicate if your parent company or health
system meets an oversight responsibility on behalf of your hospital. Please feel free to provide
additional clarification regarding shared oversight responsibility in the comment area below.
COMMENTS:
Submission Instructions
Please submit a completed copy of this questionnaire by January 15, 2010. When you have
completed the survey, simply save this file to your computer desktop or hard drive as a Word
2003 or Word 2003-2007 Compatible file. Return the completed questionnaire via e-mail by
attaching the file as part of your e-mail message. Please e-mail a copy of your written conflict of
interest policy as an attachment to your e-mail, or you may fax a copy. Submit to:
Amanda Greene
Program Manager
Health Services Cost Review Commission

63
Email: agreene@hscrc.state.md.us
Fax number: 410-358-6217
Phone: 410-764-2597
Definitions for terms used in this survey
Independent - Free of financial conflict of interest. Independent persons (1) are not
compensated by the organization as employees or independent contractors; (2) do not have
their compensation determined by individuals who are compensated by the organization; (3) do
not receive, directly or indirectly, material financial benefits from the organization except as a
member of the charitable class served by the organization; and (4) are not related to anyone
described above (as a spouse, sibling, parent or child), and do not reside with any person so
described. As defined by the Panel on the Nonprofit Sector, 2007. Principles for Good
Governance and Ethical Practice: A Guide for Charities and Foundations.
Executive Compensation Body –The executive compensation body refers to the hospital
system’s Board of Trustees, executive compensation committee, finance committee, Board or
Board committee chairperson, or other appropriate authorized body or person of the hospital
system with primary responsibility for compensation matters. As defined by the U.S.
Government Accountability Office.
Other Top Four Executives – Refers to the four most highly compensated executive officers of
the hospital system other than the CEO. As defined by the U.S. Government Accountability
Office.
Board Governance – Refers to the self-governance of the hospital Board. Board governance
functions would include routinely assessing the Board’s bylaws and making recommendations
for improvement or best practices in structure, composition, and performance of the Board. As
defined by the Governance Institute.

64
Section I. Hospital Board Composition
1. In the columns below please provide the number of voting and non-voting members of the
Board. Do not include vacancies in these counts. Indicate vacancies separately.
Voting
Member(s)
Non-Voting
Member(s)
Total
Members
A. Number of Board members
(do not include vacancies)
B. Number of independent members
(do not include vacancies)
C. Number of current vacancies
2. In the table below, use the appropriate box to indicate the number of Hospital Board
Members who represent each of the following persons or communities as Voting Members
or Non-Voting Members. If Board Membership does not include representation of that
person or community, please check the column “No Members”.
For members representing Minority/Ethnic Communities (Item I) and Patients (Item J), count
only the Board members recruited to serve as representatives of the community (Item H). Do
not include members who represent hospital staff, employees, or officers. For Female members
(Item K), include all female members, regardless of affiliation.
Composition of Board Membership
Number of Members Check here if
No Members
Voting
Member(s)
Non-Voting
Member(s)
A. Chief Medical Officer
B. Medical Staff President
C. Physicians with active medical staff
privileges (other than A or B)
D. Physicians without active medical
staff privileges (other than A or B)
E. Nursing staff
F. Other Nurses (not staff)
G. Hospital employees (not nurses)
H. Community members/leaders
I. Local minority/ethnic (any in H)
J. Patients (any in H)
K. Female members (any in A-H)

65
3. Has your Board had difficulty recruiting members to sufficiently represent certain constituencies, or
that retain certain expertise? If so, please elaborate on these difficulties:
COMMENTS:
For the following question(s), please check the appropriate response.
4. Indicate type of CEO Membership on Board: Check ONE
A. Voting member and Board chair
B. Voting Board member
C. Non-voting Board member
D. NOT a member of the Board
5. Indicate type of CEO Membership on Executive Compensation Body
(See definitions on page 3): Check ONE
A. Voting member of the Executive Compensation Body
B. Non-voting member of the Executive Compensation Body
C. Not a member of the Executive Compensation Body
For the following question(s), please check the appropriate response.
6. Indicate if the Board currently retains members with the following
expertise: Check all that apply
A. Health care quality and delivery
B. Health care financial and accounting
C. Legal
D. Patient advocacy
Check YES or NO
7. If your Board does not retain members with financial expertise, does
the Board currently contract with an independent financial advisor,
other than your auditor? (Leave blank if you checked 5B)
YES NO
8. Are the terms of Board members staggered? YES NO

66
9. Are Board members limited to serve a fixed term? YES NO
A. If YES, what is the fixed term?
Years
B. Are Board members limited to serving a certain number of
consecutive terms? YES NO
C. How many consecutive terms may a member serve?
Section II. Transparency
10. For each of the documents below, please check the box to indicate if the document is
posted on the hospital’s website and/or available upon request through the hospital’s
Public Information Office.
Document
Posted on
the
Hospital’s
Website
Available upon
request through
the hospital’s
Public Information
Office
A. The articles of incorporation, including the
corporate mission statement
B. Names of members of the Board
C. Board member terms in office
D. Brief biography of each Board member
E. The Board bylaws
F. The medical staff bylaws
G. The most recent IRS Form 990
H. The three (3) most recent Forms 990
I. Audits of Form 990
J.
Both salary and non-salary compensation of the
Other Top Four Executives (See definitions on p. 3).
K. The most recent annual report
L. The three (3) most recent annual reports
M. The Board’s conflict of interest policy
N. Strategic plans approved by the Board that
significantly affect the provision of services in the
community

67
Document
Posted on
the
Hospital’s
Website
Available upon
request through
the hospital’s
Public Information
Office
O. Hospital’s charge master
P. Hospital’s financial assistance and debt collection
policies for under- and uninsured patients
Q. Any patient safety measures (ie. medication
errors)
R. Any clinical quality measures (not patient safety)
S. The level of community benefits the organization
provided in the most recent year
T. Identity and location of out-of-state corporate
parents (leave blank if not applicable)
For the following question(s), please check YES or NO.
11. Does the Board publish a notice of Board membership openings? Check YES or NO
A. On the hospital website? YES NO
B. In other public media, such as local newspapers, hospital
publications, or other forms of outreach expected to broadly
reach target representational constituencies?
YES NO
Section III. Conflict of Interest Policy
For the following question(s), please check YES or NO.
Check YES or NO
12. Does your hospital Board have a written conflict of interest policy that
covers all members of the Board? If Yes, please submit a copy with
your completed survey.
YES NO
13. Does your hospital Board have a written conflict of interest policy that
covers members of the Executive Compensation Body (see definition
on page 2)? If Yes, please submit a copy with your completed survey.
YES NO
14. If your Board has a written conflict of interest policy (for the full Board
or the Executive Compensation Body), does this policy:
Check all that
apply

68
A. Require disclosures of potential conflicts of interest?
B. Outline conditions when members must recuse
themselves from particular discussions and voting?
C. Provide guidance on what may constitute a conflicting
situation?
Check YES or NO
15. Does the Board require at least the annual written disclosure of all
actual and potential conflicts of interest by each officer and director? YES NO
16. Does the Board’s conflict of interest policy require that all disclosed
conflicts and/or dualities of interest be disclosed to the entire Board? YES NO
17. Does the Board’s conflict of interest policy require that prospective
members first be screened or questioned as to actual or potential
conflicts or dualities of interest before being formally invited to stand
for election to the Board?
YES NO
Section IV. Governance Policies and Practices
For the following questions, check the appropriate response.
18. How many prescheduled meetings does the Board calendar during a 12 month
period? Check ONE
A. 0-3 meetings
B. 4-5 meetings
C. 6 meetings
D.
7-9 meetings
E. 10-12 meetings
F.
13 or more meetings
19. How often does the Board engage in formal assessment of how well it is
carrying out its own duties? Check ONE
A. Annually
B. Every two years
C. Less frequently than every two years

69
D. The Board has not engaged in formal assessment in the past 5 years
For the following question(s), please check YES or NO
Check YES or NO
20. Do standing Board committees have clearly defined responsibilities that
are spelled out in a written document (i.e. charter) that has been
approved by the Board?
YES NO
21. Does the Board require that its bylaws and other important Board self-
governance policies be reviewed periodically for recommendations
regarding enhancements?
YES NO
22. Does the Board have a formal program for its own orientation and
ongoing education? YES NO
23. Does the Board develop an annual board education plan? YES NO
A. If YES, Is this plan reflected in the organization’s budget for board
activities and support? YES NO
24. Check the appropriate column to indicate which of the following data are routinely
reported (at least semi-annually) to the full Board, a standing committee only, or not
reported.
Routine Data Reports Full Board Standing
Committee Not Reported
A. Budget Performance
B. Financial Statements
C. Operating Statistics
D. Capital Planning
25. Listed below are a number of governance functions. Check YES next to the governance
function if the Board has a standing committee, regardless of its exact name, with clear
oversight responsibility for the function. Check NO if no standing committee has clear
oversight responsibility. One committee could oversee more than one of these functions. If
the hospital’s Parent Company/System holds sole authority for this function on behalf of
your hospital, check the column “Parent Company/System.”
Governance Functions Standing Committee?
(Check YES or NO)
Parent
Company/System
A. Finance/Budget YES NO

70
B. External Audit YES NO
C. Internal Audit YES NO
D. Executive YES NO
E. Strategic Planning YES NO
F. Executive Compensation YES NO
G. Patient Safety YES NO
H. Quality Assurance/Quality Improvement YES NO
I. Ethics or Compliance YES NO
J. Community Benefits Program YES NO
K.
Board Governance (i.e. self-governance)
(See definitions on page 3). YES NO
L. Board Education and Development YES NO
COMMENTS:
The following questions seek to determine whether the hospital board DUTIES related to
FINANCIAL oversight include any of the following. These duties may be carried out by the full
Board or a standing committee.
Check Any That Apply
26. Indicate whether the Board (or a standing committee)
reviews or approves the following: Review Approve Neither
A. Auditing and accounting principles and practices used in
preparing the hospital’s financial statements
B. Large or significant grants or contract
C. Transactions involving real estate
D. Borrowing or sale/disposal of large assets
E. Creation of subsidiary entities
F. Joint ventures
G. Organizations’ budget and financial objectives

71
Check YES or NO
27. Is the Board (or a standing committee) responsible for retaining and
replacing the hospital’s independent auditor? YES NO
28. Do Board policies require the replacement of the independent
auditor? YES NO
27A. If YES, how often?
27B. If NO, do Board policies require a re-bid of the independent
auditor every five years, at a minimum? YES NO
29. Does the Board require that the hospital’s financial statements be
certified annually by both the CEO and CFO? YES NO
30. Is the Board (or a standing committee) empowered to receive reports
on the contracting and compensation processes for the hospital’s most
significant independent contracts, including those receiving more than
$100,000 in compensation in any year?
YES NO
31. Has the Board or CEO put in place processes and procedures to ensure
that the organization’s Federal information return and tax return
(including Form 990) complies with the Internal Revenue Code?
YES NO
Check Any That Apply
32. Indicate whether the Board (or a standing committee)
establishes or approves written financial policies governing
the following:
Establish Approve
Neither
A. Investment of the assets of the hospital
B. Internal accounting systems and control procedures
C. Purchasing practices
D. Unrestricted current net assets
The following questions refer to the standing committee responsible for AUDIT OVERSIGHT,
regardless of its name. If these responsibilities reside with your parent organization and NOT
with your hospital Board, please check the box in Question #33 below and SKIP TO QUESTION
#35 ON THE NEXT PAGE.
If YES,

72
Check here
33. Responsibility for AUDIT OVERSIGHT resides with our parent company/system
and NOT our hospital Board (SKIP TO Question 35)
For the following question(s), please check YES or NO
34. Does this Board have a Board Auditing Committee that: Check YES or NO
A.
Excludes all members of senior management (the CEO and Other
Top Four Executives) as voting members? YES NO
B. Meets independently with the external auditor at least annually? YES NO
C. Has sole authority to select and replace the external auditor? YES NO
D. Has sole authority to authorize independent reviews performed by
another party (other than the external auditor) if required? YES NO
COMMENTS:
35. Check the appropriate column to indicate which entity, the full Board, a standing
committee, the parent company/system, or other entity, approves the following.
Check ONE
Which entity approves: Full
Board
Standing
Committee
Parent
Company/System Other
A. Findings of the hospital’s
annual audit and
management letter?
B. Long-range and annual capital
and financial plans?
C. Compensation of the CEO?
D. Compensation of the Other
Top Four Executives?
The following questions relate to the filing of the Internal Revenue Service Form 990.
36. Please select the response that best describes the review and/or
approval by the Board of the Form 990:
Check
ONE

73
A.
The Board reviews but does not approve the Form 990 prior to
submission
B. The Board reviews and approves the Form 990 prior to submission
C. The Board is provided a copy of the Form 990 prior to submission
but does not review or approve the Form 990
D. The Board is provided a copy of the Form 990 after submission
37. Does the Board require that the Form 990 be reviewed by an
independent auditor for conformity to established Form 990 filing
standards?
Check
ONE
A. YES, independent audit is conducted of Form 990
B. NO, only an internal audit is conducted of Form 990
C. NO, no audit, independent or internal, is conducted.
Check YES or NO
38. Has your hospital established procedures for employees to report in
confidence any suspected financial impropriety or misuse of the
charity’s resources? (This policy is sometimes referred to as a
whistleblower policy)
YES NO
The following questions relate to EXECUTIVE COMPENSATION oversight.
Check YES or NO
39. Does the Board establish written performance expectations with clear
objectives or criteria for the CEO? YES NO
38a. If YES, does the performance expectation regularly include: Check all that
apply
A. Financial performance target? YES NO
B. Clinical quality target? YES NO

74
C. Community benefits target? YES NO
40. In setting compensation for the CEO, indicate which of the following
are formally considered:
Check all that
apply
A. Data on comparable hospital CEO compensation YES NO
B. The hospital’s mission YES NO
C.
Performance targets (any financial, quality, or community
benefits targets) YES NO
D. Other written objectives or expectations about CEO
performance YES NO
41. Is the full Board provided with information about the complete
compensation package for the CEO, including salary, and the value of
any non-salary compensation, such as use of an automobile,
retirement funds, and/or incentive bonuses?
YES NO
42. Is the full Board provided with the same information (salary and non-
salary) for the Other Top Four Executives? YES NO
43. Are all voting members of the Executive Compensation Body hospital
independent? (See definitions on page 3). YES NO

75
The following questions relate to QUALITY oversight.
Check YES or NO
44. Does the Board or a standing committee establish annual objectives and
goals in relation to clinical quality? YES NO
45. Does the Board annually participate in opportunities for board member
education or training regarding its quality responsibilities and issues? YES NO
46. Does the Board regularly receive formal written reports on performance in
relation to established measures and standards for the quality of patient care?
Check
ONE
A. YES, it does
B. NO, this information is received and handled by a parent
company/system.
C. NO, this information is received and handled by a board committee.
D. NO, reporting and monitoring the quality of patient care is a function
that is handled by hospital officers.
47. Check the appropriate box to explain which of the following data are routinely reported (at
least annually) to the Full Board, Standing Committee, or Not Reported Routinely (at
least annually).
Routine Reports of Data Full Board Standing
Committee
Not
Reported
Routinely
A. Patient Satisfaction Surveys
B. Quality Indicators
C. Patient Safety Indicators
D. Morbidity Indicators
E. Mortality Indicators
F. Community Health Status Measures
G. Other Clinical/Outcomes Indicators*
*To help us understand what types of data are reported, please list examples of other
clinical/outcomes indicators routinely reported here:

76
The following questions relate to oversight of the hospital’s COMMUNITY BENEFITS program.
48. Has the Board (or its Parent Company/System) adopted a formal
community benefit plan that spells out measurable objectives for the
organization’s community benefit program?
Check ONE
A.
YES, there is a formal, board-adopted community benefit plan that spells
out measurable objectives for the organization’s community benefit
program?
B. NO, the Board has established some priorities for the community benefit
program, but, at this point, there is not a formal plan of this nature in
place.
C. NO, not yet
49. Does the Board (or its Parent Company/System) engage in a formal
assessment process designed to determine community needs to which
system resources should be allocated?
Check
ONE
D. YES, the Board conducts its own formal community needs assessment
process on a regular basis
E. YES, the Board collaborates with other local organization in a community
needs assessment process on a regular basis
F. YES, the Board periodically engages in community needs assessment but
not on a regular basis
G. NO
COMMENTS:
For the following question(s), check YES or NO.
Check YES or NO
50. Has the Board adopted a formal, written policy that defines overall
guidelines for the system’s community benefit programs? YES NO
51. Is the Board (or a standing committee) regularly presented with
performance data on measurable objectives regarding its community
benefit programs?
YES NO

77
52. Does the Board review and approve financial assistance and credit
collection policies? YES NO
53. Is the Board presented with any routine data (eg. monthly, annually)
related to the hospital’s credit and collection and financial assistance
activities?
YES NO
52a. If YES, how often?
COMMENTS:
Is there anything else that you would like to add about your hospital’s governing Board or
practices?
Is there anything you would like to say about the survey?
This completes the survey. We appreciate your full participation and acknowledge the burden
of responding to this survey. Please record here the approximate amount of time taken to
complete this survey by your
CEO:
Board Chair:
Staff:
Does your Board have a written conflict of interest policy? Yes No
Please attach a copy of your policy to your email or fax a copy of this policy along with your
completed survey.
Respondent Information
Please provide the following information for the individual who coordinated the completion of
this survey so that we may contact them to clarify any responses.
Name:
Title:
Hospital Name:
Telephone Number ( ) - , Ext:
Email: @
Upon completion of the survey, please check the box that best describes how the survey was
completed by your institution:

78
A copy of this survey was sent to our Board Chair.
I consulted with the Board Chair regarding responses to this survey.
I completed this survey and the Board Chair reviewed my responses.
The Board Chair completed this survey and I reviewed it.
Thank you very much.

79
Appendix II. Maryland Nonprofit Hospitals
Name of parent company or health system
Name of hospital
Part of
Multi-
hospital
system?
Has a
separate
parent
board?
System Member Hospitals
Adventist HealthCare, Inc.
Shady Grove Adventist Hospital
Yes
Yes
Washington Adventist Hospital
Yes
Yes
Ascension Health (Headquarters in St. Louis, MO)
Saint Agnes HealthCare6
Yes
Yes
Bon Secours Health System, Inc.
Bon Secours Baltimore Health System
Yes
Yes7
Catholic Health Initiatives (Headquarters in Denver,
CO)
Saint Joseph Medical Center
Yes
Yes
Dimensions Healthcare System
Laurel Regional Hospital
Yes
Yes
Prince George's Hospital Center
Yes
Yes
LifeBridge Health
Northwest Hospital Center
Yes
Yes
Sinai Hospital of Baltimore
Yes
Yes
MedStar Health, Inc.
Franklin Square Hospital Center
Yes
Yes
Good Samaritan Hospital
Yes
Yes
Harbor Hospital
Yes
Yes
Montgomery General
Yes
Yes
Saint Mary's Hospital
Yes
Yes
Union Memorial Hospital
Yes
Yes
Mercy Health Services
Mercy Medical Center
No
Yes
The Johns Hopkins Health System Corporation
(JHHSC)
Howard County General, Inc.
Yes
Yes
6 Member of a multi-hospital system with only one hospital located in Maryland. System headquarters is located out-of-state.
7 The hospital board of Bon Secours is composed of the same individuals as local parent board. In addition, a separate corporate
board reserves oversight on several functions.

80
Name of parent company or health system
Name of hospital
Part of
Multi-
hospital
system?
Has a
separate
parent
board?
Johns Hopkins Bayview Medical Center, Inc.
Yes
Yes
The Johns Hopkins Hospital
Yes
Yes
Suburban Hospital, Inc.
Yes
Yes
Trinity Health (Headquarters in Novi, MI)
Holy Cross Hospital of Silver Spring, Inc.
Yes
Yes
University of Maryland Medical System (UMMS)
Baltimore Washington Medical Center
Yes
Yes
Chester River Hospital Center
Yes
Yes
Dorchester General Hospital
Yes
Yes
Harford Memorial Hospital, Inc.
Yes
Yes
James Lawrence Kernan Hospital
Yes
Yes
Maryland General Hospital
Yes
Yes
Memorial at Easton
Yes
Yes
Upper Chesapeake Medical Center
Yes
Yes
University of Maryland Medical Center
Yes
Yes
Health Systems Classified as Independent
Hospitals
Anne Arundel Health System, Inc.
Anne Arundel Medical Center
No
Same board8
Calvert Health System
Calvert Memorial Hospital
No
Same board
Nexus Health Inc.
Fort Washington Medical Center
No
Same board
Peninsula Regional Health System, Inc.
Peninsula Regional Medical Center
No
Same board
Union Hospital of Cecil County
Union Hospital of Cecil County
No
Same board
Independent Hospitals
Atlantic General Hospital Corporation
N/A
No
Carroll Hospital Center
N/A
No
Civista Health, Inc.
N/A
No
Doctors Community Hospital
N/A
No
Frederick Memorial Healthcare System
N/A
No
8 The parent board is composed of the same individuals as the hospital board.

81
Name of parent company or health system
Name of hospital
Part of
Multi-
hospital
system?
Has a
separate
parent
board?
Garrett County Memorial Hospital
Government
No
Greater Baltimore Medical Center (GBMC)
N/A
No
McCready Memorial Hospital
N/A
No
Washington County Hospital
N/A
No
Western Maryland Regional Medical Center
N/A
No

82
Appendix III. Maryland Trustee Disclosure Requirements
Trustees, directors, and officers of Maryland nonprofit hospitals are required by law and
regulation to disclose any interest in transactions with the hospital of over $10,000 (reportable
interests). These requirements are meant to support transparency, disinterested governance, and
accountability. They provide a basis upon which a hospital board can discharge its responsibility
to monitor the appropriateness of trustee business dealings with the hospital, investigate apparent
conflicts of interest, and, if appropriate, take action to address the conflict. The fact that a
reportable interest exists, in and of itself, does not suggest a conflict between the interests of the
hospital and those of the trustee. A conflict may be suggested, however, by information the law
requires to be disclosed regarding the nature of the transaction and the relationship of the trustee
to the firm involved.
Methods
FY 2008 disclosure of interest reports for trustees, directors, and officers were submitted by 44
of Maryland’s 45 nonprofit hospitals. These reports (rather than survey responses) are the basis
for quantitative observations made herein.
COMAR 10.37.01.06 (the reporting regulation) requires that nonprofit hospitals submit to
HSCRC “a list of all trustees, directors, or officers.” Although the terms “trustee” (or “director”), on
the one hand, and “officer” on the other differ conceptually,9
9COMAR 10.37.01.01B(10) defines “trustee or director” as:
some hospitals responded to this
requirement by providing lists that appear to combine trustees and officers without indicating the title or
status of the listed individuals. This lack of distinction between trustees and officers in some
hospitals’ reports made it necessary to treat both trustees and officers as “trustees” for purposes
of this analysis of trustee disclosure for FY 2008; hereinafter the term “trustee” will be used in
this Appendix to refer to trustees, directors, and officers collectively.
[A]any person serving on a governing board or committee of a nonprofit hospital or related
institution who is empowered to vote on matters concerning the hospital's or related institution's
governance or other matters generally concerning its policies.
The same regulation defines an officer of a nonprofit hospital as:
(a) An individual who is elected to office pursuant to a resolution of the governing board of the
hospital or related institution, to fill a position defined in the bylaws of the hospital or related
institution; or
(b) An individual who, although not specifically designated as an "officer" administers the policies
of the hospital or related institution, and has the authority and performs the duties in the
management of the property and affairs of the hospital or related institution as may be provided in
the bylaws.

83
Trustee disclosure of interest reports for FY 2008 were reviewed for completeness and to assess
compliance with the requirements of Health-General Article, §19-224, Annotated Code of
Maryland (the reporting statute) and the reporting regulation.
Conflicts of Interest
The extent to which there may be conflicts of interest between trustees and the institutions they
govern as board members cannot be assessed solely on the basis of information included in the
disclosure reports, which may, at most, provide evidence of an apparent conflict of interest. As
explained in Chapter III of this Report, investigation of a trustee’s apparent conflict of interest is
the responsibility of the hospital board, consistent with its adopted conflict of interest policy.
This policy would properly include procedures for trustee disclosure of interests, the handling of
disclosed interests, and for correcting violations of the hospital’s conflict of interest policy. The
trustee disclosure of interest reports required by the reporting statute and regulation serve two
purposes: as a mechanism for alerting a hospital board that apparent conflicts of interest exist, so
that it may investigate and take appropriate action, and as a mechanism for informing regulators
who monitor that process.
Reporting Responsibility of Hospitals and Trustees
A Maryland nonprofit hospital must report to the HSCRC annually the names and business
addresses of all trustees. No additional information is required (of either hospital or trustee)
regarding trustees who have no interest in or relationship to a business entity involved in
specified categories of transactions with the hospital. In the case of a trustee who does have such
an interest or relationship, however, both the hospital and the trustee are required to report. The
content of the report required of the hospital and disclosures required of the trustee differ,
however. A hospital must indicate to the HSCRC which of its listed trustees, if any, is also an
employee, partner, director, or has a beneficial interest10
A trustee is responsible for reporting the name and address of a firm to which the trustee is
related that engages in a reportable transaction, as well as the nature and extent of such
transactions. In practice, trustees submit their disclosures to the hospital, which then submits
them to the HSCRC as an indication of which of its listed trustees have reportable interests. In
effect, hospitals assume responsibility for ensuring compliance with disclosure requirements
of 3 percent or more in an entity that
has engaged, during the reporting period, in a transaction with the hospital of $10,000 or more (a
reportable interest).
10 A person has a “beneficial interest” in a business entity if the person “ultimately benefits or suffers losses from the operation of
the firm or has a vested interest in it, and includes, but is not limited to, limited partners, beneficiaries of voting or other trusts,
and limited term and remaindermen beneficiaries or owners.” COMAR 10.37.01.01B(2).

84
applicable to trustees as a means of fulfilling the regulatory reporting responsibility of the
hospital.11
It is clear, however, that individual trustees are personally responsible for failure to disclose their
reportable interests. Unless the deadline is extended, a civil penalty of $25 per day may be
assessed against a trustee whose disclosure of a reportable interest is filed more than 90
12 days
after the end of the fiscal year. The reporting regulation goes on to specify that if a hospital
reimburses or indemnifies its trustee for payment of the fine, that expense will not qualify as a
“reasonable cost” to be considered by HSCRC in the context of setting the hospital’s cost-based
rates. The reporting statute makes a trustee who “willfully” fails to file a required disclosure
report subject to a criminal penalty up to $500.13
Hospitals that fail to report to the HSCRC the names and business addresses of their trustees or
identify those with reportable interests in a timely manner may be subject to a civil penalty of up
to $250 per day the report is delayed (also expressly not a “reasonable cost” for rate-setting
purposes), and may be refused a rate increase.
14
11 Compare sections C and I of the reporting regulation (COMAR 10.37.01.06).
12 Since 1992, the HSCRC has granted blanket 30-day extensions of the 90-day reporting deadline for trustee disclosure reports
specified in regulation. See HSCRC Accounting and Budget Manual, Section 400 - 1 Reporting Requirements, at p. 1, posted at:
http://www.hscrc.state.md.us/documents/Hospitals/Compliance/Accounting&BudgetManual/8-1-
09/SECTION400_FINAL08.01.09.pdf (accessed 1/31/10)
13 The reporting regulation’s reference to “business transactions described in Health-General Article, §19-220” is meant to refer
to the reporting statute (§19-224); the reporting regulation, promulgated in 1974, cites the reporting statute’s then-current
designation. (Section 19-220 was recodified as §19-224 in 1999; its content has remained unchanged.)
14 These penalties apply to a hospital’s failure to file a report “required under … Health-General Article, Title 19, Subtitle 2,
Annotated Code of Maryland, or its regulations.” COMAR 10.37.01.03N(1) and (3).

85
Compliance and Completeness
Of Maryland’s 45 nonprofit hospitals, 44 submitted reports for FY 2008 that address, with
varying degrees of completeness, the information required by the reporting statute and
regulation. Section I of the reporting regulation requires a nonprofit hospital to (1) list its
trustees, (2) their business addresses, and (3) to indicate which ones are “also an employee,
partner, director, or beneficial owner of 3 percent or more” of a business entity that transacted
business with the hospital worth $10,000 or more during the reporting period. Distinct from the
three elements assigned as hospitals’ reporting responsibility are additional reporting
requirements, applicable to trustees, requiring more detailed information about such transactions.
A template and instructions incorporated into the reporting regulation provide a tool for
facilitating compliance.
Trustee Disclosure Statement Template and Instructions.
Timely submission to the HSCRC of a disclosure statement including all information the
template requires, prepared in accordance with the instructions, satisfies a trustee’s reporting
responsibility under the reporting statute and regulation. A hospital’s collection and submission
of complete trustee disclosure statements from all trustees with a reportable interest (along with a
list of trustee names and business addresses) satisfies the hospital’s reporting responsibility as
well.
Instructions accompanying the template characterize it as “a guide, not a form,” but indicate that
a trustee’s disclosure of interest statement must include all required information in substantially
the same manner. In addition to nine numbered items15 (most of an administrative nature) the
template features a table of six columns that represent six16 of the seven key elements reviewed
for this report’s assessment of completeness (see fig.1). The seventh element reviewed for this
analysis is the template’s item “(7),” the trustee’s signature, which appears adjacent to an oath or
affirmation.17
15 These include: trustee name and address, hospital or related institution indicator, hospital name and address, date of statement,
reporting period, oath or affirmation, trustee signature, assumption of responsibility for valuation, and appraiser qualifications
and signature.
16 The name and address of a trustee’s firm (i.e., the business entity with which the hospital has done business amounting to
$10,000 or more) are counted, for purposes of the completeness assessment, as two data elements. Because the instructions
indicate that either column E or F are to completed (not both) columns E and F are counted as a single element.
17 To the left of the template’s signature line (item (7)), the following appears: “(6) Oath or Affirmation 1. Oath of Trustee before
Notary Public that the Statement is true and correct to the best of the knowledge, information and belief of the Trustee OR 2.
Signature of Trustee, under declaration that Statement is true and correct under the penalties of perjury.” This, with the trustee’s
signature, apparently is intended to address the requirement that the trustee’s statement be signed and verified, as required by the
reporting statute and regulation.

86
Fig. 1. COMPLETE EITHER COLUMN E OR
F, BOTH COLUMNS NEED NOT BE
COMPLETED
A B C D E F
NAME
AND
ADDRESS
OF
TRUSTEE’S
FIRM
MAJOR
BUSINESS,
PROFESSIONAL
OR ACADEMIC
ACTIVITY OF
FIRM
TITLE,
RELATIONSHIP
OR POSITION
OF TRUSTEE
IN THE FIRM
TYPE OR
NATURE OF
BUSINESS,
TRANSACTIONS
DEALINGS OR
SERVICES BY
AND BETWEEN
HOSPTIAL
/INSTITUTION
AND
TRUSTEE’S
FIRM HAVING
AN ACTUAL OR
IMPUTED
VALUE OR
WORTH TO THE
FIRM OF $10,000
OR MORE
MONETARY
VALUE OF
BUSINESS OR
TRANSACTIONS
TO TRUSTEE’S
FIRM
CONSIDERATION FOR
OR PRICE OF GOODS
AND/OR SERVICES
RENDERED FROM
HOSPITAL/INSTITUTION
As mentioned above, neither statute nor regulation require submission of a trustee disclosure of
interest statement in precisely the format shown in Figure 1. Review of the disclosure statements
submitted by hospitals for FY 2008 showed that only 24 of the 38 hospitals indicating one or
more trustees with a reportable interest either used the HSCRC’s template or provided the
required data in a similar manner.
Results
For FY 2008, all 44 of the reporting hospitals provided a list of trustees, but only 38 hospitals (86
percent) provided trustees’ addresses. In some cases it was unclear whether these were business
addresses. Thirty-eight hospitals (86 percent of those reporting) indicated that one or more
trustees had a reportable interest during FY 2008. Individual hospitals reported between 1 and 48
reportable transactions in FY 2008 attributable to hospital trustees. In the aggregate, 257
transactions of $10,000 or more in which trustees had an interest were reported by 38 hospitals.
Of the aggregate 908 trustees listed by the 44 reporting hospitals, 38 hospitals indicated a total of
178 trustees with reportable interests,18
representing 20 percent of all trustees.
18 This number is not unduplicated; individuals who serve on more than one hospital board are counted for each hospital board on
which they serve.

87
Table 20
A1
Name of
trustee’s firm
A2
Trustee’s
firm’s
address
B
Trustee
firm’s
major
activity
C
Relationship
of trustee to
firm
D
Nature of
firm’s &
hospital’s
transaction ≥
$10,000
E or F
Transaction
value
(7)
Trustee
signature
Total
reported 238 135 232 238 132 196 253
Total
required 257 257 257 257 257 257 257
Compliance
rate 93% 52% 90% 93% 51% 76% 98%
Table 20 (above) shows the aggregate number of each key information element provided by the
38 hospitals required to submit trustee disclosure statements. Of all (257) trustee interested
transactions reported, 169 (66 percent) were from system-affiliated hospitals. Less than half of
the disclosure of interest statements submitted by all hospitals were complete: only 104 (40
percent) included each of the seven key elements.
Trustee disclosure of interest reports (submitted for FY 2008 by 39 hospitals) reference
transactions amounting in the aggregate to over $3.5 billion. Only 2.4 percent ($85 million) of
this aggregate value was reported by trustees of independent hospitals. The magnitude of
individual transactions ranged from $10,000 to almost $160 million. Transactions at the high end
of this range may seem implausible unless the effect of statutory attribution rules is considered.
If, for example, a hospital routinely engages in high-value transactions with another entity that is
part of the same system (including, for example, another hospital, a corporation or partnership
supplier of physician services, or a managed care organization) these transactions constitute
reportable interests for any trustee who serves on the boards of both entities, regardless of
whether the trustee has any direct or individual involvement in the transaction, and regardless of
whether the trustee derives any personal benefit from it. Moreover, if the transaction is between
two hospitals in the same system, the interest of a trustee who serves on the boards of both
hospitals must be reported by both hospitals. The aggregate value of transactions attributed to
interested trustees of all Maryland nonprofit hospitals is therefore misleadingly large because it
includes values that have been multiplied by the number of trustees in common to the boards of
entities on both sides of a transaction, and then doubled if both of those entities are nonprofit
hospitals.

88
Federal Reporting Requirements for Tax-exempt Organizations – “Transactions
with Interested Persons”
Organizations that are exempt from federal taxation (such as nonprofit hospitals) are required to
file Federal Tax Form 990 with the Internal Revenue Service annually. Under Form 990, which
was redesigned for tax year 2008, and its new Schedule L, nonprofit hospitals and other tax-
exempt entities must report a broader range of business transactions by the organization with a
broader range of persons and entities than formerly required. Some aspects of the new federal
reporting requirements are also broader than reporting currently required by Maryland law and
regulations.
Significant differences between the requirements of Form 990 and current Maryland trustee
disclosure requirements include federal rules that:
 Require a tax-exempt organization to report transactions in which a trustee’s only
interest is through a family member;
 Include separate reporting thresholds for single and multiple transactions during a
single reporting period;
 Include former trustees as potentially interested persons;
 Require the organization to indicate whether all trustees were provided a copy of
the organization’s final Form 990 prior to its filing; and
 Require a description of the extent to which trustees reviewed the completed
form, the scope of the review (if any), and how it was conducted.19
19 For a comprehensive discussion of Form 990’s reporting requirements, see Peregrine, M. & Mills, E. 2008. Corporate
Governance Emphasis in Final Form 990 Instructions, available at: http://www.greatboards.org/pubs/AHLA-MWE-Form-990-
instructions-exec-summary.pdf (accessed 2/5/10)

89
Discussion
The magnitude of some trustee interests reported by Maryland nonprofit hospitals is not
surprising considering the overstatement (for all practical purposes) that results from attribution
rules and trustee membership on multiple boards, usually within the same hospital system. In
many other cases, a trustee’s preexisting relationship with a firm that does business with the
hospital may be the reason for the trustee’s initial identification by the board as a desirable
trustee candidate. As discussed in chapter I of this report, effective governance requires that a
hospital’s board include members with certain core areas of expertise. It seems natural that
boards seeking new members capable of providing such expertise would look for candidates
among individuals with whom the hospital has existing business relationships, particularly when
those relationships involve trust. Trustees in this category may well include individuals who are,
for example, principals in firms that provide financial, legal, or other services for which the
hospital, in the ordinary course of business, pays substantial consideration.