Saturday, November 08, 2008

An Unrecognized Conflict of Interest

Some years ago I was told by a friend working in its health care benefits section that General Motors prohibited its executives from serving on local hospital boards. The reason was that it did not want to be obligated to contribute to fund drives in support of hospital construction that it believed to be unnecessary and drove up the cost of health care.

Earlier this year I learned that Massachusetts Blue Cross Blue Shield unsuccessfully sought the support of large employers in opposition to the large increases in reimbursement being sought by local hospitals. The apparent reason was that the senior executives of those firms or their spouses were on the boards of those hospitals.

What these stories illustrate is a conflict of interest that exists when executives of companies providing health benefits to employees serve on the boards of hospitals that serve their employees. The same would be true of their spouses.

The conflict is this: as company executives, they are responsible for holding down cost. As hospital trustees, they are responsible for increasing income. Those two purposes are in direct conflict with one another.

In the days before employer-provided health insurance when hospitals were financially dependent on philanthropy, it made sense to populate their boards with potential donors, a group that would include merchants and industrialists.

But those days are long past and while hospitals continue to seek philanthropy, they have to live off of income received for services rendered.

The so-far unrecognized implication is that executives of companies providing health care benefits to employees and their spouses ought to be disqualified from serving on hospital boards because doing so constitutes a conflict of interest that makes it more difficult to control the cost of health care.

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