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The Journal Gazette

  • File The recent spate of resignations on the Lutheran Hospital board of directors stems partly from the relatively little power held by those representing the hospital. They can suggest things, but the decisions are ultimately made by the parent company.

  • Kelley

  • Rumsey

Sunday, July 23, 2017 1:00 am

Lutheran flap shows issue with boards

SHERRY SLATER | The Journal Gazette

At a glance

The following serve on Lutheran Health Network-related boards:

Bluffton Regional Medical Center Board Members

• Harish Ardeshna, MD

• George Babcock, MD

• Ramalingam Balamohan, MD

• Wayne Barker

• Trent Bucher

• Carol Butler, MD

• David Dale

• Walter Erxleben, MD

• John Roembke

• Bernhard Wiebe, MD

• Lloyd Williams, MD

Dukes Memorial Hospital Board Members

• Mimi Berkshire

• Chris Collie, MD

• Mark Demchak

• Sherif Elmasry, MD

• Thomas Guthrie, MD

• June Pollydore, MD

• Roderick Sawyer, MD

• Ryan Schmidt

• Neil Stalker, MD

Dupont Hospital Board Members

• David Bojrab, MD

• Marty Bonick

• Brad Cash

• Joseph DeCamp, MD

• Lisa Dolan

• Kathryn Einhaus, MD

• John Fallon, MD

• Charles Morrison, MD

• Mike Poore

• Robert Severinac, MD

• Scott Wagner, MD

Kosciusko Community Hospital Board Members

• Steven Ashton, DO

• Jon Berger, MD

• Tammy Cotton

• Dennis Hively

• Patrick Ilada, MD

• Mike Kissane

• Kevin McGeehan, DO

• Brian Reichenbach, MD

• Ron Robinson

• Patrick Silveus, MD

• Jim Smith

• Eric Waldo, MD

• Lori Zimmerman, DO

Lutheran Hospital Board Members

• Mark King, DO

• James Arata, Jr., MD

• Isa Canavati, MD

• Richard Cardillo, MD

• Mike Eikenberry

• Andrew O'Shaughnessy, MD

• David Paris, MD

• Alan Peterson, MD

• Dale Sloan, MD

• Bill Zielke

• James Cameron, MD

• Mike Poore

St. Joseph Hospital Board Members

• John Addo, MD

• Michael Barranda

• John Bormann, MD

• Ellen Cutter

• Michelle Diss, NP

• Lisa Everett

• Ashraf Hanna, MD

• Jerry Henry

• Lynda Houk

• Thomas Kintanar, MD

• Judge Stanley Levine

• Louis Lopez, MD

• David Pepple, MD

• Hector Perez, MD

• Phil Rettenmaier, DO

• Donald Schenkel

The Orthopedic Hospital of Lutheran Health Network Board Members

• Jerald Cooper, MD

• Phil Downs, Ph.D

• Steven Fisher, MD

• Mark King, DO

• Kevin Rahn, MD

• Robert Shugart, MD

• George Kolettis, MD

• Lori Ailor

• Amy Hochstetler

Successful leaders want willing followers who support a shared vision. They need the buy-in.

When Community Health Systems' board rejected a local buyout overture for Lutheran Health Network in May, the parent company seemingly lost that buy-in.

Some local businessmen and physicians have resigned from Lutheran-related boards in recent weeks, often citing a sense of futility. Their input, they said, was ignored. Some of those who remain on the network's boards have said they are re-evaluating their service.

Within the CHS-Lutheran network relationship alone, four board structures exist. And none is the same setup as the board at Lutheran's local rival, Parkview Health.

Twenty-two years after Lutheran Hospital's board decided to sell its nonprofit operation to a corporate owner, some still question whether it was the right decision, while others maintain that it was.

Setting the agenda

A board is a board. Except when it isn't.

The differences depend on the type of organization, including nonprofits and for-profit companies. The latter category is further subdivided, depending on whether the business is privately owned or publicly traded. 

As a result, the amount of power and influence board members wield varies widely.

At Parkview Health, the 24-person board is the ultimate boss, setting the nonprofit's course and hiring its executives.

If the board decides CEO Mike Packnett isn't cutting it, it can fire him.

If Packnett sets his sights on an ambitious investment, board members have to approve before the project can be tackled.

As with other nonprofits, Parkview's board members are expected to act in the organization's best interests, follow its bylaws and state and federal laws.

In contrast, Lutheran and St. Joseph hospitals' primary boards are advisory. Members may offer opinions and suggestions, but final decisions are made by CHS executives.

Local doctors and business leaders, who sit on the trustee boards, are asked to “assess and preserve the overall quality of care provided at the hospital,” oversee staff credentialing and build community relationships, CHS spokeswoman Tomi Galin said in an email.

But specific responsibilities vary.

“Board by-laws, which contain information about board composition, terms and responsibilities, are slightly different for each hospital board and are considered private documents that are not generally provided to the public, so I don't plan to send those,” Galin wrote last week in response to a request for the documents that outline board members' duties.

Some Lutheran board members have complained they weren't asked for input before former CEO Brian Bauer was pushed out and interim CEO Mike Poore was given the post.

“There are some amazing, amazing people who have lost their employment,” said Chuck Surack, who resigned his post on Lutheran Hospital's board July 13. “Frankly, I don't want my name associated with an organization I don't believe in anymore.”

Tom Kelley, who served on the board alongside Surack, resigned July 14. The advisory board's structure didn't give them power in significant decisions, creating what both described as an intolerable situation.

“I don't want people in this community to believe that I in any way condone what they're doing,” Kelley said of CHS officials. “It's a travesty.”

Galin said CHS officials “respect their decisions and appreciate the contributions they have made for Lutheran Health Network.”

Although some high-profile members have resigned, dozens more remain on the eight hospitals' advisory boards.

“Some other board members have communicated directly to hospital leadership that it is their desire to move forward positively and to continue to support the hospitals and the important service these hospitals provide for their communities,” Galin said.

Joint ownership

Dupont Hospital's board operates differently than those at Lutheran and St. Joe hospitals.

At Dupont, physicians hold nine of the 12 board positions. CHS officials occupy three seats.

Although the doctors outnumber the corporate representatives, their votes add up to only 28 percent of the total, which equals the doctors' ownership stake.

Because they have a minority interest in that facility, the physician-board members have a fiduciary responsibility to other shareholders.

A fiduciary's duties are both ethical and legal. When corporate directors act on behalf of stockholders, for example, they must act in good faith, exploring all viable approaches to problems and opportunities.

“If a member of a board of directors is found to be in breach of his fiduciary duty, he can be held liable in a court of law by the company itself or its shareholders,” according to the website Investopedia.

Dr. Todd Rumsey was a Dupont board member for 17 years before resigning July 17.

He was re-elected to consecutive three-year terms since the hospital – and its board – was founded.

Rumsey was chairman until a month ago, when CHS removed him from the leadership position after the failed buyout effort.

Rumsey was one of the 10 doctors who tried to bring in an outside buyer for CHS' majority share of Lutheran's network.

The effort was prompted by concerns CHS hasn't invested adequately in Lutheran network hospitals, allowing buildings to deteriorate, equipment to break down and staffing levels to fall.

The decision to leave the board wasn't made lightly, Rumsey said. But he decided the amount of influence he had was too little compared to the liability.

“We have (legal) responsibility for the company,” he said.

Responsibilities

Yet another type of local board exists within the Lutheran network.

Separate joint venture boards were created for the four ownership groups that invested in Lutheran facilities. Known as syndication partnerships, the groups own minority stakes in:

• Lutheran Hospital, St. Joseph Hospital and The Rehabilitation Hospital (combined into a single syndication)

• Dupont Hospital

• The Orthopedic Hospital

• Kosciusko Community Hospital

“We believe productive collaboration is important to the hospital, its medical staff and employees – and can enhance the quality of services and care provided by the hospital,” Galin said. “Physician investors in Fort Wayne syndications have been paid approximately $400 million in earnings from these syndications under CHS' ownership.”

Dr. Andy O'Shaughnessy, a member of Lutheran's joint venture board, said it hasn't met in more than two years.

“I think it is just some sort of bylaws requirement to have a JV-boards. But they don't do anything I know of since all work is done at the hospital board level,” he said in an email.

Galin explained in an email that a joint venture board “serves as manager of the joint venture and has authority over matters necessary to carry out the business of the joint venture, including financial activities, contracting, etc.”

The Lutheran Health Network Investors LLC Board met earlier this year, she said.

Where buck stops

The ultimate power within CHS rests in its corporate board. Those members might argue, however, that it rests in the hands of shareholders.

That's the structure established by the Securities and Exchange Commission, the federal office that polices publicly traded companies to protect investors.

Although the CHS board of directors hires and fires top executives and lays out the company's strategic direction, they can be voted out of office by shareholders at an annual meeting.

Other than the annual meeting, the only time corporate leaders are questioned publicly is during quarterly conference calls with analysts. CHS will report second-quarter financial results on Aug. 1 after the close of trading. Its call with equity and security analysts is scheduled for 11 a.m. on Aug. 2. Anyone can listen in online.

Directors for publicly traded companies have a fiduciary duty to shareholders to consider reasonable offers for all or parts of the company they represent.

As explained earlier, anyone who violates a fiduciary duty to make decisions in the best interests of the company and its shareholders can be held responsible in court.

The CHS board said in May that the $2.4 billion offer being orchestrated by the 10 local doctors was at least $1 billion below Lutheran network's value.

Critics wonder whether an offer could be high enough to persuade debt-laden CHS to part with its biggest moneymaker. Lutheran's network has generated between $200 million and $300 million in annual profit, insiders have said.

Corporate debt is in the neighborhood of $15 billion.

Kelley, the local businessman, described it as a Catch-22 for CHS's chairman and CEO.

“Wayne Smith can't sell off any great assets except at a stupid price,” he said. By “stupid,” Kelley meant much more than the property's assessed value.

He added: “Nobody's going to pay the price they need to save the company.”

sslater@jg.net