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Nurs Admin Q Vol. 39, No. 1, pp. 32–37 c 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins Copyright 

A New Model of Governance One University’s Journey Beth A. Brooks, PhD, RN, FACHE; Therese Scanlan, EdD In the nearly 50 years, since the Medicare Program established funding for nursing education in the United States, there has been a steady migration away from hospital-controlled programs toward those which function as wholly owned subsidiaries within larger health care systems. Private sector health care organizations in particular are under increasing pressure to adapt at the risk of losing all of their funding. However, accomplishing this presents multiple challenges for today’s nursing education programs in terms of their regulatory compliance, accreditation, autonomy, and, above all, governance model. The authors outline the journey toward, and specific challenges involved in creating, implementing and administering a new governance model, which sustains the overall mission and vision of the education institution while functioning seamlessly within a modern corporate health care system. Key words: accreditation, board of directors, bylaws, governance, nursing education program

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N 1965, the US Department of Health, Education, and Welfare established Graduate Medical Education (GME) funding for nursing education under the new Medicare program1 intended to support the development of a needed, vital resource: educational preparation of health care providers. At that time, 80% of nursing education occurred in hospitalbased diploma programs, legally structured so that the nursing education program was a department of the hospital.1 When the US Department of Education (DOE) took on greater scrutiny of institutions of learning, the intent was to assure that all the appropriate controls for the provision of quality education were in place. Resulting regional accreditation criteria require hospital-based nursing education programs to separately incorporate their programs as wholly owned subsidiaries. Straddling these different visions of what an institution should do poses a challenge to nurse

Author Affiliations: Resurrection University, Chicago, Illinois. The authors declare no conflict of interest. Correspondence: Beth A. Brooks, PhD, RN, FACHE, Resurrection University, 1431 N Claremont Ave, Chicago, IL 60622 ([email protected]). DOI: 10.1097/NAQ.0000000000000075

leaders in private sector health care organizations that need to convert their nursing education program from hospital control to a new corporation controlled by a board of directors. In addition to legal, financial, and management changes, the critical change is that of governance. This article describes the rationale, process, and challenges of establishing new governance for an educational institution, a complex change process nurse leaders are well suited to manage. REGULATORY REALITIES In 2012, GME funding for nursing and allied health education programs amounted to $270 million. Medicare regulation 42 C.F.R. §413.852 stipulates 2 options for hospital providers that have nursing and allied health education programs. The first of 2 options is the focus here. One option discussed here is to demonstrate compliance with §413.85(f) as a “provider-operated” program. As a provideroperated program, the hospital must demonstrate sufficient control over the operation of the nursing education program to receive Medicare pass-through funding for certain clinical and classroom costs associated with the program. Congress recognized as early

32 Copyright © 2015 Lippincott Williams & Wilkins. Unauthorized reproduction of this article is prohibited.

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A New Model of Governance as 1972 that Medicare funding for nursing and allied health education programs was expanding beyond its original, intended scope. In 1975, Medicare began to rein in costs by limiting funding solely to provider-operated nursing education programs. Various other changes occurred in the following years in response to case law and the change to prospective payment under Medicare Part A in 1983. Spanning 1965 to 2001, 2 articles provide the most recently published overviews of GME funding for nursing education.1,3 In 2003, the DOE “grandfathered” some nursing education programs, which allowed them to continue to receive Medicare passthrough funding, but with several new caveats. For the Centers for Medicare and Medicaid Services (CMS), this meant that the Grandfather Exception would be narrowly applied to a very limited subset of hospital providers. Specifically, CMS stipulated that the Grandfather Exception would only apply to hospital providers who separately incorporated their nursing education programs prior to October 1, 2003. Therefore, separate incorporation after this date jeopardized Medicare pass-through funding. For this reason, a number of provider-based nursing education programs continue to receive CMS pass-through funding. Losing Medicare pass-through funding can range from a loss of hundreds of thousands of dollars to more than a million dollars per year. These funds can make the difference between an operating loss, breaking even, or being in the black. One can see how changing from a provider-operated program to a separate corporation might jeopardize the ongoing viability of certain nursing education programs. Accreditation realities Regional accreditors (of which there are 6 across the country) authorize institutions of higher learning to receive Title IV student financial aid. Educational institutions without authorization to participate in the student financial aid program rarely exist. Regional accreditation results in a federally

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funded revenue stream to the institution and signifies competence and a level of quality in higher education. In addition, regional accreditation is a prerequisite to achieving the specialty accreditation sought by colleges of nursing, medicine, pharmacy, and similar programs. Regional accreditors find themselves under heightened scrutiny by the DOE and Congress because of concerning trends. The average cost for tuition and fees at a private, 4-year school has risen 3.8% and is now $30 094.4 The amount of student loan debt is burgeoning, with this type of debt now outranking consumer credit card debt.5 With readily available student loans, some institutions are admitting unqualified students who never complete a degree yet incur significant student loan debt. The average student graduates from college with $29 400 in debt.6 The latest 2-year cohort default rate, which applies to borrowers who began repaying loans from October 1, 2010, to September 30, 2011, was 10%, with the 3-year cohort default rate at 14.7%—the highest rate in nearly 2 decades.7 This has resulted in an increase in media coverage. There is increased scrutiny by the public and Congress about higher education and the role of regional accreditation. In response, the DOE requires regional accreditors to be more vigilant to prevent quality and financial lapses in higher education. Specifically, the DOE requires accreditors “to monitor the fiscal stability of each accredited institution.”8 Monitoring the fiscal stability of a provider-based nursing education program is difficult when financial information about the education program is intermingled with that of the provider. One regional accreditor requires nursing education programs to provide fiscal stability information as a separate audited financial statement or from a separate schedule in the audited financial statement of the provider. In addition, some regional accreditors are defining the DOE directive to be more vigilant by changing accreditation criteria to require educational institutions to be independent corporations. This change has impacted art, Bible, theological, nursing,

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and allied health education institutions. Understandably, many hospital providers view this language as confusing, creating tension between (1) accreditation criteria requiring separate incorporation and independent fiscal stability and (2) Medicare pass-through requirements, which dictate provider-control of the educational program. To convert a provider-based nursing education program to a new corporation, a number of legal, financial, and management changes must occur, but the process of changing governance is most critical. However, none of this work can begin until the regional accreditor is notified. While there may be some differences in how each regional accreditor conducts this process, the following section describes 1 example. Notifying the regional accreditor A nursing education program must submit an application when implementing a change of corporate form, governance structure, or conversion involving a parent corporation that owns or controls, or when the nursing education program is a subsidiary of a parent corporation.9 An institution receives approval before undergoing a transaction that affects, or may affect, corporate control, the structure, or how governance occurs at an accredited institution. Control is understood by the accreditor to mean as follows: “the possession, direct or indirect, of the power to direct or cause the direction of, the management and policies of an institution . . . .”9

In provider-based organizations, the provider’s bylaws vest authority in the provider’s board, rather than control or governance emanating from the educational institution. THE PROCESS OF CHANGING GOVERNANCE As mentioned earlier, provider-based nursing education programs are structured as a department of the provider, overseen by

the provider’s board of directors. As a result, board members act as a fiduciary of the provider. Generally, fiduciary duties imposed upon board members include 2 components. The first component is undivided loyalty. The second component is reasonable business judgment in conducting the business affairs of the organization.10 Undivided loyalty can be complicated when individual board members must make decisions for the provider that are not in the best interest of the nursing education program. A solution to this dilemma is to create a separate corporation for the nursing education program. This results in a board of directors with undivided loyalty that conducts the business of the education program in a reasonable manner. The first step is for the education program to become an independent, not-forprofit 501(c)3 corporation with articles of incorporation that state the purpose of the organization is for education. Some examples of the components of purpose statements are listed in Table 1. Following this, bylaws that govern the education institution must be developed. Bylaws, considered a legal document, outline the powers, duties, and responsibilities of the board. The bylaws shape how the organization is governed, focusing on issues such as the purpose and mission; the structure of the board; officer position descriptions and responsibilities; the terms of board service; officer and board member succession and removal; official meeting requirements; membership provisions; voting rights; oversight of the annual operating and capital budgets; and the conflict-of-interest policy.10 An education institution’s bylaws may include such things as overseeing strategic planning; providing for the maintenance of accreditation; establishing appropriate criteria and expectations for appointing, reviewing, and removing the university president; university and faculty policies and revisions to those policies; adding new programs or revising programs; and setting tuition and fees.

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Table 1. Articles of Incorporation Purpose Statements 1. Establish, maintain, operate, and support an accredited, degree-granting institution in the field of nursing, and other fields related to health sciences and health care. 2. Facilitate academic excellence and clinical competence through general, nursing, and other health sciences and related education and training. 3. Prepare graduates to utilize theoretical knowledge and skills in meeting the needs of individuals and groups in various health settings and to become responsible health care professionals who exemplify the highest legal, ethical, and professional standards. 4. Employ faculty and staff who are academically and experientially qualified and who maintain expertise appropriate to teaching service and scholarly activities. 5. Ensure academic excellence through ongoing evaluation of its operations. 6. Promote research in health sciences. 7. Provide financial assistance to students and others based on financial need, within the means of the University.

LOCATING NEW BOARD MEMBERS

ONE UNIVERSITY’S EXPERIENCE

Once the bylaws outline the powers, duties, and responsibilities of board members, a job description for board members must be developed. This is followed by identification of competencies required of board members to guide the process of locating new board members. The governance committee uses the competencies to create a grid utilized in succession planning. Identifying the competencies needed for a highly functioning board is vital because of the wide range of new challenges facing higher education today.11 As governance in higher education begins to change, there is an emergence of boards composed of experts in higher education, risk management and compliance, as well as those who can support the institution philanthropically. At Resurrection University, bylaws stipulate 9 community directors appointed by the board and 3 at-large directors appointed by the health system. Community directors have expertise in higher education finance, health care workforce development, adult education, law, higher education and health care informatics, and information management. The community members are highly skilled leaders, diverse in their thinking and backgrounds, inquisitive, and thoughtful.

Once new board members are selected, the work of orienting them to their role, responsibilities, and higher education begins. At our university (Resurrection in Chicago) the three-part orientation includes face-to-face meetings, webinars, and campus tours with department leaders. We used the exceptional resources from the Association of Governing Boards of Universities and Colleges (AGB) to guide the creation of orientation materials (eg, glossary of terms, institution history and mission, fact sheet, overview of budget and finances, strategic plan), direct the selection of guest speakers, and create a mentor program. A series of webinars were presented by the institution’s retained legal counsel to provide information on the myriad laws regulating higher education. Table 2 lists the AGB publications provided to each board member during orientation. Subsequently, our board’s governance committee developed a board survey to evaluate the functioning of the board and assess how each member felt he or she was performing in his or her role. The committee also created a learning needs assessment used each year to plan board education sessions and retreat; devised an orientation evaluation; and developed an end-of-term discussion

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Table 2. Orientation Materials AGB Board Responsibilities for Institutional Governance (2010) AGB Statement of Board Accountability (2007) Effective Governing Boards: A Guide for Members of Governing Boards of Independent Colleges and Universities (2011) Top Public Policy Issues (2013) Tuition and Financial Aid: Nine Points for Boards to Consider in Keeping College Affordable (2011) Top 10 Strategic Issues for Boards 2013-2014 (2013) Abbreviation: AGB, Association of Governing Boards of Universities and Colleges.

guide to determine if a member should be renominated to serve an additional term. Each board member also receives a copy of Trusteeship AGB’s publication for board members. CHALLENGES WHEN ESTABLISHING NEW GOVERNANCE Other important steps in establishing a new governance model involves solving for 2 key needs: assembling legal and finance teams with the necessary backgrounds and credentials; and establishing parameters for the University board’s autonomy and independence from the health care system. The type of legal counsel typically retained for a health system lacks experience in the accreditation criteria and DOE regulations for institutions of higher education. Likewise, finance professionals working in a health care system will have limited exposure to guidelines specific to higher education and Title IV.

Resurrection University invested significant time in reviewing and evaluating law firms before selecting one with the background needed to guide us through the process of drafting the Change of Control application. The University already employed a chief financial officer with expertise in higher education who works intimately with the finance department of the health system. In addition, the university’s new bylaws vest fiduciary responsibility with the University Board. While the parent corporation retains select reserve powers, the Board has the autonomy to oversee how the University fulfills its mission. The new organizational chart depicts the president of the university reporting to its board of directors, with a dotted line reporting relationship to the health care system’s chief executive. CONCLUSION Leading a complex process such as changing governance is something nurse leaders are well suited to manage. Straddling different views of what an institution should do are waters nurse leaders navigate daily. Converting a nursing education program from providercontrol to a new corporation controlled by a board of directors is a daunting challenge. However, our institution successfully implemented a governance change that adhered to accreditation criteria, vested authority for governance with the institution’s board, maintained financial solvency, and sustained high academic standards. Other organizations will be able to do this as well, by addressing legal, regulatory, accreditation, and good governance standards and processes.

REFERENCES 1. Fulcher R. Nursing graduate medical education: misdirected funding. Policy Polit Nurs Pract. 2000:1; 97-100. 2. Cost of approved nursing and allied health education activities. Code of Federal Regulations. Title 42, § 413.85, 2010 ed. 3. Thies KM, Harper D. Medicare funding for nursing education: proposal for a coherent policy agenda. Nurs Outlook. 2004;52:297-303.

4. College Board. Trends in College Pricing 2013. New York, NY: Author; 2013. 5. Federal Reserve Bank of New York. Student loan debt by age group. Retrieved from http://www .newyorkfed.org/studentloandebt/. Accessed March 29, 2013. 6. Reed M, Cochrane D. Student Debt and the Class of 2012. Washington, DC: The Institute for College Access and Success; 2013.

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A New Model of Governance 7. US Department of Education. Default rates continue to rise for federal student loans. http://www .ed.gov/news/press-releases/default-rates-continuerise-federal-student-loans. Published 2013. Accessed November 3, 2014. 8. US Department of Education. Accreditation in the United States subpart B: the criteria for recognition. http://www2.ed.gov/admins/finaid/accred/ accreditation pg13.html. Published 2013. Accessed November 3, 2014.

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9. Higher Learning Commission. Change of control, structure or organization. http://policy.ncahlc.org/ Requirements-for-Affiliation/change-of-controlstructure-or-organization.html. Published 2014. Accessed November 3, 2014. 10. Clarkson KW, Miller RL, Cross FB. Business Law: Text and Cases—Legal, Ethical, Global, and Corporate Environment. 12th ed. Stamford, CT: Cengage Learning; 2012. 11. Holtschneider D. The incalculable benefits of revitalizing your board. Trusteeship. 2013:20(3);8-14.

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A New Model of Governance: One University's Journey.

In the nearly 50 years, since the Medicare Program established funding for nursing education in the United States, there has been a steady migration a...
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