How to establish and develop a tertiary hospital or medical center – ROJoson – 2003

How to establish and develop a tertiary hospital or medical center

Reynaldo O. Joson, MD, MHA, MHPEd, MS Surg


Definition of terms:

Establish – means building the structure and furnishing it with facilities

Develop – means formulating, implementing and constantly improving the system

Hospital or medical center – one that has both inpatient (confinement) and outpatient (ambulatory) facilities

Tertiary hospital or medical center – means hospital or medical center based on DOH standards – see DOH standards (generally, one that has sophisticated medical services not only in terms of diagnostic facilities but also treatment capabilities)

 Development of a tertiary hospital/medical center

The development of a tertiary hospital/medical center revolves around a board of directors or board of trustees.

Board of Directors or Board of Trustees

Why are boards needed and what are their functions?

First, the law requires them.  When a corporate entity is established, laws mandate that a board be established to assume responsibility of its affairs.

Second, boards represent the organization’s owners – be they stakeholders in the case of nonprofits or shareholders in for-profits.  Boards are owners’ agents and provide the means of ensuring that organizations act on the owners’ behalf.

Third, boards make sure that those “at interest” (e.g., management and medical staff) function in ways that further organizational mission and goals.

Only boards are empowered and able to perform these three functions.  They are ultimately accountable for their organizations – everything they do and everything that goes on inside of them.

While they assume ultimate accountability, boards have no ability to perform the actual work of their organizations.  They must see to it that such work is done by delegating tasks and authority to management and (in the case of the hospitals) to the medical staff.  Management and the medical staff are, in turn, directly accountable to the board for their decisions and actions.

To be effective, the boards of health systems and hospitals must have a clear, precise, and shared image of the type of work they should be doing to really govern their organizations.

What are the responsibilities of the boards?


  1. Boards are responsible for envisioning and formulating organizational ends.

Boards must formulate vision, mission, goals, and strategies.

All other board responsibilities flow from, and depend on, the fulfillment of this responsibility.

  1. Boards must assume responsibility for ensuring high levels of executive management performance.

Responsibility in

recruiting and selecting the CEO;

specifying CEO performance expectations;

appraising CEO’s performance;

determining CEO’s compensation and benefits;

terminating CEO’s employment relationship with organization.

CEO is generally both a colleague and a subordinate.

CEO is a member of the board who also reports to it.

CEO is full-time.

  1. Boards must assume ultimate responsibility for ensuring the quality of patient care.

Responsibility in

credentialing ( appoint, reappoint, and determine privileges

of medical staff);

ensure that the necessary quality, utilization, and risk

management systems are in place and operating


assess the process and outcomes of care.

Two questions to answer:

  1. Does our institution provide high-quality care?
  2. How do we know that high-quality care is being provided?
  1. Boards are responsible for ensuring their organization’s financial health.

Responsibility in

Establishing key financial objectives that lead to

accomplishing organization’s goals and mission;

Ensuring that necessary financial planning activities are

undertaken so resources are allocated effectively

across competing uses (focus: operating and capital


Ensuring high levels of financial performance (focus: results

as reflected in financial documents such as balance

sheet, revenue and expense statement, and cash flow statement);

Ensuring that appropriate controls are in place (focus: audit);

Ensuring that excess funds are invested prudently.

  1. A board must assume responsibility for itself – its own effective and efficient performance.

Responsible in ensuring that

Its configuration is appropriate (focus: board size and

composition, member terms, board budget and

staffing, officers, committees, in addition to

recruitment, selection, and orientation of new


Necessary board evaluation and development process are in


Its meeting are conducted in an effective and efficient


Its legally mandated fiduciary obligations (duties of care,

loyalty, and obedience) are met.

Boards cannot do a good job fulfilling the other four responsibilities if they do not fulfill this one well.

What are the roles of the boards?

  1. Policy formulation
  2. Decision making
  3. Oversight

Policy formulation

Boards formulate policy with respect to each of their five responsibilities.  Such policies provide organizations with direction and are the means by which authority and tasks are delegated to management and the medical staff.  Policies also provide framework for executing the decision-making role.

The formulation of policy is the primary mechanism through which boards influence their organizations.  As such, they provide the most tangible evidence that boards are fulfilling their responsibilities.

Policies are statement of intent that guide and constraint further decision making and action and limit subsequent choices.

There are three different levels of policy – statements of board responsibility, board policy, and operating policy.

Statements of board responsibility describe the nature and scope of board obligations for formulating organizational ends, ensuring high levels of executive management performance, ensuring quality of patient care, ensuring financial health, and ensuring the board’s own effective and efficient performance.  One such statement should be formulated for each board responsibility.

Responsibilities Statements of board responsibilities
Ends The board will be responsible for envisioning and formulating organizational ends. In consultation with stakeholders, it will formulate vision, mission, goals, and strategies and will make a review at least once every 5 years.
Executive management performance The board will be responsible for ensuring high levels of executive management performance through a Chief Operating Officer.  It will be responsible for recruiting and selecting the CEO; specifying CEO performance expectations; and appraising CEO’s performance.
Quality of care The board will be responsible for ensuring quality of patient care.  It will formulate quality policies to fulfill this commitment.
Financial performance The board will be responsible for ensuring the organization’s financial health.  It will formulate policies to achieve this objective.
Self The board will be responsible for its own performance in terms of effective and efficient achievement of organizational ends. There will be a management self-audit every year.

Board policies flow directly from statements of responsibility.  They provide direction and convey board expectations of management and medical staff as they go about accomplishing the organization’s work.

Operating policies are more detailed policies for the management and medical staff to observe and to follow.

Dividing line between board and operating policies determined by the board.  Few broad policies, more delegation to the management and medical staff.  More detailed, more restrictive and prohibitive.

Decision making

Decisions must be made by boards in each of their areas of responsibility and regarding recommendations forwarded to them by management and the medical staff.

Decision making is often considered to be the central and most important role of governance, since much of what boards do eventually comes down to making choices.

Policies provides the contex for, and guides, decision-making.

Board may retain, delegate or share authority for decision making.


Boards then engage in oversight by monitoring decisions and actions to ensure they conform with policy and produce intended results.

3 functions of oversight:

Monitoring, assessment, and feedback

Need for governance information system:

Selective and of high leverage


Clear, concise and user-friendly

Valid, accurate, and timely


Board Policy Formulation
Board Decision Making




and tasks

Management / Medical Staff

decision making and actions



Board Oversight



A paradigm of board work

Ultimate responsibilities Core Roles
Policy formulation Decision making Oversight
Executive management

Really Governing: How Health System and Hospital Boards Can Make More of a Difference.  Dennis D. Pointer and Charles M. Ewell.  Delmar Publishers, Inc. Albany, NY, 1994

The specifics of how to establish and how to develop a tertiary hospital / medical center will be presented in subsequent documents, chapters, and pages.

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