Hospital boards to shift makeup
By Steve Herring
Published in News on November 12, 2014 1:47 PM
The Wayne Health Corp. board will ask Wayne County commissioners to amend the 1986 documents that established the board's makeup as well as that of the Wayne Memorial Hospital Inc. board.
The corporation was created in the mid-1980s as the parent company of the nonprofit Wayne Memorial Hospital Inc. when the decision was made to switch the hospital from a public to a nonprofit organization.
The Wayne Health Corp. board has 10 members. Eight are appointed by county commissioners based on that board's recommendation. Two other members, including hospital President Bill Paugh and Dr. Samer Kasbari, medical staff president, are ex-officio members by virtue of their offices.
The Wayne Health Corp. board appoints the Wayne Memorial Hospital Inc. board.
All 10 members of the Wayne Health Corp. board also serve on the 12-member Wayne Memorial Hospital Inc. board. Ray McDonald Jr. is the chairman and James C. Parker is vice chairman for both boards.
Is was Parker who Tuesday morning made the motion that Paugh and board attorney Bob Wilson prepare whatever documents are necessary to make the change so that the membership of both boards would be the same.
It would also mean 12 members on each board, he said. But Parker said he was "not hung up" on that number.
"I would say two things," Parker said. "One is that if you put in the time, you ought to be on both boards. (The current organization) is somewhat confusing to me."
As the hospital grows, it will add more and more physicians, which would mean the hospital would certainly want physicians on the board, Parker said.
That would result in more "inside" directors and fewer outside ones, he said.
Both Paugh and Wilson said they had no particular stand on the issue.
"There was a reason it was set up this way back in the day," McDonald said. "In my personal opinion, it is a byproduct of a bygone era. I don't really think it pertains to what we have today. That is my personal opinion."
Wilson said that when Wayne Health Corp. and Wayne Memorial Hospital Inc. were organized in 1986 the thinking was to make sure the boards were not precisely the same to make it more difficult for the administration of the boards "to occur" together, he said.
"In other words, we wanted to make sure that the corporate veil, or the corporate identity of each of the corporations was completely separate," he said. "So we set up the procedure for meetings and the elaborate discussion that we have about going into closed session and so forth for each organization in order to make sure the corporate records are very clear that we are operating two separate corporations.
"The feeling was that if each board was populated by the exact same individuals that there would be a tendency, as there has been in other board situations that I am aware of, to slacken those requirements and muddy the water between the two."
In the mid-1980s, the perception was that the IRS preferred separation of the boards during a period when a lot of hospital reorganizations were going on, Wilson said. The practice was to differentiate between the holding company and the operations company, he said.
Wilson said he was not sure that is any longer in vogue and that he does not think the IRS still believes that a board must be of a different composition to prevent that kind of "identity crisis."
In fact, Wilson said he is working on reorganizations providing mirror boards similar to what was being discussed.
"I can't think of a legal reason not to do it in terms of the IRS considerations for the two corporations," he said. "I think that the other reason that was used in 1986, when this was done, was to have more of a community representation on the hospital board, that the holding company board was intentionally smaller just from a management purpose.
"But that is from a historical perspective. That is all I can bring to that."
Paugh said he had been asked why the corporations had been set up in such a way, but he was not opposed to making a change if it is what the board wants.
Paugh said he had seen other organizations he has been involved with set up the same way.
The board unanimously approved Parker's motion and will review the resolution when it meets in December.
If approved then, it will be sent to commissioners for their consideration.