August 17, 2020
Serving on a Board of Directors of a health care provider organization like a hospital, a physician practice, an ambulatory surgery center, a community health center, or some other type of provider is an important job that comes with serious obligations and duties in the best of times.
During the COVID-19 pandemic, health care providers and their Boards of Directors ("Boards") are facing even greater challenges than normal as providers learn to cope with the clinical impacts of COVID-19 while at the same time trying to operate a successful health care business during unprecedented and challenging economic times.
Under most state laws, Boards have specific duties to the company and to its shareholders (should the company have shareholders):
- Duty of Care – A Board member must be engaged and informed and take reasonable action based on the facts and circumstances. A Board member must act with the care that a person in a similar situation would reasonably believe appropriate for the corporation.
- Duty of Loyalty – A Board member must act in the best interest of the entity without a conflict of interest or self-dealing
In discharging the duties of care and loyalty, the Board member must also act in good faith.
These duties are fiduciary duties, which establish a high legal standard for the behavior of members of Boards. Breaching these fiduciary duties could potentially lead to personal liability for the Board member.
Fortunately, most states allow for legal protection under the “business judgment rule” which provides some protection for Boards against a claim for a breach of the duty of care if they stay informed and act within their authority, in good faith and without conflicts of interest. In most states, the “business judgment rule” establishes a gross negligence standard for evaluating the potential personal liability of Board members for their actions or inactions if the business judgment rule applies. In most cases, Boards do not have to be "right" all of the time when making a decision, but to get the benefit of the doubt, they need to follow the “right” process. This includes taking steps to keep informed of all applicable facts, consulting with management and outside third party guidance if necessary and following up with questions and inquiries. The business judgment rule, however, offers no protection in a claim for a breach of the duty of loyalty.
How has COVID-19 affected how Boards think and how they meet their duties?
Safety of Patients and Employees
Because of the pervasive threat of COVID-19, Boards of health care providers need to be more concerned about the safety of their patients and of their employees than in the past.
Every health care provider needs to have a safety plan for its patients and for its employees. Boards are ultimately responsible for these plans and need to be sure that the plans are in place and working. Making sure patients and employees are kept safe from COVID-19 while in the workplace, to the extent reasonably possible, has become a new priority that Boards must address. This includes ensuring that protocols and procedures are in place to address COVID-19 related issues including use of masks, testing and return to work policies and confirming that the organization has adequate personal protective equipment (PPE) for its employees. Boards should also be sure to consult the extensive governmental and other reliable guidance materials available on such issues.
Compliance with Applicable Laws
One of the key obligations of Boards of health care providers is maintaining compliance with the numerous federal, state and local laws applicable to health care providers. The COVID-19 pandemic has created temporary waivers to many of these compliance obligations. Boards must track these temporary changes in laws and be prepared to make the necessary changes to their organizations to maintain compliance with the existing laws when the temporary waivers expire. If there are other changes in the law caused by COVID-19, the Boards need to make sure that they are aware of these changes. Boards must also be prepared to document their attempts at ongoing compliance with these laws.
Health care providers are uniquely challenged by the COVID-19 pandemic because they are having to change the way that they do business to protect their patients and employees while at the same time dealing with the financial strain imposed on all businesses during the pandemic. If health care providers have received Paycheck Protection Program (PPP) or Coronavirus Aid, Relief, and Economic Security (CARES) Act money or other loans or financial aid, the Boards must remain aware of the obligations related to these kinds of financial assistance. Boards must reevaluate the financial condition of the organization and make reasonable decisions that are in the best interest of the corporation (and shareholders, if the corporation has them). Some of these financial decisions may be difficult, but the duty of care requires that Boards be engaged to make these kinds of decisions and to document the reason for their decisions in applicable corporate documents like corporate minutes or resolutions.
Liability Projection for COVID-19 Claims
Many states have granted immunity for certain limited claims related to COVID-19. North Carolina and Georgia have passed limited COVID-19 immunity legislation, but South Carolina has not. In South Carolina, there is another limited legislative session for two weeks in September and there is a chance that South Carolina will pass similar legislation. If South Carolina does not pass COVID-19 immunity legislation, Boards of entities operating in South Carolina will need to ensure that the health care providers have adequate risk management policies and insurance coverage to protect against potential COVID-19-related claims. This includes making sure that the organization has adequate insurance to cover its operations, that the entity is engaged in proactive risk management strategies, and that company understands any policy exclusion that could affect coverage during a pandemic.
In summary, Boards need to be more careful and deliberate than ever when making decisions about the organization during this global pandemic, and they should take extra steps to document what they do and why they thought it was the reasonable course of action.