From the Contributor’s Corner: Board Member Compliance Obligations

The trend is clear:  more is being expected of members of the Board in overseeing the compliance program. The DHHS Office of Inspector General (OIG) has been making its interest in a top-down compliance program that begins at the board level. A good place to begin understanding this expectation can be found in a joint publication by the OIG and American Health Lawyers Association, titled “Corporate Responsibility and Corporate Compliance: A Resource for Health Care Boards of Directors.”

Under the Affordable Care Act (P.L. 111-148), CMS will be developing mandate compliance requirements. It is reasonable to expect that it will use this document in developing its standards. It is also likely it will address:

  • Increased exposure/liability for board members for failing in their fiduciary duties and obligations;
  • Urging outside directors to becoming independent directors; and
  • Expectation that outside and independent directors will have more skills, knowledge and expertise in financial and compliance matters.

Traditionally, outside directors were the primary watchdogs of any board. They were the ones that were to control the audit, compliance, and compensation committees, rather than directors from the management of the enterprise. Over the last ten years, there have been movements to make these outside directors even more independent and accountable. An independent director should not be affiliated with the organization as adviser, auditor, or consultant or have personal services contract(s) with the Company. Further, an independent director should not be affiliated with a significant customer or supplier of the company. Independence is also impaired if a member of the immediate family of any person on the Board has a relationship as noted here.

Taking a page from the Sarbanes-Oxley Act, which calls for financial literacy on board audit committees, it is likely that something similar will be expected of board committees overseeing the compliance program. That is, at least one member of the committee would be expected to have intimate knowledge of compliance as result of having been a compliance officer, an attorney who has dealt with compliance issues, or having had experience as a compliance consultant, etc. In short, the board members on compliance committees should have the requisite knowledge and skills to be able to critically evaluate the information relating to these areas.

To avoid legal exposure, it is likely organizations will be forced to find these types of people for their boards. Already many enterprises are revamping the constitution of their boards and enlisting members who are not only outside of current management, but meet the standards of independence. It is advisable for any organization with a board to examine whether its members have the prerequisites to do the job properly.

If not already done, it is advisable for compliance officers to begin educating their senior management and board oversight committee on their fiduciary obligations.

Richard Kusserow is CEO of Strategic Management Services and previously served as the DHHS Inspector General for 11 years.  In the last 20 years, his firm has assisted over 2,000 organizations in the health care sector with compliance issues.

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Copyright © 2013 Strategic Management Services, LLC.  Published with permission.