Minimum Director Independence Requirements: The Next Trend in Hospital Governance?

Boardroom Press February 2017

Anjana D. Patel, a Member of the Firm in the Health Care and Life Sciences and Litigation practices, in firm’s the Newark and New York offices, and Anjali N.C. Downs, a Member of the Firm in the Health Care and Life Sciences practice, in the firm’s Washington, DC, office, authored an article in Boardroom Press, titled “Minimum Director Independence Requirements: The Next Trend in Hospital Governance?”

Following is an excerpt:

In healthcare, many hospitals and health systems are tax-exempt organizations under section 501(c)(3) of the Internal Revenue Code. Although the IRS does not mandate a particular board structure, it will review an organization’s board structure, conflict-of-interest policy, and disclosures to ensure that the board is not dominated by non-independent directors. Further, given the dynamic nature of the healthcare industry, many hospitals and health systems continue to consider changes to their board structures in an effort to improve their governance practices, including imposing a requirement for a minimum number of independent directors.

This article discusses some of the factors driving decisions around director independence, including recent changes in government enforcement guidance that may also impact board composition.