Prof. Zack Buck’s scholarship regularly focuses on the tension that health care providers and institutions face between ensuring their own financial sustainability and serving the needs of vulnerable patients. In Patients as Stakeholders, Prof. Buck turns to the challenges posed by for-profit acquisitions of non-profit hospitals, and introduces the corporate governance theory of stakeholderism as a potential solution. Recognizing patients as core stakeholders in hospital operations and governance, Prof. Buck argues, will allow health care institutions to achieve both mission and margin.
Stakeholderism is the theory that a corporation’s duty to maximize shareholder wealth should be balanced against its obligations to other actors who are meaningfully affected by its decisions. Corporate law scholars are engaged in ongoing debates about the merits and implementation of stakeholderism – and the rise of the environmental, social, and governance (ESG) movement across industries suggests that many companies are already putting elements of stakeholderism into practice. In this article, Prof. Buck persuasively shows that stakeholderism as a governance model is particularly well suited to the health care industry, especially as a tool for filling regulatory and oversight gaps that arise when nonprofit hospitals convert to for-profit status.
Prof. Buck observes that the modern American hospital has become “targeted as a source of capital for the modern American investor.” He cautions that the expansion of for-profit health care systems can harm patients, providers, employees, payers, and surrounding communities, offering two recent examples demonstrating this phenomenon: Hospital Corporation of America’s acquisition of Mission Hospital in North Carolina and Prospect Medical Holdings’ acquisition of two community hospitals in Rhode Island. Despite promises that these acquisitions would maintain the viability of financially struggling community hospitals by increasing efficiencies and reducing costs, they instead led to higher prices, reduced staffing, unpaid bills, and lower quality of care.
As Prof. Buck recognizes, once nonprofit hospitals convert to for-profit status, state regulators generally have fewer tools to safeguard the scope and quality of medical services those institutions provide. Transactions such as those in North Carolina and Rhode Island are subject to attorney general review to ensure they advance the non-profit hospital’s original charitable purposes and effectively serve the public good. Importantly, attorneys general can impact the structure of these transactions, conditioning them on the acquiror’s satisfaction of key conditions. However, after a conversion is complete, shareholder oversight largely replaces state oversight. Whereas state attorneys general are, at least in principle, attuned to the needs of the local community and serve taxpayers and patients relying on these hospitals, shareholders in the for-profit acquirors are geographically diverse and often have no connection with the community or its needs. Shareholders’ primary interest is in maximizing the value of their investment, not ensuring quality of care or garnering community support and patient trust.
Prof. Buck effectively demonstrates that this regulatory approach is problematic for the patients and communities served by the formerly non-profit hospitals. Health care institutions’ primary operational function is providing high-quality medical care to residents of the local community, and so patients are their foremost stakeholders. But at for-profit hospitals, the financial interests of shareholders may be at odds with the needs of patients and the community. And traditionally, Prof. Buck argues, shareholders have had few incentives to prioritize patient interests – or even seek out “important feedback from the patients on the ground” that would help shareholders gain context and information about the communities these hospitals are serving.
Prof. Buck’s core argument is that for-profit corporations that acquire and convert nonprofit hospitals should recognize patients as key stakeholders and govern in ways that reflect their interests. He identifies three principal benefits from such a move. First, it would help bridge the gap between for-profit and nonprofit institutions by incorporating patient interests into corporate governance and major decisions. Second, it would enhance the perceived legitimacy of a health care industry that depends heavily on public funding as part of its reimbursement model. Finally, Buck argues that, unlike ESG-driven stakeholderism, which has faced significant backlash, a patient-centered approach is less likely to provoke resistance because its benefits flow directly to vulnerable populations. While there is no guarantee that these potential benefits will be sufficient to actually incentivize the adoption of stakeholderism at for-profit hospitals, Prof. Buck’s article makes a compelling case for doing so.
Advocates of stakeholderism recognize that the concept does not define precise standards for implementation. Prof. Buck, too, leaves open the question of what specific pathways might be created to allow patient stakeholder interests to influence corporate decision-making, and I hope his future work expands on this issue. Overall, however, Patients as Stakeholders sets a foundation for important future discussions about how to better integrate the needs of patients and communities within the governance structure of for-profit hospitals.
