Historically, the health care sector in New York has been largely the domain of not-for-profit (NFP) organizations. Most hospitals, about half of the nursing homes, many home health agencies and clinics, and even a number of major health insurers and managed care plans are NFP corporations. While membership on the board of trustees or board of directors of these NFP organizations has always carried important responsibilities, the challenges facing these governing boards in today’s environment are almost unprecedented. In addition to adjusting to the ongoing implementation of the Affordable Care Act, there is heightened federal and state regulatory scrutiny, more and more Medicare and Medicaid payment audits and liabilities, increased competition, more consolidations among hospitals and other providers, and many other cross currents that these organizations have to navigate.
While most of these organizations offer a thorough orientation and ongoing educational briefings on the responsibilities of governing board members, some unfortunately offer only cursory guidance, with the result that many new board members are left to learn as much as they can on their own as they begin their board service. This is perhaps an opportune time to review the basic legal duties of the members of any governing board: the duty of care, the duty of loyalty, and the duty of obedience.
Duty of Care
The duty of care relates to the competent performance of a director or trustee’s responsibilities as a member of the governing board. New York has codified the duty of care in the Not-for-Profit Corporation Law §717(a): Directors and officers shall discharge the duties of their respective positions in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.
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