November 1997
November 2000 (revised)
November 2005 (revised)

Statement of the Issue

Changes in organizational ownership or control present special challenges for healthcare executives. Executives must lead their organizations through the transition without self-serving motives. Perhaps most important is the challenge of community accountability—balancing the needs of the community for patient care and health improvement with the needs of the organization for adaptation.

Policy Position

The American College of Healthcare Executives (ACHE) believes that CEOs, their boards and members of their senior management teams should take a systematic approach to evaluating community health status and how the stakeholders might be affected by proposed changes to organization ownership or control. To this end, ACHE offers the following as a guide.

On an ongoing basis:

• Listen to the community and identify its future health improvement requirements. This assessment should include an evaluation of current health status, available healthcare resources, health improvement initiatives, and anticipated future needs.

• Ensure that a plan exists for providing care to the underserved in the community and for the continuation of other essential community services.

Before considering a change in ownership or control:

• Identify your organization’s values and goals.

• Understand any legal limitations of your organization’s certificate of incorporation, articles of organization, charter, or other binding documents that may restrict consideration of alternatives.

• Establish a code of conduct and specific criteria that the board, management team and other staff, and medical staff can use to evaluate proposals regarding change of ownership or control. Consider severance agreements for selected executives who will lead these studies to remove or lessen self-interest concerns related to loss of position and income.

• Conduct a study to assess various options for change that may be available to your organization and community. The study should examine your market and understand the changes that may affect your organization’s ability to fulfill its vision and mission.

When considering specific proposals related to change of ownership or control:

• Assess the compatibility between your organization’s values and philosophy and those of your potential partner.

• Identify financial incentives that may have an undue influence on the views of board members, executives and others involved in proposing and evaluating any change in ownership or control.

• Disclose all conflicts of interest, offers of future employment or future remuneration and other benefits related to the transaction.

• Evaluate proposals in terms of their likely impact on community healthcare and health status, organization mission and values, protection of the community’s assets, and financial viability.

• Gain a thorough understanding of all the terms of the proposed transaction and of all collateral agreements.

• Develop and implement a communications plan that involves and informs all constituencies.

If the decision is made to proceed with a change of ownership or control:

• Obtain a valuation, by a party not involved in the transaction, of charitable assets being converted or restructured to ensure that reasonable value is received or used in structuring the transaction.

• In a nonprofit setting, prohibit private inurement or personal financial gain by individuals involved in the transaction.

• Ensure that control and administration of any foundation or charitable trust that would be created by the transaction be distinct from the restructured healthcare organization and that the foundation or trust continues to serve a healthcare-related charitable purpose in the community.

• Require that any foundation or trust created provide regular reports to the community on its efforts to improve community health status.

• Explain to the community the issues related to the change in ownership or control, the decision-making process and how the transaction will benefit the community.

• Provide an opportunity for public comment on the transaction, including stakeholders, before it becomes final.

• Make a public announcement at the earliest appropriate time.

• Inform the appropriate federal, state and local officials of the terms of the transaction in accordance with their requirements.

• Develop and implement a restructuring plan that provides for fair treatment of all employees.

In addition, ACHE affiliates also have a personal responsibility to:

• Abide by the standards set forth in the ACHE Code of Ethics.

• Place community and organizational interests above personal pride, ego or gain.

• Carry out the fiduciary responsibilities of their positions.

• Conduct all negotiations with honesty and integrity.

As consolidation and related activities continue in the healthcare field, organizations and their executives will be under increased scrutiny. Executives must demonstrate through their words and actions that their business decisions are guided by professional ethics and a commitment to improving community health status.

Adapted from the American Hospital Association’s "Guidelines for Hospital/Health System Leaders when Changing Ownership or Control," 1997.

Approved by the Board of Governors of the American College of Healthcare Executives on November 7, 2005.