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In addition, the trend toward external oversight of hospitals' board structure and conduct has been escalating, particularly after the Sarbanes-Oxley Act was passed in 2002 ( Greene 2005 Hymowitz 2005). NFP hospitals also are faced with changing payment mechanisms, including a movement toward pay-for-performance that has been strongly endorsed by the Bush administration ( Rosenthal et al. For example, nineteen states have enacted laws requiring NFP hospitals to report on their community benefit activities and/or to provide charity services linked to community needs ( Catholic Health Association 2006).
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In the past decade, the tax-exempt status of NFP hospitals has increasingly been challenged, as political and community leaders try to hold these hospitals accountable for their community benefit responsibilities ( Burns 2004 Lee, Chen, and Weiner 2004 Owens 2005).
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Several recent developments highlight the importance of effective governance to NFP hospitals. But current conditions are likely to be less tolerant of ineffective governance, especially as boards attempt to balance the complex and often divergent demands of regulations, market forces, community expectations, and various organizational stakeholders ( Alexander 2004 Carver 1997 Robilotti and Rosner 2004). Such loose interpretations of “good” governance were tolerable in an era when hospital boards and the hospitals they governed were not held rigorously to account for their performance. Because this broad charge has been subject to different interpretations by the legal system, regulators, and the boards themselves, it has led to wide variation in how hospitals' governance responsibilities are discharged and their boards are structured ( Alexander, Weiner, and Bogue 2001). The fundamental fiduciary duty of the governing boards of not-for-profit (NFP) hospitals is to ensure the organization's fidelity to its core mission.