MHA's Executive Briefing

Fitch: Sarbanes-Oxley valuable for not-for-profits, too

In a report released Aug. 9, ratings agency Fitch outlined its support for the creation of a formal regulation of not-for-profit healthcare providers that mirrors the Sarbanes-Oxley Act of 2002, including the controversial section on auditing, Section 404. Even though not-for-profits are not legally bound by Sarbanes-Oxley, Fitch executives believe the law's accountability and reporting requirements represent best practices "that should be embraced by hospitals and healthcare systems (or providers)," according to the report.

Although the costs of complying with Section 404 of the law can be costly, not-for-profits should at least evaluate the quality of their internal auditing function, said John Wells, senior director and author of the report. In the report, Sarbanes-Oxley and Not-for-Profit Hospitals: Increased Transparency and Improved Accountability, Fitch also describes the nine sections of Sarbanes-Oxley that are most important for healthcare providers and to Fitch's ratings process. (Regsitration required to access the report, via Paul Barr, Modern Healthcare)

Three Years Later, A Look At Sarbanes-Oxley

On the third anniversary of the Sarbanes-Oxley Act, or SOX, Forbes takes stock of the impact of the law on American business. While the spirit of data-driven regulations like SOX were created with the best of intentions, they have had a tremendously burdensome impact on U.S. enterprises because they have imposed requirements that are complex, costly, confusing and often contradictory.

Most large systems adopting Sarbanes-Oxley provisions

A vast majority of large not-for-profit health systems have adopted or plan to adopt relevant portions of the Sarbanes-Oxley Act, according to a survey of 101 system chief executive officers by the Governance Institute. The survey showed that 86.5% of respondents have adopted relevant portions of Sarbanes-Oxley and 11.5% planned to do so. And the move to adopt provisions of the act -- Congress' response to corporate accounting scandals -- is one of the reasons why large health systems are becoming more like centralized, for-profit corporations, according to a white paper on the survey. Other reasons for centralization include the use of stronger compensation practices, widespread divestiture or closure of underperforming assets or services, and increased setting of financial performance targets for subsidiaries, according to the paper, called Pursuing Systemness: The Evolution of Large Health Systems.

The management of large health systems, for the most part, already closely resembles modern corporations, said one of the authors, Edward Kazemek, chairman and CEO of Accord Ltd., a governance consulting firm. But governance practices are still in the process of shifting to the for-profit model, Kazemek said. Both trends are pushing large health systems to become more centralized while the decentralized, holding company model for systems isn't sustainable long-term, he said.