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RHIO Governance Series, Part I: A Road Map
for Establishing Your Health Information Organization
By Gerry
Hinkley and Rachel Glitz
[February 2005]
Until organizational, tax and governance models
for community or regional based health information organizations
(RHIOs) become standardized through practice or government dictate,
founders of these organizations must determine the best form
of entity, tax treatment and governance structure for their
fledgling organizations. This advisory is part of a series on
organization of RHIOs and addresses entity formation. Future
advisories in this series will address tax considerations and
governance structure. While the form of the organization may
vary, the process for establishing a RHIO is fairly straightforward
and can be divided into the following six phases: (1) Establishing
the team; (2) data gathering and analysis; (3) formulating a
work plan; (4) strategic business planning; (5) model identification
and analysis; and (6) addressing other legal issues.
Phase I. Establishing the Team
Forming a RHIO presents an extraordinary opportunity to providers,
researchers and others involved in health care to share information
for a variety of reasons — e.g., accessing electronic
health records, research, statistical and others — to
enhance care and expand knowledge. Identifying the key participants
is pivotal to the ultimate success of the organization process
because their input will clarify the purpose of the RHIO and
help inform the initial choice of entity for its formation.
Thus, at the outset, founders should identify other entities
or individuals, if any, who are likely to have an interest in
accessing or participating in the proposed RHIO.
Once these stakeholders are identified, founders must determine
how to involve these individuals or organizations in the formation
process. Inviting key stakeholders to participate at this stage
can help build momentum and support for the RHIO and may better
ensure that participants’ organizational needs are met.
However, for founding members to retain specific powers or roles,
involving additional stakeholders at this early stage should
be carefully managed. Stakeholders might be invited to participate
in the formulation process by joining the founding team. Alternatively,
founders may prefer to limit stakeholders to a formal, yet advisory
role.
Phase II. Data Gathering and Analysis
Whether or not stakeholders are part of the organizing team,
their input is essential to the determination of the primary
goals and purposes of the RHIO. Once the stakeholders in the
RHIO have been identified, we recommend conducting a survey
to determine their reasons for participating, to identify their
objectives and goals for the RHIO and to develop a better understanding
of the key issues that are likely to encourage (or discourage)
their future participation and involvement. For sample queries,
please see: http://www.dwt.com/practc/hit/events/InterviewQuestions.pdf.
Although the issue of governance is distinct from the choice
of entity, decisions about the former will help guide the latter.
Thus, participants should also be surveyed about their ideas
for managing and controlling the RHIO’s activities. Do
they have specific decision makers in mind? By name? By function?
Should the individuals or groups in control at the outset be
different from those in control once the RHIO becomes operational?
How democratic and inclusive should the governing body be? Should
every participant have an equal voice? Should the responsibility
and power granted to the governing body be tied to a financial
commitment? Answers to these questions will help determine important
guiding principles going forward.
The RHIO founders should consider engaging a team facilitator
who is not otherwise part of the team or project to help drive
the process forward. At this stage, an alternative perspective
can help focus the team and identify holes or issues overlooked
by those most intimately involved in the process to date. Analyzing
not only the data collected, but identifying missing information
too can be vital to the RHIO’s future success. If, for
example, the data indicate that there are key constituents and
potential stakeholders who were not initially considered for
the survey, the survey process could be extended to include
them.
Phase III. The Organization Workplan
Taking the next step towards establishing a permanent repository
of data, records or other information and ensuring that it is
managed, accessed and utilized effectively and appropriately,
provides a unique challenge for every RHIO. Therefore, it is
useful to outline a roadmap for this process, establishing goals
with respective completion target dates, i.e., the workplan.
For a sample workplan, please see: http://www.dwt.com/practc/hit/events/GovernanceWorkPlan.pdf.
Phase IV. Strategic Business Planning
Developing a strategic business plan is a key component of
every workplan because the source of funding for the RHIO is
the most significant variable in determining the type of entity
and how it will be governed. If, for example, the RHIO expects
to rely on grants for its source of funding, a logical structure
might be a nonprofit tax exempt organization. Where there will
be participation by governmental entities or reliance on governmental
funding, a public or a quasi-public authority may make more
sense. Alternatively, a for-profit enterprise can be structured
and governed in a different manner to potentially provide more
governance flexibility and better align economic incentives.
Phase V. Model Identification and Analysis
Identifying the appropriate model is another key step in the
RHIO’s formation. Founders must weigh the costs and benefits
of forming as a nonprofit, as a governmental or a quasi-governmental
entity, or as a for-profit entity. Legal counsel can assist
the RHIO in establishing the right format. Here are some essential
considerations:
Nonprofit
A nonprofit organization is relatively simple to form. More
challenging is persuading the Internal Revenue Service (and
the state tax authority) that the organization should be recognized
as exempt from taxation. The purpose of the RHIO must comport
with the requirements for recognition. In general, this means
the RHIO must not be organized for the private gain of any person
and its assets must be irrevocably dedicated to its charitable,
educational, scientific or other qualifying exempt purpose.
Specifically identifying that purpose and applying for recognition
will require significant time and effort from RHIO participants.
Satisfying the ongoing federal and state filing, reporting and
operating requirements applicable to exempt organizations presents
a continuing challenge as the RHIO matures.
Public/Quasi-Public
If the RHIO includes a governmental agency, participants may
be able to ally under a single umbrella organization that operates
as a public or quasi-public authority that is recognized as
exempt from taxation. While obtaining such recognition is more
straightforward than it would be for a RHIO organized as a nonprofit,
formation will require significantly greater effort. Forming
a public entity will likely require legislative action, which
can be time-consuming and obviously subject to political influences
that may affect the funding and operations of the RHIO in unintended
ways.
For-Profit
Although less typical, a RHIO might also be organized as a
for-profit enterprise. Like a nonprofit organization, formation
of a taxable for-profit corporation or partnership, limited
liability company or similar form of entity can be relatively
straightforward. Unlike a nonprofit, a for-profit entity will
not be exempt from taxation – an important consideration
if the RHIO expects to attract seed money in the form of charitable
contributions or grants. Nor would it enjoy the same tax benefits
or enjoy the same potential powers as a governmental or quasi-governmental
agency.
Phase VI. Other Legal Issues
Whether it forms as a nonprofit, a governmental authority or
some other type of entity, the RHIO must establish a format
for governing itself. Because the form of entity chosen can
limit a RHIO’s flexibility in governance, both the choice
of entity and the preferred governance structure must be considered
simultaneously. It is advisable to retain legal counsel to translate
feedback from the stakeholders’ survey and the founders’
goals into an appropriate legal structure.
Feedback from the stakeholders’ survey may play a key
role in shaping who has a voice (and how loud) in governing
the RHIO. Participants’ responses will also help determine
how the RHIO will balance the tension between obtaining consensus
and effective and efficient decision-making. Every RHIO must
establish processes for electing or appointing a governing body,
voting requirements, approvals necessary for decision-making
and the participants’ rights and duties. Whereas a more
“democratic” nonprofit might be governed by its
members, leaving certain key decisions to its governing body,
a less “democratic” nonprofit could be governed
by a governing body with little or no input from members. While
there may be less flexibility for establishing a hierarchy of
power in a cooperative arrangement that involves public bodies
and agencies, a for-profit will likely have more flexibility
than either a nonprofit or a governmental entity.
Finally, every RHIO must also establish rules or guidelines
for accommodating new participants and possibly new kinds of
participants, if it intends to grow and is willing to expand
its composition. For example, a RHIO might initially be composed
of hospitals, but expect or desire to include other types of
health care organizations (e.g., clinics or academic medical
centers) in the future. Planning for growth and change will
make it easier for the RHIO, if and when the time comes.
For more information, please contact:
Rebecca
L. Williams, Seattle, (206) 628-7769, BeckyWilliams@dwt.com
Kent
B. (Bernie) Thurber, (503) 778-5202, BernieThurber@dwt.com
Thomas
E. Jeffry, Los Angeles, (213) 633-6882, TomJeffry@dwt.com
This Advisory is a publication
of the Health Information Technology Group of Davis Wright Tremaine
LLP. Our purpose in publishing this Advisory is to inform our
clients and friends of recent developments in health law. It
is not intended, nor should it be used, as a substitute for
specific legal advice as legal counsel may only be given in
response to inquiries regarding particular situations.
Copyright © 2005, Davis Wright
Tremaine LLP.
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