Applicability to Hospitals and Medical Organizations
[By Prof. Gregory O. Ginn; PhD, CPA, MBA, CMP™]
[By Prof. Hope Rachel Hetico; RN, MHA, CMP™]
At first blush, the Sarbanes-Oxley Act seems to have very little to do with hospitals, healthcare organizations or the medical industrial complex; however, upon closer inspection, several sections appear to be relevant to the hospital industry.
Title III, section 302 is entitled “Corporate Responsibility for Financial Reports.”
This section requires that the principal officers and financial officers sign the financial report, certify that the report contains no false statements, and certify that the report is materially correct or face stiff penalties.
Healthcare leadership activities must include formal statements that: 1. The signing officers have reviewed financial reports; 2. Reports do not contain material untrue statements or omissions considered misleading; 3. Statements fairly present financial condition and results in all material respects; 4. Signing officers are responsible for internal controls and must report findings; 5. All deficiencies are in internal controls reports and information on fraud is included; and 6. Internal control changes that could negatively impact them are included.
The Sarbanes-Oxley Act, Title III, section 302(a)(4)(A)–(D) indicates that the officers signing the financial reports are responsible for:
· Establishing and maintaining internal controls;
· Designing internal controls so material information is known to officers;
· Evaluating effectiveness of internal controls within 90 days; and
· Presenting conclusions about the effectiveness of internal controls.
Title IV of the Sarbanes-Oxley Act is entitled “Enhanced Financial Disclosures” and section 406 is entitled “Code of Ethics for Senior Financial Officers.” Section 406 calls for ethical handling of actual or apparent conflicts of interest, full disclosure in the financial reports, and compliance with government rules and regulations.
Title IV, section 409 is entitled “Real Time Issuer Disclosures.” It requires disclosure to the public “on a rapid and current basis such additional information about material changes in the financial condition or operations of the issuer.
This may include trend and qualitative information and graphic presentations that are necessary or useful for the protection of investors and the public interest. Hospitals may be required to take stricter stances on disclosure by the attorney general of their respective states, if not directly by the Sarbanes-Oxley Act.
Accordingly, hospitals should do the following:
· Adopt a strict conflict of interest disclosure statement and policy;
· Develop an unambiguous definition of “conflict of interest”;
· Develop and use solid criteria for selecting new board members, and
· Treat prospective physician board members like all board members.
Financial Implications of the Sarbanes-Oxley Act for Hospitals
On the one hand, the Sarbanes-Oxley Act creates a compliance burden for hospital executives.
On the other hand, there may be benefits that will accrue from the stricter burden of compliance. Stricter ethics may result in boards making decisions that are better for hospitals and worse for physicians. Better disclosure may ultimately cause less risk to investors and provide better access to capital. More astute boards may actually make better financial decisions.
And, stronger internal controls may well help to avoid embarrassing and costly financial failures in hospitals.
Sarbanes-Oxley imposes penalties of fines and/or up to 20 years imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation.
Healthcare organizations may not attempt to avoid these requirements by reincorporating their activities or transferring their activities outside of the United States.
The Sarbanes-Oxley Act is intended to safeguard the economy since the healthcare industry is such a large and integral part of it, and will invariably have an effect on all healthcare organizations.
And so, has your hospital or healthcare organization, analyzed its activities to comply with the Sarbanes-Oxley Act, and very possibly improve its financial performance?
Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com
OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors