The Board's Role in a Healthcare Turnaround

Updated October 21, 2026. First published September 19, 2023.

A turnaround tests a board more than any other period. The board's work intensifies, but it remains oversight: sharper questions, firmer conditions, and a clearer record, not a second management team.

In Brief

The Problem. Distressed healthcare and life sciences companies must stabilize their finances quickly while making the changes that decide whether they survive. Margins are thin, filings continue, and management now often presents artificial intelligence as part of the cost solution.

Why It Persists. Under pressure, boards either defer to management or start running the company themselves. Both responses weaken the one thing the board alone can supply: an independent test of every plan against long-term viability, patients, and the people who remain.

What Boards Should Do. Choose and support the right chief executive, demand scenarios with triggers, test every major cut against future growth and patient impact, attach conditions to approvals, including AI approvals, and make sure the minutes show the questions asked.

In September 2023, I wrote that the boards of distressed healthcare and life sciences companies had to move from "advisors" to "owners." Most of that article still holds. One part does not. A board in a turnaround meets more often, asks harder questions, and sets clearer conditions. It does not run the company. My argument in this update is that the board's distinctive value in distress is independence: it is the only body positioned to test each short-term rescue against the company's long-term viability, its patients, and its people, and to leave a record that it did so. Nose in, fingers out holds in distress as it does in good times.

What follows keeps the structure of the original: the board's role, the chief executive's mission, the strategic imperatives for recovery, and the ethical non-negotiables. I have corrected the board posture, updated the evidence, and added the question that now arrives in most turnaround plans: what to do when AI is offered as the remedy.

The Pressure Has Not Eased

Margins remain thin. The median year-to-date hospital operating margin was 1.9 percent in February 2026, and national operating margin fell 13 percent from a year earlier (Dyrda, 2026). Hospitals with 26 to 99 beds posted the steepest decline, at 23.9 percent (Dyrda, 2026). McKinsey projects that policy changes, tariffs, and staff shortages could cut health system margins by 2 to 13 percentage points over five years (Daly, 2025).

Restructurings continue. Gibbins Advisors counted 45 Chapter 11 filings in 2025 by healthcare companies with more than USD 10 million in liabilities, down from 57 in 2024, while hospital filings rose from five to eight (Muoio, 2026). The first half of 2026 brought 26 filings, a pace that would mean 52 for the year and a 16 percent increase over 2025 (Olsen, 2026). Gibbins suggested that the lower 2025 count may reflect distressed organizations acting earlier (Muoio, 2026). Acting earlier is a board decision.

The Board's Critical Role

The revitalization of a distressed company depends on a board that does more than receive reports. The board decides who leads the turnaround, approves the plan, sets the milestones, and monitors progress against them. It also ensures alignment between short-term survival tactics and long-term viability. Those are owner's decisions, and in that sense my 2023 language was right. Where it went too far was in calling directors "co-drivers of execution." Execution belongs to management.

Board dynamics. The board itself must function well under strain. Diverse perspectives, at times opposing viewpoints, open discourse, and a willingness to confront uncomfortable facts matter as much as the strategy. In my experience, a board that cannot disagree in executive session will not catch the flaw in a plan before its lenders do.

Scenarios, not a single forecast. Boards should ask management for several scenarios, optimistic and pessimistic, and for how the company would respond in each. Each scenario should name the trigger that would move the company to a contingency plan. Many boards skip this step. In a 2026 survey of 230 board members, executive directors, and board secretaries of nonprofit and public sector organizations, 43 percent said their board does not conduct scenario planning, and another 29 percent said management handles it with limited board involvement (Diligent, 2026).

Long-term vision alignment. Every plan must be evaluated against the company's long-term viability. Will a certain cost-cutting path jeopardize future growth? Could a strategic partnership restore profitability sooner but give away a competitive advantage later? The board should ask both questions of every major proposal.

Accountability. Boards are not simply approvers of management plans. They set clear timelines, milestones, and tracking measures, and they review results against them on a fixed schedule so that execution stays aligned with the agreed strategy.

Outside expertise. Directors should recognize their own blind spots. Where the decisions warrant it, the board should retain its own advisors, such as restructuring counsel, an independent financial advisor, regulatory specialists, or crisis communication consultants. Those advisors serve the board's judgment; they do not replace management.

Risk management and compliance. Compliance with healthcare regulation is non-negotiable, but risk management looks beyond what is legally required to operational and reputational risks. Risk assessment should be an ongoing practice woven into strategic decisions, not an annual checklist. Distress does not relax the legal duty either. Delaware law expects directors to make a good-faith effort to put in place a reasonable board-level system of monitoring and reporting for the company's central compliance risks and to act on what it reports (Marchand v. Barnhill, 2019). In September 2025, the Court of Chancery let such claims proceed against the directors of the drug maker Teligent, where the complaint alleged that no board committee was responsible for Food and Drug Administration (FDA) compliance and that management decided whether and when to report compliance matters (Bonadurer, 2026). A turnaround that cuts compliance staff without changing the board's reporting line invites the same allegation.

Ethical conduct. Ethics is not a public relations tool in a crisis, and it cannot be a crisis reflex. Boards set the tone by rewarding transparency, encouraging questions, and reinforcing the right behavior over the easy one.

Rebuild Trust Through Open Communication

In a crisis, uncertainty breeds anxiety, rumors, and a loss of morale. The board's role is to provide clarity, to the extent the circumstances allow, through transparent, two-way communication. For a distressed healthcare or life sciences company, the stakeholders fall into two groups.

Primary Stakeholders	Secondary Stakeholders
Patients	Regulators
Healthcare providers	Investors and lenders
The company itself: leadership and employees	Suppliers
Payers	Patient advocacy groups
Researchers	The local community and the media

Open communication about the challenges, the revitalization plan, and its likely effect on each group creates a sense of shared purpose. It reduces adverse reactions, maintains patient and provider confidence, attracts the support a restructuring needs, and limits reputational damage that can slow recovery. Three practices matter most. First, communication is not a broadcast of prepared statements; the board should expect channels for feedback from investors, employees, and patients, so that concerns surfacing early can be addressed before they become crises of confidence. Second, the "why" comes before the "what": explaining the rationale behind a painful decision builds more trust than announcing it without context. Third, transparency does not mean having every answer. It means being frank about what is known, what is not, and how the company will decide in the meantime, including that the plan will change as the situation evolves.

The Chief Executive's Transformational Mission

Revitalizing a distressed company demands a chief executive who is more than a manager. The board's most consequential turnaround decision is whether the current chief executive is that leader. If not, the board must act. If so, the board's task is to support and hold that executive accountable, not to share the role.

The chief executive's own support. A chief executive in a turnaround needs a safe space to raise inevitable problems and express doubts. In my experience, the best support a board can give is candor in executive session and steadiness in public.

Thriving, not only surviving. The vision must extend beyond weathering the crisis to a credible future: better patient outcomes, more efficient operations, and a renewed company culture. The chief executive must also be decisive and willing to make difficult calls that serve that goal. Calculated action, not impulse, defines the leadership a turnaround needs, and the chief executive should explain how decisions that bring short-term pain, such as layoffs or restructuring, serve long-term success.

Efficiency as fuel for innovation. Streamlining operations is not only about cutting costs to survive. It frees resources for reinvestment in growth, and employees should see how eliminating waste funds their own ideas. One structure helps: a "two-speed" company, in which some teams pursue efficiency in existing operations while others protect and build the investments the future depends on. The board sets milestones for both and reviews them on the same schedule. Innovation should also extend beyond products and services to business models, such as new delivery methods and payment structures, so that stakeholders see a company that is not relying only on hopes for a new blockbuster drug.

Cultural transformation. A chief executive's most powerful tool is culture. As "chief change officer," the chief executive must show the agility, resilience, and openness to change the company needs; in a turnaround, actions count more than words. Employees at every level can contribute to solutions when there are channels for ideas and initiative is recognized. The chief executive should acknowledge hardship and past mistakes with humility, because credibility for the future depends on it, and then present a realistic yet hopeful account of the company's future to employees, investors, the media, and the broader healthcare community.

Strategic Imperatives for Recovery and Growth

Distressed companies often react to their circumstances rather than direct their recovery. The board should expect a plan that rests on six imperatives. Each produces a question the board can ask.

Technology as a source of advantage, not only a cost. Lagging companies often treat technology as a necessary expense. The plan should identify where specific technologies, including AI, data analytics, telemedicine, augmented and virtual reality, and blockchain, can change how the company creates or delivers its products and services in ways that produce competitive advantage, not only efficiency. That may mean using AI to analyze patient data and identify business risks, or to reduce scientific, clinical, regulatory, or commercial uncertainty. It should also mean adopting a tool such as telemedicine only where it reduces friction for patients and clinicians and improves outcomes alongside efficiency, not because competitors have it. The evidence on returns is encouraging but early. In a September 2026 survey of 226 healthcare executives, buyers reported an average return of 3.5 times on AI spending to date and payback in about 12 months, with administrative uses such as revenue cycle leading; the figures are self-reported (Guerra & Kraus, 2026).

A clear focus on core competencies. Attachment to legacy product lines or services can blind a company to its true strengths, and the analysis must be candid. It is better to be expert in a targeted area than mediocre across many. Employees and stakeholders need to see where the company is going; a clearly defined core focus builds confidence in the turnaround strategy.

Disciplined diversification and partnerships. Expansion into adjacent markets, where existing expertise can be redeployed with modification, offers a faster ramp-up than something entirely new. Acquisitions should be judged on the talent and knowledge they bring as well as their assets, because in a turnaround speed to market can be as valuable as the technology itself. Partnerships in which both parties share risk and reward align goals better than simple outsourcing.

Financial restructuring with a future focus. The financial plan should start from a clear map of cash: where it is tied up in underperforming assets or inefficient processes, and therefore where cuts or divestitures have the largest immediate and ongoing effect. Debt renegotiation often focuses on the interest rate, but extended repayment timelines can free more cash flow. Lenders become partners in practice, and transparency with them is essential. When raising new capital, the question is not only what is cheapest or least dilutive, but which capital will translate into earning power and sustainable growth, and what it will cost in control.

People as the heart of revitalization. The best people often feel the crisis most acutely, and they have the most options. Management should address their concerns directly and be transparent about opportunities within the new focus. Recognition, development, and a sense of contribution to the turnaround matter more when budgets are tight. The leaders who emerge during a crisis are often the company's future leaders, so development should continue even when resources are limited.

The patient at the center. Seeking feedback on unmet needs is different from waiting for complaints. Surveys, patient advisory groups, key opinion leaders (KOLs), and analysis of online reviews help a company adapt faster. Access is about more than doctors: the plan should identify the barriers to care beyond the company's own product or service, including cost transparency and processes that frustrate patients, and show how the company will remove or work around them.

Ethical Considerations: The Non-Negotiables

Revitalization involves hard decisions, and short-term financial pressure never justifies abandoning ethical principles. Boards and chief executives have an obligation to weigh the consequences of their actions for employees, patients, and the communities they serve. The board's job is to make sure that analysis reaches the boardroom before the decision does.

Impact on employees. Before a large workforce reduction, the board should ask what alternatives management considered, such as salary freezes, furloughs, reduced hours, and retraining. These options can preserve jobs and keep valuable knowledge inside the company. If layoffs are unavoidable, meaningful severance and outplacement services are a necessity, not a courtesy. They respect past contributions, help people move on, and protect the company's standing in its industry.

The effect on those who stay. The impact on surviving employees must not be overlooked. Research across industries found that downsizing is associated with higher voluntary turnover among the employees who remain, and that human resource practices that embed employees in the organization or convey procedural fairness weaken that effect (Trevor & Nyberg, 2008). Proactive communication, mental health support, and visible fairness in how decisions are made are therefore part of the financial plan, not a separate kindness.

Impact on patients and communities. Closing facilities, discontinuing services, and other structural changes must be analyzed for their effect on patient outcomes, especially for vulnerable populations: elderly patients, rural residents, and people with limited resources. A decision that inconveniences one group can cut another off from care. In April 2025, Prospect Medical Holdings, in bankruptcy since January, announced the closure of Crozer-Chester Medical Center and Taylor Hospital in Delaware County, Pennsylvania. More than a dozen municipalities, including Chester, depended on Crozer for emergency medical services, and the county issued an emergency declaration to manage emergency response (Brubaker & Bernard, 2025). The research evidence supports caution. A study of California hospital closures from 1995 to 2011 found that rural closures increased inpatient mortality by 8.7 percent, with relatively larger harm for Medicaid patients and racial minorities, while urban closures showed no measurable effect (Gujral & Basu, 2019). Where a service must end, the board should ask whether a community organization, another provider, a competitor, or a public agency can take it on.

Integrity. Cutting ethical corners may bring short-term financial relief, but it damages a company's reputation in the healthcare community and makes future growth harder. The board must state that certain principles are non-negotiable, even when they make the turnaround more difficult. Companies with an existing culture of ethical behavior are better prepared for the choices a crisis demands, which is one more reason the board's tone matters before distress arrives.

When AI Is Offered as the Remedy

Since 2023, the technology section of most turnaround plans has changed. Management will often present AI as part of the cost solution. Adoption is broad, but governance is not: of 233 health systems surveyed, 88 percent use AI internally, but only 18 percent report mature governance and strategy (Healthcare Financial Management Association, 2025). The workforce consequences are already visible. Half of the organizations in the 2026 survey cited above had cut headcount because of AI or planned to within six months, with reductions averaging 8 to 13 percent of the affected labor (Guerra & Kraus, 2026).

In a turnaround, an AI approval should therefore arrive with more than a savings estimate. It should carry the same tests this article applies to every other cut: the long-term viability test, the patient-impact analysis, the effect on the employees who remain, a named accountable executive, and the conditions attached to the approval, including what management will report afterward and what would cause the board to stop the deployment.

The Strongest Objection: In a Crisis, the Board Must Take the Wheel

The strongest objection to this argument is the one I made in 2023. A distressed company cannot afford missteps, management may be part of the problem, and a board that confines itself to oversight may watch the company fail politely. On this view, directors should become "co-pilots" of execution.

The objection is right about the stakes and wrong about the remedy. If management is part of the problem, the board's answer is to change management, with interim leadership if necessary, not to co-manage. Directors who direct execution lose the independence that makes their review worth anything; they end up testing plans they wrote. They also blur accountability at the moment lenders, regulators, and employees most need to know who is responsible. The Delaware cases point the same way: the courts ask whether the board built and used a reporting system for the risks that mattered, not whether directors did management's work (Marchand v. Barnhill, 2019). A board can be intensely engaged, meeting weekly if needed, while still asking rather than doing.

What the Minutes Should Show

A turnaround is judged twice: once by its results, and again by the record of how the board reached its decisions. The minutes should show the scenarios presented and the triggers chosen, the long-term and patient-impact tests applied to each major cut, the alternatives to layoffs considered, the conditions attached to approvals, and the reports received against the milestones. Distressed companies that act on these imperatives can emerge stronger and more focused. The record is what lenders, regulators, and courts will read afterward, and it is the board's best evidence that it did its part.

For the Board

• Is the current chief executive the right leader for this turnaround, and what would cause us to decide otherwise?
• What scenarios has management presented, and what trigger moves us to each contingency plan?
• For each major cost reduction or divestiture, what is the effect on future growth, and who tested it?
• What analysis shows the effect of closures or service changes on elderly, rural, and low-income patients, and who could take on a service we end?
• What alternatives to layoffs did management consider, and what is the plan for the employees who remain?
• Where AI is part of the savings plan, what conditions, reporting, and accountable executive come with the approval?

To discuss the board's role in a restructuring or an AI approval under margin pressure, book a conversation.

References

Bonadurer, J. (2026, February). Delaware court denies dismissal of Caremark oversight claims in Teligent case, highlighting board and officer compliance obligations. Jenner & Block LLP. https://www.jenner.com/en/news-insights/publications/delaware-court-denies-dismissal-of-caremark-oversight-claims-in-teligent-case-highlighting-board-and-officer-compliance-obligations

Brubaker, H., & Bernard, K. (2025, April 21). Crozer-Chester Medical Center and Taylor Hospital are closing, owner Prospect says. The Philadelphia Inquirer. https://www.inquirer.com/health/crozer-hospitals-closing-20250421.html

Daly, R. (2025, December 2). Health systems face margin cuts of up to 13 percentage points in next 5 years, McKinsey analysis shows. Healthcare Financial Management Association. Retrieved October 21, 2026, from https://www.hfma.org/fast-finance/mckinsey-analysis-health-margins/

Diligent. (2026, October 13). Diligent report: More than half of mission-driven organizations identify economic or funding downturns as a top risk [Press release]. https://www.diligent.com/company/newsroom/mdo-governance-outlook-press-release

Dyrda, L. (2026, May 11). Hospital profitability: 20 things to know in 2026. Becker's Hospital Review. https://www.beckershospitalreview.com/finance/hospital-profitability-20-things-to-know-in-2026/

Guerra, S., & Kraus, S. (2026, September 30). The 2026 healthcare AI ROI scorecard. Bessemer Venture Partners. https://www.bvp.com/atlas/the-2026-healthcare-ai-roi-scorecard

Gujral, K., & Basu, A. (2019). Impact of rural and urban hospital closures on inpatient mortality (NBER Working Paper No. 26182). National Bureau of Economic Research. https://www.nber.org/papers/w26182

Healthcare Financial Management Association. (2025, August 12). Health system adoption of AI outpaces internal governance and strategy. https://www.hfma.org/health-system-adoption-of-ai-outpaces-internal-governance-and-strategy/

Marchand v. Barnhill, 212 A.3d 805 (Del. 2019). https://law.justia.com/cases/delaware/supreme-court/2019/533-2018.html

Muoio, D. (2026, February 4). Healthcare bankruptcies declined in 2025, though providers remain hard-pressed. Fierce Healthcare. https://www.fiercehealthcare.com/finance/healthcare-bankruptcies-declined-2025-though-providers-remain-hard-pressed

Olsen, E. (2026, July 20). Clinic and physician practice bankruptcies spike in 2026 so far. Healthcare Dive. https://www.healthcaredive.com/news/healthcare-bankruptcies-stabilize-first-half-2026-gibbins-advisors/825676/

Trevor, C. O., & Nyberg, A. J. (2008). Keeping your headcount when all about you are losing theirs: Downsizing, voluntary turnover rates, and the moderating role of HR practices. Academy of Management Journal, 51(2), 259 to 276. https://doi.org/10.5465/amj.2008.31767250