LOOKING INTO THE UC BUDGET  -- Report #20      (email version)

by Charles Schwartz, Department of Physics, University of California
Berkeley, CA 94720.        510-642-4427          March 3, 1997


     What are the predominant concerns and guiding principles that 
are driving UC officials to seek a variety of mergers in order to 
rescue the hospitals that are failing in today's competitive health 
services market? The medical school deans and their chancellors 
invariably start out their presentations to the Board of Regents by 
declaring that the academic missions - teaching and research - are 
their paramount concerns and that the business arrangements they 
propose for their medical centers are only meant to serve those 
academic goals.  No regent has ever been heard to question those 
noble sentiments; indeed, many of the skeptics among them have 
ended up in favor of dubious mergers and other partnering schemes 
under the sway of, What else could we do to protect our cherished 
medical schools?

     I am drawn to look for the subtext of this unfolding drama.

                      FOLLOW THE MONEY

     Searching behind the financial reports of the hospitals 
themselves, I have tried to find out, in quantitative detail, how 
much of this "clinical enterprise" money flows into the medical 
schools and how this money is spent.  According to UC's Accounting 
Manual, each medical school must prepare an annual financial report, 
detailing the revenues and expenses of these funds - which total over 
half-a-billion dollars per year.  Those reports are supposed to be 
filed with the relevant Chancellors and also with four different Vice 
-Presidents.  Yet, when I wrote last summer to V. Wayne Kennedy, UC's 
Senior Vice President - Business and Finance, and requested copies of 
those reports, he responded as follows (letter dated September 26, 

"Due to the rapid changes in healthcare, the University has been 
assessing what data should be collected and how best to present the 
data in the context of a clinical enterprise (i.e., the 
relationship of the Schools of Medicine and the Academic Medical 
Centers). It was determined that the Professional Fee data collected 
in the past was not relevant for the current operating environment.  
Therefore, the reports you refer to have been suspended while new, 
more pertinent reports are being developed.  The University continues 
to monitor the Professional Fee income accounts, as it does all its 
accounts, through the University general ledger."

     I persisted, asking for access to UC's General Ledger in an 
attempt to gather the data myself.  Eventually, with the assistance 
of UC accounting officers, I spent many hours scanning microfiche 
records and trying to collect the relevant data from the multitude of 
departmental accounts on the five medical school campuses.  However,  
I came to the conclusion that this approach was unreliable, given the 
ambiguities in these records and the variations in the bookkeeping 
practices from one campus to another.  This experience also speaks 
very poorly for the level of fiscal oversight responsibility 
exercised by the UC administration.

     As an alternative, I have turned to the aggregate financial 
statistics gathered in the systemwide accounting report, Campus 
Financial Schedules (CFS), and have been able to extract some 
relevant data which looks very interesting, especially when one 
studies the changes in certain categories of expenditures over the 

     The relevant source of funds is called "Sales and Services of 
Educational Activities" (SSEA).  This is mostly money coming into the 
5 UC medical schools from "the clinical enterprise" and this category 
is separate from funds at the Teaching Hospitals.  This category also 
includes funds from some other, non-medical, activities on the 
campuses;  but, as we see from the data in Table 1, the five campuses 
with medical schools account for 96% of this $700 Million total.

TABLE 1.  Campus Expenditures of SSEA Funds. 1995-96 (w/o Transfers)
[CFS Schedule 11-C]

MEDICAL            $ Millions             NON-MEDICAL      $ Millions

Davis                 83.1                Berkeley            22.0
Irvine                72.7                Riverside            2.9
Los Angeles          183.8                Santa Barbara        1.5
San Diego            152.2                Santa Cruz           0.3
San Francisco        180.5                Universitywide       1.5

SubTotals            672.2                                    28.3

     Table 2 shows further details of the expenditures of SSEA funds, 
summing the data for the 5 Medical School Campuses. By far most of 
this money (91%) is expended for the functions of Instruction and 
Academic Support.

TABLE 2. SSEA Funds Expenditures by Function. 1995-96 (w/o Transfers)
[CFS Schedules 2-D,3-D,4-D,6-D & 7-D]

FUNCTION              $ Millions	 % of Total

Instruction             350.7         52%
Research                 27.3          4%
Public Service           22.2          4%
Academic Support        262.4         39%
Other                     9.6          1%

Total                   672.2        100%

     Here we find the FIRST MAJOR CONTRADICTION:  Throughout recent 
discussions - at the Regents meetings and in public statements - UC 
administrators have always stressed that the primary objective in 
seeking financial security for their medical centers is to protect 
and advance the academic mission: medical instruction and research. 
But here we see that Research gets only a piddling 4% of the Medical 
Schools' money from the clinical enterprise.  The total expenditure 
for Research at UC's five medical schools was $518 Million in 1995-
96, and 95% of that came from other sources.

     Well, then, where does the bulk of this money go?  It goes to 
pay medical school faculty members over and above their academic 
salaries (the so-called Clinical Compensation Plans);  and it goes to 
pay a number of expenses associated with clinical operations.  Most 
of the first will be accounted for under Instruction, in Table 2,  
and most of the second will be accounted for under Academic Support.  
Unfortunately, the actual details of these accounting practices are 
not available, and they appear to vary significantly from one campus 
to another.  Furthermore, there are significant Transfers of funds 
between different accounts at the medical schools which further fogs 
up the interpretation of this data. Nevertheless, since this is the 
best data available I shall proceed, but with caution.

     I shall now restrict my focus to expenditures for Salaries and 
Wages (S&W) at the 5 Medical School Campuses, as this data is given 
in the Campus Financial Schedules.  This avoids the doubts about 
Transfers of funds; and, of course, it is of particular interest to 
our basic inquiry.  Furthermore, I shall compare data on S&W 
expenditures over a recent interval of time.  First, for comparison 
purposes, let's look at the S&W expenditures data for all of UC 
(excluding DOE Labs).  In Table 3  the time interval starts just 
before the budget crisis and ends with the most recent fiscal year. 
We see that the Total UC expenditure for Salaries and Wages has 
increased by 26% over this 6 year interval.  This number serves as 
our baseline for the present study.

TABLE 3.  Expenditures for Salaries & Wages   ($ in Millions) 

                  1989-90           1995-96     % Change over 6 years
UC Total          $3,397            $4,268             + 26%

      Now let's separate this UC Total into two parts: the first will 
be S&W expenditures for the Medical Sector - Teaching Hospitals plus 
SSEA - and the second part will be all the rest of UC.  Table 4 shows 
the result.

TABLE 4.  Expenditures for Salaries & Wages   ($ in Millions)

                  1989-90           1995-96     % Change over 6 years
Medical Sector    $  868            $1,280             + 47%
The Rest of UC    $2,530            $2,988             + 18%

     Here we see a very distinct difference between the recent 
history of these two parts of the University.  The Medical Sector saw 
a 47% increase in Salaries and Wages paid out, while all the rest of 
UC saw only an 18% increase.  Is this understandable?  Certainly the 
state's budget crisis depressed the academic portion of UC's 
expenditures; but hasn't there also been a growing financial crisis 
at UC's medical centers?  Thus, the 47% growth in total Salaries and 
Wages paid to the Medical Sector is something that seems odd.

     Now, let's separate this data for the Medical Sector into two 
further parts.  The first part will be S&W expenditures of SSEA funds 
that are spent for Instruction. This category will primarily cover 
the additional payments made to Medical School faculty members over 
and above their academic salaries. The second part will be all the 
rest of the Medical Sector expenditures for salaries and wages (paid 
to non-faculty staff at the hospitals and medical schools.)  See the 
results in Table 5. 

TABLE 5.  Expenditures for Salaries & Wages   ($ in Millions)

                  1989-90          1995-96      % Change over 6 years
SSEA Funds for
Instruction.....  $ 170            $ 292               + 72%
The Rest of the
Medical Sector..  $ 698            $ 988               + 42%

     Here, again, we see very different histories for the two groups.  
The Medical School faculty's additional compensation has grown by a 
whopping 72% - despite the budget crisis faced by the rest of 
academia and despite the claimed crisis in clinical practice income 
at academic medical centers.  This is the SECOND MAJOR CONTRADICTION 
indicated by this study of the financial data.

     Could this surprising growth in the amount of money going to 
Medical School faculty merely reflect a growth in the size of that 
faculty?  In the most recent Regents Budget, dated 10/96, on page 60 
(Health Sciences Instruction), I find the following.

"During the early 1990s, ... [t]he University offered three early 
retirement programs ....  As a result, health sciences programs lost 
a number of senior faculty .... In order to maintain the quality of 
the health sciences instructional program, a substantial portion of 
the vacant faculty positions must be refilled."

Thus, the size of the medical school faculty has actually decreased, 
making the large increase in S&W expenditures even more incongruous.


     Some of the doubts about the data used above can be avoided if 
we focus on the unique UC San Francisco campus, which is entirely 
devoted to the medical sector.  Here, we can be sure that the SSEA 
numbers precisely represent income from the clinical enterprise.  If 
we look at the same data given in Table 5, but just take the UCSF 
portion instead of adding together all five medical school campuses, 
then we find that: from 1989-90 to 1995-96, the SSEA funds going to 
pay Salaries and Wages for Instruction has increased by 94%.  This is 
more than found for any other campus.

     But we can do more with the available data.  In Figure 1, below, 
is shown how this number - Instructional Salaries and Wages from 
Clinical Revenues - has grown over a twenty year period and we can 
compare that with Instructional Salaries & Wages from General Funds 
(academic salaries paid for by the state.)  In 1977 the Clinical 
Revenues paid to faculty amounted to only 30% of the General Funds. 
This modest "add on" grew rapidly until, five years ago, it matched 
the General Funds portion - i.e., medical school faculty averaged 
twice the income of non-medical school faculty.  Then, during the 
recent years of California's budget crisis, the General Funds 
expenditure actually dropped; this is attributed to the early 
retirement incentive programs in 1991-93.  But observe that the 
Clinical Revenues being paid to faculty just kept on growing.  I do 
not see, in this data, any indication of the purported adverse 
impacts of the managed care revolution in the medical services 

FIGURE 1.     UCSF: Salaries & Wages for Instruction

$ Millions
75                                                              o
70           x General Funds                                 o
65           o Clinical Income                         o  o
55                                              x  xo          x
50                                        x  x   o    x  x  x
45                                  x  x
40                            x  x            o
35                                         o
30                   x  x  x         o  o
25             x  x               o
20    x  x  x               o  o
15                    o  o
10        o  o  o  o
 5     o
 0    __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
      77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96  FY

     What does this new information mean in the context of University 
policymaking?  I invite the reader to refer back to the opening 
sentence of this Report.


     In a previous Report (#18) I presented some new information on 
the economic productivity of faculty physicians in UC's medical 
schools.  Taking official data on the number of patient visits to 
UC's hospitals and clinics and the number of faculty physicians on 
staff at each of UC's five medical centers, I was able to calculate 
that the average number of patients seen per day per faculty 
physician was about two.  This number seems very small compared to 
what one expects to be the workload of a typical physician in 
commercial practice.  Of course, faculty members at a university 
medical school are also engaged in teaching and research - for which 
activities they are paid their academic salaries.  Still, the 
question raised by this comparison is, How can one expect university 
medical school faculty to compete successfully in the dollar-driven 
health services market when their average patient workload is so 

     A common answer to this question is that medical school faculty 
are the leading experts in many fields, and thus they are uniquely 
able to provide the cutting edge knowledge and skills needed in the 
difficult cases that ordinary physicians cannot handle.  However, it 
is also claimed that this advantage has been sharply eroded, 
especially in California, because many of the younger specialists 
recently trained at these university medical schools are now 
effectively able to compete with their former teachers, providing 
this quality of treatment in the private sector under managed care.

     In addition, there is a question whether the productivity number 
referred to above - the average UC faculty physician sees two 
patients per day - is actually inflated.  This refers to the fact 
that many patients at academic medical centers are treated by the 
school's graduate students - interns, residents and fellows - rather 
than by the faculty physicians.  At the October 17 meeting of the 
Board of Regents I asked this question during the Public Comment 
period: What fraction of the patients treated at UC medical centers 
are actually seen by residents rather than by faculty physicians?  
Fortunately, Regent Velma Montoya relayed this question to Vice 
President William Gurtner, head of UC's Clinical Services 
Development, at a later point in the meeting.

Regent Montoya:"What is the answer to Professor Schwartz's question?"
Vice President Gurtner:  " ... The issue that he also talked about in 
terms of the split between residents ... and faculty ... I am certain 
that number is available. I just don't happen to have it ... "
Montoya:  "Can you get it to him?"
Gurtner:  "I am sure we can try and find those numbers, certainly. "

     On November 18, Vice President Gurtner wrote his response in a 
letter to Regent Montoya, with a copy to me.  Here are the most 
relevant portions.

"As to the question regarding the 'apportionment of clinical services 
patient workload between faculty and residents,' you and Dr. Schwartz 
have certainly posed a question that demonstrates the importance of 
understanding the unique and complex relationship of the clinical and 
educational enterprises within our academic health centers.  Over the 
next year, I will begin to provide you and The Regents with inform- 
ation that will enhance our understanding of the interdependence of 
the clinical and educational activities that make-up the University's 
health sciences enterprise.  This information should be useful to all 
of us faced with addressing the strategic, academic, and financial 
viability of our academic health centers." ...
"The clinical programs do not sanction the provision of patient care 
by unsupervised interns or residents.  An integrated team of faculty, 
residents, nurses, and other health professionals provide the 
patient's total clinical care, with individuals carrying out 
designated responsibilities when suitably trained and authorized for 
specific activities.  Therefore, when one considers the total care 
of the patient over a given period of time within the teaching 
hospital, one should understand that care is provided by members of 
the teaching team headed by an attending physician.  In a teaching 
hospital, patient care is provided in the context of the academic 
mission.  This is, of course, quite different from the care provided 
in a non-teaching hospital, where patient care may be tracked 
solely to specific physicians.
"From this brief overview I hope that I have helped to clarify the 
unique and complex role that our teaching hospitals play in carrying 
out the University's tripartite mission.  As you will note, the very 
nature of the teaching relationship is one of collaboration, 
supervision, and interaction between faculty and student.  For this 
reason, we do not collect data as to the proportion of care provided 
by the student members of the team."

     Attached to this letter were several pages from the AMA's 
"Essentials of Accredited Residencies in Graduate Medical Education" 
about the supervision of residents by faculty physicians.  But there 
were no numbers at all in Vice President Gurtner's letter.  Thus, his 
earlier assurance that the requested data was certainly available and 
would be provided, ended with a heap of blather devoid of any 
quantitative information.

     I conclude that this question of residents' share of the 
clinical workload is a very sensitive one in the medical schools.  
There is a similar question in other parts of any research 
university: how much of professors' research work is actually carried 
out by the graduate students acting under their supervision?  
However, my purpose in raising this question is not to engage in 
philosophical debates over the proper balance of relations between 
apprentice and master, but rather to seek some important practical 
information concerning financial realities at UC's medical centers.  
How can The Regents, or anyone else concerned with public policy, 
make intelligent judgments about managing these medical centers in 
today's health care marketplace without having this kind of data 
before them?