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 MORE ON THE FINANCIAL STORY AT UC's MEDICAL CENTERS 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, 1996): "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 years. 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. MORE DETAILED DATA FOR UCSF 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 marketplace. FIGURE 1. UCSF: Salaries & Wages for Instruction $ Millions 80 75 o 70 x General Funds o 65 o Clinical Income o o 60 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. ANOTHER VICE PRESIDENT IS HEARD FROM 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 small? 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?