LOOKING INTO THE UC BUDGET  --  Report #5b        (e-mail version)

by Charles Schwartz, Department of Physics, University of California
Berkeley, CA 94720.       510-642-4427	          June 1, 1993


     This Report sheds light on the huge amount of money flowing into the 
University's five Medical Schools.  Under the bookkeeping euphemism of 
"Sales and Services of Educational Activities," these select academic 
departments take in about $450 million per year from clinical practice, 
and most of this ends up in the pockets of Medical School faculty members.

     While UC officials have been very  reluctant to discuss or reveal 
precise data about this medi-business within the university, I have been 
able to gather enough documentation and financial data to show what is 
going on.  This information is very relevant to the ongoing debates about
how the University should manage its severe fiscal crisis.


     In my previous Reports #4 and #5, I identified several sources of 
revenue which UC officials had falsely claimed to be "restricted to 
specific uses" and thus not available to "replace the shortfall in state 
funds."  The most mysterious of these, categorized as revenue from "Sales
and Services of Educational Activities" in UC's accounting lexicon, 
provided a total of $546 million in the last complete fiscal year, 
1991-92.  A  UC "Fact Sheet" described this revenue as follows:  "Funds 
generated by activities such as educational workshops, and the treatment 
of patients at medical clinics.  Generally, the revenue is returned to 
the department or unit to help defray their cost of operations."  

     When I proposed, as part of my "Alternative Budget Plan for 1993-94",
that UC levy a 5% surcharge/tax on Sales and Services of Educational 
Activities (adding that the administration should decide how best to 
apportion this among the affected constituencies), President Peltason 
gave the following explanation in his "White Paper" response to my 
recommendation.  "[P]atients in UC dental clinics undergo long waits and 
tedious examinations in exchange for inexpensive dental care.  If the cost
goes up, UC could lose patients who are essential to the teaching program."  

     Obviously, a great deal more than low cost dental clinics is 
involved in producing a revenue stream of over half a billion dollars a 
year.  While top UC officials have not been cooperative in my requests for
detailed data on this topic, I have nevertheless been able to assemble a 
pretty good picture of what is really going on.


     Everybody knows that doctors get bigger salaries than most other 
people; and most faculty members are aware that their colleagues in the 
Medical Schools are paid on a higher salary scale.  Here are the latest 
figures for the University of California, along with some explanatory 

Table 1.          UC  ACADEMIC  SALARY  SCALES  FOR  1992-93    

			Regular	  Business &	      Medicine	 Medicine
			Faculty   Engineering   Law   Scale "A"	 Scale "B"
Assistant Prof. I      $35,900     46,800              49,600     44,300
Associate Prof. I	43,100	   57,000              59,600	  53,300
Professor I		51,400	   63,700     63,800   71,000	  63,500
Professor VIII	        91,300	  100,300    113,000  126,300	 113,000

At each level of appointment (Assistant Professor, Associate Professor, 
Professor) there are a series of salary "Steps", I, II, III, etc.; and I 
have tabulated only the first step for each level, along with the highest
"on-scale" Step, number VIII, for full Professors. There also exist 
uncharted "Above Scale" salaries for academic super stars.

The first three columns of numbers in Table 1 are salaries for the 9-month
Academic Year.  Regular Faculty on Academic Year salaries who have 
extramurally funded research contracts and grants may earn additional 
"Summer Salary" of up to 3/9 of their base 9-month salary.

     From Table 1, it appears that Medical School faculty are paid at a 
rate 38% higher than their regular academic counterparts.  But this is 
only the tip of the iceberg.  The basic university policy is found in the
UC Academic Personnel Manual, Section 670-2:

"The University's Health Sciences Compensation Plans have been developed 
to provide Health Sciences faculty with compensation over and above the 
basic Statefunded salary scales in lieu of allowing the appointee to 
maintain a private practice strictly for his or her account."

     I have obtained copies of the University of California's  Medical 
School Clinical Compensation Plan , as approved by the Regents, and it 
provides the following:

Medical School faculty members (appointed at more than 50% full time) with
patient care responsibilities may receive additional compensation, by 
negotiated arrangements, up to the limit of:
3.10 x base salary for Assistant Professors,
2.85 x base salary for Associate Professors,
2.60 x base salary for Full Professors.

An alternative plan, called "income limitation arrangement", allows even 
higher compensation at the upper levels, with the faculty member keeping 
40% of all net professional service income beyond 3.75 x base salary.

The Plan allows individual exceptions to these compensation limits, with 
the approval of the Chancellor and the President.

All UC Medical Schools, or individual departments thereof,  maintain  
separate Fund Accounts to collect the income from clinical practice and 
disburse it according to these Compensation Plans. Priority for 
disbursement from these funds is as follows:

1. Reimburse the University for all related professional operating and 
   billing expenses;
2. Pay additional compensation to faculty, up to the limits established;
3. Fund additional benefits for the faculty members;
4. Pay into a Reserve for Contingencies (to help meet the above 
   priorities in lean years);
5. Distribute any surplus for various purposes within the Medical School.

If funds in any one such Fund Account are inadequate to meet all 
commitments for additional compensation to faculty, after exhausting 
Reserve for Contingencies, the Chancellor or Dean may take funds from 
other (non-State) Fund Accounts within the School.

     Using the nominal limits cited above from the Medical School Clinical
Compensation Plan, the following are the top incomes for Medical School 


Assistant Professor I		49,600 + 3.10 x 49,600 = $ 203,360
Associate Professor I		59,600 + 2.85 x 59,600 = $ 229,460
Full Professor I		71,000 + 2.60 x 71,000 = $ 255,600
Full Professor VIII	      126,300 + 2.60 x 126,300 = $ 454,680
Above Scale or Exceptions or ...   unknown

     Another UC document, titled General Health Sciences Compensation 
Plan, provides further additional compensations.  Faculty in the Schools 
of Dentistry have essentially the same Compensation Plan as faculty in 
the Medical Schools; faculty in the School of Pharmacy, along with 
Clinicians on the Medical School faculty who are not physicians, are 
limited in their additional compensation to 1.375 times base salary; 
faculty in the School of Nursing, along with all those Health Sciences 
faculty members without direct patient care responsibilities, are 
limited to 0.825 times base salary.

     A further part of these Compensation Plans, which needs further 
elucidation, provides for a portion of the funds from certain grants and 
contracts to be added to these Medical School Fund Accounts.

     The upper limits on total compensation for these faculty members, as 
shown in Table 2,  are very large incomes indeed.  The interesting 
question now arises: How much money do UC Medical School faculty members 
actually collect under these plans ?

                   INQUIRY to the ADMINISTRATION

     On April 9, 1993, I wrote the following letter to Dr. C. L. Hopper, 
who is the Vice President for Health Affairs in UC's Office of the 


Dear Vice President Hopper:

     This is a request for information concerning certain financial 
matters related to the University of California's Medical Schools.  I 
submitted these same questions to John Turek, Coordinator of Hospital 
Accounting in the Office of the President, on March 31; but I have gotten
no reply at all from that inquiry. [Mr. Turek had previously been very 
responsive and helpful when I first made inquiry about financial matters 
at the UC teaching hospitals.]

     I want to find details of the flow of revenues called "Sales and 
Services of Educational Activities" to the University's medical schools. 
How much is this, for each of the last few years?  How much ends up as 
payments to Medical School faculty and administrators; How much ends up 
as other acquisitions, etc., in the Medical Schools?  What is the average
academic salary paid to UC Med School faculty members, and what is the 
average additional income they get from UC (via the "Practice Plans" or 
whatever the arrangements are called)?  If the precise figures are not 
readily available, I would like to have some informed estimates of this 
data.  Can you provide me this information?

     If you need me to clarify these questions, please call me.  Of 
course, I am anxious to get this information quickly.

     Two weeks later, having received no response, I sent the same letter 
to Vice President Hopper again, labelled SECOND REQUEST.   A few weeks 
later I received a letter from Associate Vice President Larry Hershman, 
Director of the Budget in the Office of the President, informing me that 
my request to Dr. Hopper had been referred to his office, and stating "We
will try to answer your questions as soon as we can," followed by some 
comments suggesting that this might be a very long wait.

     I perceive this as a stonewall tactic, especially since I have heard 
both Vice Presidents Hopper and Hershman quote some numbers related to my
inquiry off the top of their heads.  It appears that I have poked into a 
very sensitive area.

     It is important to recognize that my inquiry does not imply an 
invasion of anybody's privacy.  The activities that I ask about are 
conducted within the University, by University personnel, acting under 
University policy; and the moneys collected and disbursed are handled 
entirely through University accounts explicitly set up for that purpose. 
I also note in the Medical School Clinical Compensation Plan documents 
that annual reports on these Medical School Fund Accounts are supposed to 
be submitted to the President of the University.  These are all public 

     Lacking cooperation from the Office of the President, I have 
nevertheless been able to piece together an instructive picture of UC 
medi-business finances using the data contained in the official UC 
accounting document, "Campus Financial Schedules 1991-1992" (CFS).  The 
results are presented in the following section.


     First, let's look at the overall finances of the University of 
California's Health Sciences Schools.  This complex is comprised of five 
Schools of Medicine (at UCD, UCI, UCLA, UCSD, UCSF), two Schools of 
Dentistry (UCLA, UCSF), two Schools of Nursing (UCLA,UCSF), one School of
Pharmacy (UCSF), and the Neuropsychiatric Institutes and Hospital (UCLA,

     The following table shows the combined expenditures of these schools
in the Health Sciences for the fiscal year 1991-92 (data collected from 
CFS Schedules C.)

Table 3.     U.C. CURRENT FUNDS EXPENDITURES 1991-92     ($ in Millions)

			Total	General	Designated  Restricted	
			Funds	Funds	Funds	    Funds	Transfers
Schools of Medicine   $	1,138	  200	  432	      506	  141
Schools of Dentistry	   55	   27	   19	        8	    7
School of Pharmacy	   30	    7	    7	       16	    2
Schools of Nursing	   21	   12	    1	        9	    -
Neuropsychiatric I&H	   97	   42	   26	       29	   14

              TOTALS  $ 1,341	  289	  484	      568	  165

In each line of this Table, the Total of Current Funds Expenditures is 
broken down into three components describing where the money comes from: 
General Funds come from the overall State of California appropriation to 
UC; Designated Funds come from other income sources under the full control
of the Regents; Restricted Funds come from outside agencies that have 
specified how that money is to be used (mostly extramural research 
contracts and grants.)  In what follows, I shall not consider the 
Transfers (recharges) since it is unclear what they represent.

     The first thing to notice from Table 3 is the very large total 
expenditure by this Health Sciences sector of the University, $ 1.34 
billion last year.  If one adds this figure to the combined expenditures 
of UC's five Teaching Hospitals, which are intimately associated with 
these academic departments, the combined total is  $ 1.34 +  $ 1.54 =  
$ 2.88 billion.  This amounts to 42% of the total expenditures of the 
University of California, which was $ 6.79 (not including the three 
Department of Energy Laboratories.)  Thus, while the health sciences 
constitute a small fraction of all the many academic disciplines present 
in the University, their economic weight is enormous.

     The particular topic of concern in this Report is the University's 
stream of revenue and expenditure called "Sales and Services of 
Educational Activities,"  and especially the portion of this money that 
goes into the Medical, etc., Schools' Compensation Plans.  The basic data
is shown in the following Table, where I have separated the campuses into
two groups: those with medical schools and those without medical schools.
(Data on Revenues are from CFS Schedules A and data on Expenditures are 
from Schedules D.)  The figures given below are all "Unrestricted Funds",
and almost entirely "Designated Funds."


With Medical Schools	 Revenues (1991-92)	 Expenditures (1991-92)
UC Davis              $   70,986		  68,705
UC Irvine	  	  63,731		  65,621
UC Los Angeles		 144,195		 138,489
UC San Diego	 	  72,943		  67,964
UC San Francisco	 171,660		 150,739

       Sub-Totals	 523,515		 491,518

Without Medical Schools   Revenues (1991-92)	 Expenditures (1991-92)
UC Berkeley	           16,805		  16,182
UC Riverside	            2,260		   2,149
UC Santa Barbara	    1,262		   1,110
UC Santa Cruz	              266		     166
U. Prog. & Admin.	    1,822		   1,548

       Sub-Totals	   22,415		  21,155

         TOTALS        $  545,930	   	 512,673

     The $546 million total Revenue shown in this table is the figure 
previously cited; but we shall now focus on the Expenditures for last 
year, which totalled $513 million.  From Table 4 we see that over 95% of
this money was at campuses with Medical Schools.  How much of the $492 
million spent by the first five campuses listed in Table 4 was actually 
spent by their Medical (and Dental, etc.) Schools ?  The data I have 
available do not provide an exact answer to this question; but I can make 
a pretty good estimate.  

     From Table 3, we see the total of Designated Funds spent by the 
Health Sciences complex was $484 million.  This number sets the upper 
limit for their expenditures of Sales & Services of Educational Activities 
through their Compensation Plans.  By making some rather extreme 
assumptions, using the data in CFS,  I was also able to establish a lower
limit for this estimate:  a minimum of $394 million.  I expect that the 
true number is much closer to the upper limit than the lower one; and I 
shall make my final estimate, cautiously, as follows:

       About $450 million was spent last year by the accounts for 
       UC's Medical Faculty Compensation Plans.

     We have not yet reached our final goal, since a portion of this money
spent by these accounts must first reimburse the University for all 
related professional operating and billing expenses, before distribution 
is made to the faculty members.  Fortunately, I have found some data in 
CFS which details these expenditures, at least for three of the five 
Medical Schools (listed as Designated Funds Expenditures, in Schedules C,
under "Academic Support"):

UCD:  	$12.8 million  for "Professional service billing group", 
        "Professional service computer services" and "Professional 
	service group operations."
UCSD:	$17.2 million for "Practice plan operations."
UCSF: 	$39.7 million for "Professional service operations," with another 
        $9.0 million for "San Francisco General Hospital - professional 

     Comparing these figures with the total amounts of Designated Funds 
spent by each of these three Medical Schools,  I come to the estimate that
roughly one-third of the total funds is spent on operating and billing 
expenses; this leaves two-thirds of the total money for distribution to 
the faculty members, with excess going to other uses within the Medical 

     CONCLUSION:  A total of about $300 million was disbursed last year 
     to UC Medical School Faculty as additional compensation beyond their
     regular academic salaries.

     In order to see how this money was distributed among the medical 
faculty, we need the detailed data which the UC administration has so far 
been unwilling to provide. Lacking that accurate data, I shall 
nevertheless attempt a guess at what the distribution might look like.  
The total number of UC faculty in the Health Sciences, with titles that 
make them eligible for the Compensation Plans, is approximately 5000 
(headcount) and 4000 (FTE). [These numbers come from the UC publication, 
"Annual Academic Personnel Statistical Report 1992-93", data for October 
1992.]  From this, I conclude that the number holding appointments at 50%
or more - another requirement for participation in the Compensation Plans 
- is between 3000 and 4000 (FTE).  Next, I need to know how many of these 
have direct patient care responsibilities in the Schools of Medicine or 
Dentistry, thus qualifying them for the much higher compensation limits 
given earlier. This data, also, is not now available. Thus, for purposes 
of illustration, I shall give a simple hypothetical picture: imagine 1500 
"practicing" faculty with an average of $120,000 additional income each, 
and 2000 "non-practicing" faculty with an average of $60,000 additional 
income each.  This model accounts for a total of 3500 medical faculty 
sharing a total of $300 million in additional compensation; and the 
numbers appear plausible.


     The context in which we look at these large amounts of money in the 
UC Medical Schools is, of course, the present severe fiscal crisis 
confronting the University of California.  In my "Alternative Budget Plan 
for 1993-94" , submitted to the Regents at their March meeting, I made 
the following proposal concerning UC's "Sales and Services of Educational

     "I propose that the Regents take 5% of this $546 million revenue 
     stream; this will provide $25 million to meet the current budget 
     crisis of the University.  The UC administration will have to 
     provide more detailed information in order to decide how much of 
     this will be a surcharge on outside clients and how much will be 
     a 'tax' on the additional revenue now flowing exclusively into 
     the medical schools."
In his "White Paper", President J. W. Peltason responded to this proposal
as follows:

     "Response:  Raising prices will not necessarily generate more 
     income;  in fact, income may go down and the teaching program 
     could be harmed.  For example, patients in UC dental clinics 
     undergo long waits and tedious examinations in exchange for 
     inexpensive dental care.  If the cost goes up, UC could lose 
     patients who are essential to the teaching program."

     The official response quoted above is truly disingenuous.  The dental
clinics, which the President cites to make his case,  account for a mere 
3% of this total income; and he avoids entirely the question of the money
that flows into the medical schools and into the medical faculty's 

     This Report has provided some striking new information - namely, 
that last year the UC Medical Schools took in about $450 million in 
revenue from patients (all this apart from the income of UC's  Teaching 
Hospitals), of which about $300 million was disbursed to the medical 
faculty as additional compensation over and above their academic salaries.
In relation to the university's budget crisis, we now see quite a rich 
kettle of fish on the table.

     Indeed, we ought to consider a surcharge on the clients/patients who
come to UC's prestigious Medical Schools for consultation and treatment by
our outstandingly excellent faculty.  Just how to apply this surcharge - 
taking note of who can and who cannot afford to pay - is a matter for 
intelligent and humane discretion which I would leave up to the 
experienced doctors and administrators of the Medical Schools.  It does 
seem reasonable, however, to propose a target figure of 10% of their gross 
income.  This is a potential $50 million to help weather the fiscal storm 
that now threatens the University of California.

     In addition, I propose that at least half of the $300 million in 
additional compensation paid to the medical faculty ought to be put on 
the table for budget negotiations.  Why so large a bite, rather than a 
modest 10% ?   If we were in the first year of this fiscal crisis and 
information of this rich resource were at hand, then something like a 10% 
bite would seem reasonable.  However, we are now going into the fourth 
year of cumulative budget cuts; this affluence in the Medical Schools has 
just now come to light; and therefore there is justice in asking for a 
retroactive compensation from the rich sectors of the University to their
suffering colleagues.  Moreover, as data I presented in Report #5 show, 
this outside income to the Medical Schools has actually been growing, at 
just over 10% per year, for the last several years. While salaries have 
been frozen and support budgets cut elsewhere in the University of 
California, the Medical Schools have been enjoying an economic boom.
There is an adjustment overdue here.

     I do not claim that these moneys are idle or their present 
expenditures are a waste; nor do I imagine that taking this money will 
not cause some pain and damage to the medical sector of the University.  
It is within the context of "One University", however, that we ought to 
seek a balance of values and of sacrifice during this budget crisis.

     There will surely be strenuous objections to these proposals from 
the Medical Schools and from their protectors in the UC administration.  
I can anticipate many of their arguments; but I believe that those 
objections can be well answered in a fair and open debate.  I invite all 
concerned parties to enter that debate.