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 SUMMARY 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. INTRODUCTION 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. FACULTY COMPENSATION at the MEDICAL SCHOOLS 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 comments. 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 faculty. Table 2. TOTAL COMPENSATION LIMITS for UC MEDICAL SCHOOL FACULTY 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 President. ------------------------------------------------------------------------ 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. Sincerely, ------------------------------------------------------------------------- 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 records. 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. FINANCIAL DATA on the MEDICAL SCHOOLS 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, UCSF). 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." Table 4. "SALES & SERVICES OF EDUCATIONAL ACTIVITIES" ($ in Thousands) 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 service." 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 Schools. 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. DISCUSSION and RECOMMENDATIONS 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 Activities". "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 paychecks. 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.