Like its peer institutions across the nation, UCLA’s academic medical center faces significant fiscal challenges prompted by recent changes in the health-care industry, especially the combined effects of increased patient-care costs and dramatic decreases in reimbursement by insurers. While cost-cutting and efficiencies have been achieved over the past few years, it was clear that additional steps were needed to put the medical center on sound financial footing for the long term.

“We believe if we address these challenges head-on and take decisive action today, we can ensure UCLA Healthcare’s long-term stability and maintain our continued commitment to providing the highest-quality patient care,” said Chancellor Albert Carnesale. To that end, UCLA Healthcare engaged The Hunter Group, a management consultancy known for its work with aca-demic medical centers, to conduct a comprehensive assessment of its operational, financial and organizational systems.

Starting in fall 2002, The Hunter Group analyzed the current status and long-term prospects of UCLA Healthcare, with the goal of charting a course of action that would strengthen the system’s infrastructure and improve overall financial performance. The consultants’ report, publicly released last week, concludes that UCLA Healthcare is well positioned for the future. UCLA continues to be one of the premier medical-science institutions in the country, highly respected for clinical, teaching and research activities. The medical center has seen significant growth in the last four years, and the demand for its high-quality services continues to increase.

The report outlines a comprehensive set of recommendations in the form of a Performance Improvement Plan. The plan’s primary recommendations include: improving performance and productivity of the units that comprise the health-care system; increasing cost-efficiency related to billing, supplies and data management; creating a new faculty-practice plan that will provide all physician-support services; transferring management of the primary-care clinics to departments in the medical school; and creating a new management structure for the system.

The Hunter Group estimates that if these recommendations are implemented, the hospital system’s net income by fiscal year 2006-07 not only will be positive, but will be $90 million higher than if no such steps were taken.

In conducting their review, Hunter Group analysts worked with a steering committee of senior staff members from the university and medical center administrations. Steve Olsen, vice chancellor for finance and budget, chairs the committee. Olsen spoke with Karen Mack of UCLA Today to answer questions about UCLA Healthcare and The Hunter Group’s recommendations.

“UCLA Healthcare has begun to address all of these issues but needs to accelerate the process in order to meet its cash demands over the next four years.” — THE HUNTER GROUP

The Hunter Group estimates that without significant changes in its operations, UCLA Healthcare could face considerable financial losses in the next four years. Why is UCLA Healthcare facing these financial difficulties?

A. Like all health-care systems, UCLA Healthcare has been impacted by the increasing costs of patient care and the significant decreases in reimbursement. Our situation is complicated by the fact that we are building two new hospitals while simultaneously operating three hospitals, a faculty group practice and a network of primary care clinics.

UCLA’s leadership recognized the need to make changes in our operations in order to ensure our continued financial stability. We proactively contracted with The Hunter Group to do a comprehensive assessment and Performance Improvement Plan — now, while the organization is still financially stable. It has confirmed that UCLA is already well positioned for the future and has begun to address necessary productivity and performance issues. By accelerating the changes we have begun and implementing new recommendations, we can ensure that we remain financially stable for the long-term and are able to continue providing high-quality patient care.

Q. The media have reported that The Hunter Group was paid almost $2 million for its services. Did that fee come out of UCLA Healthcare’s resources?

A. No. The Chancellor’s Office hired The Hunter Group at the suggestion of Dr. Gerald Levey, provost for medical sciences and dean of the medical school, and the Dean’s Office is paying the consultants’ fee.

Q. Was this a wise use of resources given UCLA’s financial difficulties?

A. While we have already made some progress by implementing measures to increase efficiency and fine-tune our business operations, The Hunter Group’s recommendations give us a valuable strategic road map for reaching our financial goals. The university views this as a sound investment in improving the overall financial performance of UCLA Healthcare while continuing to provide the highest-quality patient care.

Q. To whom does The Hunter Group report?

A. The Hunter Group reports to Chancellor Carnesale and Provost Levey. The steering committee that I chair will continue to oversee the consultants’ work on an interim basis. In addition to Dr. Levey and myself, the committee members are: Dr. Jean DeKernion, chairman of the Department of Urology; Dr. Michael Karpf, vice provost and medical center director; Vice President William Gurtner of UC’s Division of Clinical Services Development; and Dr. Neil Martin, chief of the Division of Neurosurgery.

Q. Is UCLA obligated to accept The Hunter Group’s recommendations? Has it been decided which of the recommendations will be implemented? Who will make those decisions?

A. The university is committed to reviewing the recommendations and making a thoughtful assessment as to which steps will be enacted. Final decisions on many of the recommendations are still pending, but we have endorsed the idea of creating a new management team that will help to streamline and strengthen oversight and financial management of the health care system in its entirety. The team members will gather input from key personnel and other stakeholders, make decisions on implementing The Hunter Group’s recommendations and move the process forward.

Q. Who will be part of the management team?

A. The team will consist of four senior executives with overall responsibility for the UCLA Healthcare system. They are: the dean of the David Geffen School of Medicine, or his designee; the hospital director; a new finance executive for UCLA Medical Sciences; and the chief executive officer of a newly formed Faculty Group Practice, who will report to the provost for medical sciences. These appointments will be announced in the near future.

Q. The Performance Improvement Plan recommends the elimination of 475 full-time jobs. Will there be layoffs?

A. We anticipate that most of the recommended reductions can be achieved through attrition and by reassigning staff to other positions within the organization.

“In the true sense of the word, UCLA Healthcare is not in a turnaround situation. It is dealing with the same issues faced by all health-care organizations.” — THE HUNTER GROUP

Q. The Hunter Group is recommending that our physicians increase their productivity, but some UCLA doctors say that if they are forced to do so, patient care will suffer. Are they right?

A. We will be reviewing those recommendations with our physician groups. We will not implement any changes that would adversely affect the quality of patient care, which is our highest priority. Both The Hunter Group and UCLA have found, however, that there are reasonable ways to increase productivity without decreasing quality, and we are confident we can continue to do that.

Q. Under the circumstances, can we afford to complete construction of the two replacement hospitals in Westwood and Santa Monica?

A. Because almost 80% of the funding for the replacement hospitals comes from external sources, we will have little long-term debt and a strong balance sheet. Virtually all of the construction funds have been secured. We do need to generate an additional $260 million for equipment and moving expenses. The Hunter Group hopes to devise a plan to secure that funding through a combination of short-term hospital borrowing, increased revenues and improved productivity.

Q. Do you expect the Medical Center’s situation to improve? If so, how and by when?

A. Yes. The Performance Improvement Plan comes at an ideal time. The Hunter Group projects that, by 2007, the hospital system’s net income will be $90 million higher than if the plan were not implemented.

Q. Will this process affect the service we currently provide to patients in any way?

A. No. UCLA’s first priority will always be to provide the highest-quality patient care. Strengthening our financial position is necessary to ensure this quality is maintained.

Q. Whom should employees consult for further information?

A. UCLA’s leadership will continue to provide updates to senior staff as we move forward and make decisions. Within the medical enterprise, supervisors are likely to be the best source of information. And everyone is welcome to submit questions directly to Chancellor Carnesale and Provost Levey at Dr. Levey’s Electronic Town Hall, which can be accessed at http://apps.medsch.ucla.edu/townhall.