 |
Photo by Reed Hutchinson
UCLA Photographic Services
|
Administrator grapples with tough problems
Putting hospitals back on track
In a presentation to the UC Regents’ Committee on Health
Services last month, David Callender, associate vice chancellor
of the UCLA Hospital System, talked about the hospitals’ current
financial problems. More recently, he spoke with UCLA Today’s
senior editor Wendy Soderburg about these and other medical center-related
issues.
Q: In 2002, Navigant Consulting was hired to put UCLA’s
health system on sound financial footing for the long term. What
were Navigant’s main interventions, and which ones have been
implemented?
A: Navigant’s major role was in reorganizing our
management structure. We now have an organizational structure that
provides for critical decision-making with input from all segments
of the UCLA health-care system. The UCLA Healthcare senior leadership
team consists of four senior executives: the dean of the David Geffen
School of Medicine or his designee, the hospital director, the systemwide
chief financial officer and the president of the Faculty Group Practice.
Gerald Levey, our vice chancellor for medical sciences (who also
serves as dean), provides administrative oversight. The systemwide
CFO and Faculty Group Practice leadership positions have now been
created and filled, and this structure has been refined with the
collaboration of our clinical departments. While here, Navigant
also began the process of streamlining some of our clinical operations
and improving the function of our primary-care clinics. This work
is continuing under the direction of the new leadership team.
Q: In fiscal year 2004, the UCLA Hospital System posted
$11.7 million income, which was well short of the $30 million that
was originally budgeted. To what do you attribute the $18.3 million
shortfall?
A: There are a number of reasons for the shortfall. First
of all, the cost of everything from aspirin to sophisticated implantable
defibrillators keeps going up and up. Secondly, we have to comply
with costly new federal and state regulations, like nurse-to-patient
ratios. Personnel costs are rising rapidly, related to these regulations
and human resource market trends. Finally, and perhaps most importantly,
in the past months we’ve seen a dramatic and negative shift
in health-care market conditions. Our payer mix has significantly
deteriorated. In other words, we’re caring for more uninsured
and more underinsured patients than we anticipated. The closure
of a number of emergency rooms and hospitals in Los Angeles County
has resulted in UCLA seeing a lot more Medi-Cal and uninsured patients.
The reimbursement for these patients doesn’t come close to
covering the cost of caring for them.
Q: Is UCLA legally obligated to take on this growing number
of Medi-Cal and uninsured patients?
A: Under federal law, every hospital must care for any
patient that comes into its emergency room. For the uninsured and
the underinsured, the emergency room often takes the place of a
personal physician. Some hospitals just stabilize the patient and
then ship them off to another hospital. Others, like ours, have
every kind of medical service available and attempt to provide a
full range of services to improve the overall health of the patient.
We rarely turn these patients away, even though it winds up costing
us a great deal of money. Whether we can continue to accept all
these patients and provide this level of service is a question we’re
grappling with right now.
Q: What are some of the unfavorable market trends that
UCLA has had to deal with?
A: In addition to handling an increasing number of Medi-Cal
patients, we still have several large and important contracts with
HMOs, including some that pay for health care for our own employees.
Unfortunately, what these contracts pay us for patient care doesn’t
cover the cost of that care. All acute care hospitals in L.A. are
trying to cope with this same problem, and many are suffering operating
losses. These losses are mostly attributable to reimbursement that
is lower than the cost of care. Some hospitals can include income
from endowments and gifts in their bottom line to produce a positive
net income. As a UC institution, our structure doesn’t allow
us the same opportunity to produce non-operating revenue to offset
operating losses.
Q: What is the university’s strategy to improve UCLA
Healthcare’s financial picture?
A: We’ve begun Phase 1 of a three-part improvement
plan. The plan is aimed at increasing revenues and decreasing costs,
and involves restructuring our organization to better match the
difficult health-care market that exists in Southern California.
Right now, we’re adjusting our cost structure to better match
the revenue we’re receiving as a result of the influx of Medi-Cal
patients and uninsured patients, as well as the ongoing numbers
of patients covered by lower reimbursement health plans. On the
cost side, we have to do a number of things. We’ve got to
manage our supplies better and spend within our means on big-ticket
items. We also have to optimize our personnel costs, bringing them
back in line with practices of better-performing organizations.
As announced, this means reducing the overall number of employees.
Phases 2 and 3 are aimed mostly at increasing revenues. In these
phases, beginning with the kick-off of our budgeting process, we’ll
be reviewing the profitability of our clinical services and working
with our clinical leaders to improve our revenues. We’ll also
be closely reviewing our reimbursement contract strategies and performance
to more aggressively pursue revenue opportunities. Needless to say,
all of these measures are being taken in a way that will continue
to maintain UCLA Healthcare’s vital role in this community
and our reputation as one of the best health-care institutions in
the world.
Q: Will there have to be layoffs? In what areas?
A: Though we’ve tried very hard to avoid them, there will
be some layoffs. Right now we have about 8,000 employees —
with a total FTE count of around 6,800. We’ve looked at the
data for other academic health centers like ours, and UCLA has a
significantly higher number of employees than comparable institutions.
To be successful and preserve as many jobs as possible, we need
to adjust our staffing levels to the “best practice”
levels at other successful organizations. No one knows better than
I do how lucky we are to have an incredible staff in our hospitals.
It’s our people — housekeepers, nurses, cafeteria workers,
clerical staff, students, medical residents, physicians —
who make our hospitals some of the finest hospitals in the world.
Every person here makes a great contribution.
At the same time, we need to get our financial house in order. One
of the things we will have to do to achieve that end is reduce personnel
costs by 400 FTE. We believe we can do that with a combination of
attrition, reassignments, planned retirements and layoffs. Our hope
is that this will mean we can limit the actual layoffs to between
100 and 150. We’ll be looking at all aspects of operations
to reduce personnel costs, though we want to avoid staffing reductions
that negatively impact patient care.
Q: Last summer, the Office of Statewide Health Planning
and Development (OSHPD) issued a “stop-work order” related
to a number of inspection and documentation issues at UCLA’s
new hospital facilities in Westwood and Santa Monica. Can you elaborate
on these issues?
A: In August, OSHPD did issue a “stop-work order” telling
the general contractor — Tutor-Saliba — to suspend work
in a number of areas within the hospital until a series of inspection
issues had been processed and approved. Some of the inspection issues
involved change orders, and many of those were associated with relatively
minor changes in construction of infrastructure. Some people have
questioned the number of change orders, particularly those involving
our major equipment. On a project as big and complex as our replacement
hospital, change-work orders are inevitable. That’s especially
the case since the original plans for the building were drafted
more than five years ago.
Our hospitals are known for their state-of-the-art technologies,
and new and more sophisticated medical equipment than originally
planned is needed to advance our research and patient-care programs.
Many of the major change orders were related to the new medical
equipment we need to install and the additional seismic bracing
elements they require. UCLA Capital Programs (who manage our construction
projects), the general contractor and OSHPD have been diligently
working through the change orders and inspection issues. The vast
majority of them have been resolved.
Q: Have the stop-work orders been lifted?
A: The order in Santa Monica was lifted almost immediately. The
stop-work order here in Westwood is technically still in place,
though some work has been continuing. Manpower is ramping up in
most areas of the construction site in anticipation of the stop-work
order being lifted. We’re told that we’ll be back up
to full speed over the next few months.
Q: What are the anticipated completion dates for the two
facilities, and when will they be operational?
A: The precise date is very hard to predict today because there
are so many variables at play near the end of construction. Capital
Programs and the general contractor have established the goal to
have actual construction here in Westwood completed by the end of
this year. But completion of construction is only the beginning
of the end. It will take an additional nine to 12 months of finishing
work — everything from installing equipment, technology, phone
lines, setting up security systems, furnishing the rooms and so
on — before we’ll be ready to move in.=
The Santa Monica facility will be completed in stages. There we’ve
been doing something that’s really tough, trying to construct
a new hospital around an existing one. The first stage — the
new Emergency Room — will be completed in late 2005, with
occupancy in 2006. The southwest patient wing is scheduled to open
prior to the Westwood facility in late 2006, and the balance of
the new patient areas will open in Santa Monica in 2007.
Q: Recently, a report from the Office of the President
said that 13 UCLA Health System executives were awarded performance
bonuses totaling $343,000 for the last fiscal year. Can you comment
on this?
A: I realize the issue of incentive compensation is a very sensitive
one — especially at a time when we’re talking about
potential layoffs. In general and across all classes of employees,
we need to stay close to market compensation rates so that we can
attract and retain the best people. The decision to include incentives
as part of an overall compensation system was made years ago by
the Board of Regents. They determined that compensation for UC medical
center executives and other senior administrators should have two
parts — a base salary plus an incentive award. This is a systemwide
policy, not just here at UCLA, and it was designed to bring compensation
closer to what the market outside the UC system was paying senior
executives. Personally, I don’t believe anyone should receive
a bonus unless his or her work merits it. As we consider compensation
in the hospitals, it’s important to remember that the medical
centers are self-supporting. We draw no funds from the university’s
budget for compensation for any of our employees.
Q: What is your prediction for UCLA Healthcare’s
year-end financial performance?
A: Given the unfavorable payer mix and continuing unfavorable market
trends, we will wind up the year roughly at “break-even”
performance, meaning that our net income will be a few million dollars
positive or negative. Our financial improvement plan should begin
to have a more positive effect in the next fiscal year, though the
gains will not fully accrue for two to three more years. Over the
longer term, we believe that we will emerge from this time of financial
challenge and be well-positioned for the future.
|
