UAMS facing $29 million in red ink, possible layoffs

1/23/14
Arkansas Democrat-Gazette/STEPHEN B. THORNTON
UA Board of Trustees member John Goodson questions Don Pederson, UA Vice Chancellor for Finance and Administration, during the UA Board of Trustees Audit Committee meeting Thursday at UAMS in Little Rock.

1/23/14 Arkansas Democrat-Gazette/STEPHEN B. THORNTON UA Board of Trustees member John Goodson questions Don Pederson, UA Vice Chancellor for Finance and Administration, during the UA Board of Trustees Audit Committee meeting Thursday at UAMS in Little Rock.

Friday, January 24, 2014

The University of Arkansas for Medical Sciences projects a nearly $29 million deficit and potential layoffs this year unless it can generate more revenue, UAMS Chancellor Dr. Dan Rahn said Thursday.

Rahn, speaking to the University of Arkansas board of trustees’ Joint Hospital Committee meeting, painted a grim financial picture for the state’s largest public employer.

UA trustee John Goodson of Texarkana asked whether UAMS should ask the state for the money.

Rahn said that the time and “the argument” is ripe to indeed go to the state’s General Assembly for the additional funding.

The timing of Rahn’s presentation follows the release last week of Gov. Mike Beebe’s proposed budget that could reduce general revenue to UAMS by $7.6 million to $86.4 million in 2015. The Legislative fiscal session begins Feb. 10.

UAMS’ problem comes almost a year after a proposed merger with St. Vincent Health System to save money for both institutions failed to materialize. The two health-care systems proposed to combine some support services, share clinical services in cancer and cardiac treatments, and to form a statewide clinically integrated network.

The merger did not work out because the two institutions could not satisfactorily blend their missions.

When contacted Thursday, Joint Budget Committee Co-Chairman Sen. Larry Teague, D-Nashville, said that he and other legislators met with UAMS recently to discuss the shortfall. He said he did not, however, realize that it was close to $29 million.

“UAMS is the largest economic engine in the state. Obviously it’s important. I assume we will do something. I want to help them, but $29 million is a lot of money where there’s not a lot of money available,” Teague said. “I want to help them. I am hopeful that we will get all of our minds together and come up with something. It obviously sounds like we’ve got to get to work.”

Joint Budget Committee Co-Chairman Rep. Duncan Baird, R-Lowell, said Thursday that he hasn’t reviewed the financial report from UAMS. He did say, however, he was sure that UAMS could present its case next time the Legislature meets.

“We will have an opportunity at that time to re-evaluate everything, including any new information UAMS may provide about its situation. Does that mean anything will change? No. But legislators will have an opportunity to review the budgets and any changes,” Baird said.

State budget administrator Brandon Sharp said last week that UAMS could make up a reduction in general revenue because it will be providing services to fewer uninsured patients as a result of the federal Patient Protection andAffordable Care Act.

But Rahn told the Joint Hospital Committee on Thursday that it is a misconception that the newly insured patients in the federal health care initiative would be a “windfall” to UAMS - which spends nearly $64 million in uncompensated patient care each year.

The increased income would result in cuts to UAMS’ federal and state funding for charity care, Rahn said.

About 73 percent of UAMS’ $1.25 billion budget comes from patient care, with the remaining produced by grants, tuition and state appropriations.

Rahn said that the impact of the Affordable Care Act and the private-option insurance expansion could generate nearly $14 million for UAMS, but that is dependent on 75 percent of its current uninsured patients signing up for the federal assistance.

When asked by UA board Chairman Jane Rogers if he felt confident that UAMS could reach the 75 percent sign-up level, Rahn responded in the negative.

“If this does not happen we will be a very different institution,” Rahn said somberly, then paused before continuing. “A very different institution.”

Rahn outlined several initiatives UAMS planned to try to offset the projected deficit, including “organizational transformation,” improving clinical operations and even implementing more efficient use of computer printers.

When asked in an interview after the meeting if “organizational transformation” meant employee layoffs, Rahn did not hesitate to say that job cuts were a strong possibility. About two-thirds of expenses for UAMS is attributed to personnel. Rahn estimated that it costs an average of $60,000 per year for each employee.

“You can do the numbers. If we have to cut $28 million in expense and we have to do that quickly, that’s 500 jobs,” Rahn said.

Rahn said that he and the leaders at UAMS have been open with the employees, holding a series of town-hall meetings to discuss the fiscal challenges and to bring everybody on board to help turn it around.

“It’s going to take everybody,” he said.

At the end of fiscal 2013, UAMS reported a gain of nearly $18.5 million in net assets. The loss projected for fiscal 2014, which ends on June 30, was caused mainly by depreciation of capital assets, a reduction in the National Institutes of Health funding and a drop in the Medicare payment rate, all of which led to an estimated deficit of $10 million.

The 2014 budget projection does not include $20 million in revenue from two onetime sources in fiscal 2013.

In an interview after the meeting, Rahn said he felt that the nearly $30 million budget deficit could possibly be cut in half by June 30, with the aggressive corrective action UAMS is taking and withcooperation from the state.

“Next year, we will see this corrected entirely,” Rahn said.

State appropriation in 2013 generated $102.6 million. By the end of fiscal 2015, Rahn said that number would fall by 19 percent to $86.4 million.

Rahn said that as the state’s largest public employer - with about 10,000 employees in 73 counties - UAMS puts more than $81 million back into the state’s pockets through employee state income tax payments, sales and use taxes paid by UAMS and the estimated state sales tax from UAMS employees.

“The time is right to have our elected leadership include a line item for teaching cost during the next fiscal session,” he said.

Front Section, Pages 1 on 01/24/2014