UAMS tugs to make budget heel

Newly insured patients bolster bottom line, chancellor says

Saturday, July 5, 2014

The new budgetary year for the University of Arkansas for Medical Sciences began July 1 with a daunting outlook -- a nearly $9.2 million reduction in state funds, a $7.5 million cut in federal money, $3 million in lower Medicare payment rates and a loss in net assets of $17.3 million.

But there's a bright side.

"We are -- because of the participation in both the insurance exchanges and private option -- seeing more insured patients, which is really great for them. That is also helping us with some of these financial challenges. We think in the next fiscal year, we'll see about 14 million new dollars," UAMS Chancellor Dr. Dan Rahn said.

"We've got a lot of pluses and minuses here. We're still net down, but the new revenue associated with the private option is partially offsetting the reductions."

Patient care generates about 73 percent of UAMS' $1.25 billion budget, with the remainder coming from grants, tuition and state appropriations.

The health center received $94 million in state general revenue last fiscal year, but the Legislature cut that amount by $14.6 million for fiscal 2015.

Both the Republican-controlled Legislature and the Democratic Gov. Mike Beebe cited as the reason for the trimmed appropriation the extra income that UAMS would receive from seeing fewer uninsured patients because of the federal Patient Protection and Affordable Care act.

UAMS has spent about $64 million in uncompensated patient care each year due to uninsured or underinsured patients.

However, UAMS got a last-minute boost in June when a state legislative committee voted to transfer $7 million in rainy-day funds for fiscal 2015.

While the extra state funds were welcome news, Rahn said he will continue to plead with state leaders to curb the downward trend in appropriations. State funding of UAMS has steadily dropped by about $12 million in the past five years, while enrollment has increased by 215 students to 2,867 over the same period.

"We're going to continue to work with our elected officials to get to an understanding of what's affordable in terms of public support, particularly for education and research. We're not a hospital; we run a health system with a lot of critical patient care," Rahn said. "In that context we also teach, which adds about 10 percent of expenses. In addition, we've got the education and research that occur in areas other than where we're taking care of patients."

Hospitals across the nation are facing new funding challenges because of health care changes attributed to the Affordable Care Act. The changes produce more revenue from newly insured people but also reduce income because of reimbursement reductions from Medicare, Medicaid and private insurance.

How UAMS officials -- who have grappled with the changing financial picture for a while now -- handle the current challenges is important because of the facility's uniqueness. UAMS is the state's only public academic health center, and it is the largest public employer with staff and faculty of more than 10,000.

Rahn has said that if the currently deployed countermeasures do not sufficiently address the deficit, then layoffs are "always a possibility."

Several Arkansas hospitals have announced recent layoffs, citing a drop in revenue from health care changes and reimbursement reductions.

Washington Regional Medical Center in Fayetteville has announced plans to cut 27 positions. In June, CHI St. Vincent said it was cutting 157 positions.

Mercy health system announced last month that it was cutting 200 to 300 positions, which includes hospitals and clinics in Arkansas and six other states.

"We've been able to avoid that [layoffs] to date. We are optimistic that we are not going to have to take that route. It's very disruptive to the mission to do that," Rahn said. "Unless we get into real financial exigency, we're going to stay the course on the pathway we're on."

UAMS employees have rallied to confront the financial crisis directly and aggressively, Rahn said. Meetings with staff and faculty have been held to clearly illustrate the financial state of UAMS as well as to garner input on solutions.

College deans and department heads have come together to strategize to increase revenue and decrease expenses. Varied avenues have been employed to bring staff and employees directly into the process and to freely offer innovative suggestions.

Countering tactics being deployed include a hefty tuition hike; a freeze for the second year in a row on employee raises; the creation of an employee-driven, cost-reduction logistical team; voluntary early retirements; and the centralizing of core services.

"I can tell you we have a very, very dedicated group of faculty and staff. They have accepted it and understand what needs to be done," Rahn said.

In May, the University of Arkansas System board of trustees approved a request from UAMS to increase tuition in all 62 different certificate or degree programs. The hikes range from 3 percent in the College of Public Health to a 10 percent increase in the College of Medicine -- the highest increase in UAMS history.

The annual tuition at the medical school went from $21,940 in fall 2013 to $24,134 in fall 2014. According to the Association of American Medical Colleges, UAMS had the 17th lowest public medical school tuition in the nation.

The new tuition rate will place UAMS in the top 25th percentile of tuition rates for public medical schools in the U.S.

"Students have taken this in stride. This is an investment in their future," said Jeanne Heard, UAMS provost. "We really do a lot of work in helping students afford an education here."

The tuition increase, Heard said, will still not cover all of the educational expenses incurred by UAMS. The remainder will have to come from clinical revenue, which is already stressed by ongoing health care changes, she added.

Rahn said academic medical centers across the nation are dealing with the same issues. Several have increased their tuition for the 2014-15 academic year. The University of Alabama School of Medicine raised its in-state tuition to $25,490 beginning in the fall semester, an increase of $1,390 -- or 4 percent -- over the previous year.

The University of Tennessee Health Science Center in Memphis chose not to increase its college of medicine tuition -- which stands at $33,030.

"The UT Health Science Center is committed to keeping student tuition affordable and links tuition costs to regional and national standards for public education, understanding that heath care education is very expensive and will always need to be heavily subsidized to be affordable. Thus, we made the decision for no tuition increase this year," said Chancellor Dr. Steve Schwab.

The Tennessee Legislature contributed about $138.6 million to the medical school's budget last year and has committed the same amount for fiscal 2015, which began July 1. The University of Mississippi Medical Center receives $205 million in state funding.

The UAMS tuition increase will generate an extra $2.5 million in the new budget year, said Bill Bowes, UAMS vice chancellor for finance and chief financial officer. About $7 million will be saved in electricity costs after energy efficiency changes were implemented.

Another $4.4 million is expected to be reaped from about 40 projects identified in a performance improvement initiative that began last year to increase efficiency and fiscal sustainability.

UAMS hired Breakthrough Management Group Inc. at a cost of about $500,000 to develop cost-saving strategies. The company also trained about 30 UAMS employees to lead efficiency teams that will continually look for ways to cut costs.

"We're grappling with how we get ahead of the rate at which our operating environment is changing. That is the biggest problem. It's just the amount of change that we need to manage and the time that we have to do that while we're doing very critical things," Rahn said. "We're meeting all these different requirements, while trying to change our business model while providing very critical services in a variety of domains all the time. It's like changing the tires while the car is running."

Heard countered, "I think we're changing the tires while rebuilding the engine."

Metro on 07/05/2014