UA System focusing on UAMS cash woes

Posted: January 25, 2018 at 4:30 a.m.

University of Arkansas System board of trustees Chairman Ben Hyneman (left) and Vice Chairman Mark Waldrip attend a meeting Wednesday at the University of Arkansas for Medical Sciences in Little Rock.

The University of Arkansas System is closely monitoring the financial status of its academic medical center after the layoffs of nearly 260 employees earlier this month to curb a deficit.

The University of Arkansas for Medical Sciences on Jan. 8 announced that it was cutting 600 positions, 258 of which were filled at the time, as a way to help trim what administrators there anticipated would be a $72.3 million deficit, nearly twice the $39.8 million they had originally expected. The eliminated positions represent 5.5 percent of UAMS' 10,900 employees.

UAMS has said the layoffs -- though a difficult decision -- were necessary when nearly two-thirds of its $1.5 billion budget is made up of personnel costs. It expects the move to save $18 million in the fiscal year that ends June 30.

Now, the UA System's internal auditors are meeting biweekly with UAMS administrators to monitor the effects of the budget reductions and revenue enhancements. The auditors are also keeping close watch on the medical center's unrestricted cash, days cash on hand and days in accounts receivable, the system's Chief Audit Executive Jacob Flournoy said Wednesday.

Speaking to trustees at a board meeting Wednesday, Flournoy pulled out financial statements for the academic medical center, along with the system overall.

"UAMS has $1.5 billion of the system's $3 billion operating and nonoperating revenue," he said, showing "the significance of UAMS in the system's overall financial situation."

UAMS has dipped into its unrestricted net assets -- mostly cash and investment income -- three of the past four years: for the fiscal year ending June 30, 2013, it had $154 million in that funding pool, while it tallied $77 million for the fiscal year that ended June 30, 2017.

Had the medical center continued on the path of the $72.3 million deficit, it would have had only $5 million in unrestricted net assets by June 30, raising alarms by external auditors, bond-rating agencies and accreditors, he said.

He said UAMS does not want its unrestricted net assets to be below zero.

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"If we get down to $5 million, we will move from being the second-highest net unrestricted position for UAMS to approximately the same level of UA-Monticello and the high school, and they have far less resources, far less revenues," he said.

The medical center had planned for deficit budgets for at least the past five years, said Bill Bowes, its senior vice chancellor for finance and administration and chief financial officer.

"Part of that is the challenge that we have in trying to support our academic programs, our research and our clinical activity with a heavy, heavy reliance on our clinical revenues," he said. "But you know, we did that, and we also realized at some point, we're going to have to make a correction, which is what we're doing this year."

Unlike other public colleges and universities, UAMS does not get funding from the state for its academic side. And unlike its hospital peers, it has missions of teaching and research, officials there have said.

UAMS gets nearly four-fifths of its revenue from its clinical side, which it uses to subsidize its academic and research programs, said interim Chancellor Stephanie Gardner. About 6 percent of its budget comes from the state, while 3 percent comes from tuition and fee revenue, she has said.

The state funded UAMS at a high of $120 million in fiscal 2014, but of late, funding is $107 million to $108 million, and about $21.5 million of that is "pass-through or designated" funding, leaving UAMS with about $86 million.

Then the academic medical center has to pay a varying amount annually for a Medicaid match, leaving it with a net state appropriation of $8 million in fiscal 2016 and of $31 million in fiscal 2017.

UAMS started carrying out measures to dial back its deficit in mid-November, requiring senior leadership to review all vacant positions before departments could fill them, and putting an end to out-of-cycle salary increases and position reclassifications.

It is also engaging with Huron Consulting firm, which took a closer look at UAMS' clinical revenue cycle. The cycle begins at the time a patient makes an appointment and concludes when UAMS collects its money. The academic medical center is currently carrying out changes in eight work areas -- from scheduling appointments to care coordination, such as reducing the average length of stay -- and is expecting to save $28 million in the fiscal year that begins July 1, Bowes said.

"It's not unusual for facilities like ours to engage with consultants to try to find more efficiencies in that process because, again, if the bulk of your revenue is coming from clinical revenue, you need optimization of that process, and that's really what this was about," Gardner said. "And so the fact that we can invest essentially what will be $14 million and can reliably count on a two-for-one return on investment of $28 million, that ... makes sense to move forward with that."

The academic medical center is planning to change its budgeting process and have tighter controls on positions, but officials are not yet sure what that will look like.

On Wednesday, Trustees John Goodson of Texarkana and Dr. Stephen Broughton of Pine Bluff called for the 10-member panel's Joint Hospital Committee to meet monthly to give closer attention to UAMS.

"I'll say this: I think the board of trustees dropped the ball," Goodson said. "We should have dialed into this at the beginning of last summer."

He said he would like to see the exact areas that are not meeting their projected budgets and that the $39.8 million deficit was contingent on 6 percent growth, which he said he didn't think was achievable anywhere in the country.

"One thing that's constant is as different groups come in and judge y'all's performance ... we get A-plus ratings," he said. "The quality of care that's being given out here is second to none. Personally, I think we've expanded, and we continue to give this quality care at the expense of going through our unrestricted cash. And that's got to stop. I think we've found ourselves in the position that we either have to reduce services or get more money, and there are only certain places we can get more money."

Metro on 01/25/2018