Cash-Poor UCLA Hospitals Hire Advisors
UCLA’s hospital system, whose recent financial performance has lagged far behind its four University of California counterparts, has hardly any cash in the bank and is looking to turnaround specialists to lift its income.
The largest medical system in the UC chain, UCLA Healthcare reported lower net income than its sister campuses last fiscal year and as of Dec. 31 had only $20,000 cash. By comparison, UC Davis had $183 million in cash, the most systemwide.
UCLA Healthcare -- which includes two hospitals in Westwood and one in Santa Monica -- was forced to borrow $7 million in December from the UCLA chancellor’s office to help pay bills.
Now, the campus is paying more than $1.9 million for health-care consultants to look for ways to cut costs and improve efficiency. Their recommendations are expected to begin arriving within days or weeks.
Dr. Michael Karpf, vice provost of UCLA’s hospital systems, predicted that the consultants, the Hunter Group, would propose cutting 450 full-time positions over three years, as well as reducing supply costs, making UCLA’s network of primary-care clinics more efficient, and improving billing and collections.
“We think that we may be able to do the vast majority of this through increased [patient] volume and through attrition,” Karpf said. “There may be some layoffs, but I’m not at all anticipating that there are going to be slash and burn, hundreds and hundreds or thousands of layoffs.”
Karpf said his system has made progress in several areas. The average number of people staying in UCLA’s hospitals each day increased from 625 in 1998 to 711 last year. And the hospitals’ average daily cost per patient stayed about the same from 1995 through 2002, Karpf said.
In the first half of fiscal 2003, UCLA Healthcare earned $570,000, compared with a loss of $3.4 million at the same time a year earlier. Officials said they expect to end the year with at least $10 million in net income. UCLA’s budget also calls for the medical center to have $19.2 million in the bank by June with no outstanding loans from the chancellor.
“They are adjusting and they are on the road to recovery,” said Maribeth Shannon, assistant vice president for clinical services development with the UC Office of the President. “UCLA is the classic big ship. It takes a long time to turn it around because it’s so complex.”
Between fiscal 2000 and 2003, UCLA’s three hospitals eliminated 434 full-time staff positions -- 297 through attrition, 79 through job reassignments and 58 through layoffs. A greater percentage of management positions was eliminated than rank-and-file jobs, Karpf said. UCLA Healthcare employs the equivalent of about 6,500 full-time employees.
Some employees who were let go last fall said they see plenty of room for more efficiency -- starting at the top. Over the last three years, UCLA has awarded the top 16 hospital officials bonuses totaling nearly $1.4 million in addition to their regular salaries. And Karpf’s base salary last year -- $436,600 -- was higher than his counterparts at the other four UC hospital systems.
“I’m angry at the situation,” said Joanne Repath, who was laid off as manager of planning and accreditation at UCLA’s Santa Monica hospital in October. “How can you tell me that giving out all those bonuses wouldn’t be better used putting it to the patients, whether it’s improved equipment or more staff?”
Karpf defended the bonuses for him and his senior staff. “They did what had to get done under very hard circumstances,” he said. “I personally have no hesitation about that.”
He said he has rejected job offers from hospitals that would have paid him “substantially” more. Consultants hired by UCLA have found that Karpf and some of his senior deputies earn less than executives at comparably sized facilities.
UCLA has a long way to go, though, for its net income to catch up to its sister UC health systems, all of which are smaller. In fiscal 2002, which ended June 30, UCLA Healthcare netted $7.2 million on operating revenue of $825 million. By comparison, UC Irvine earned $36.5 million, Davis $35.3 million, San Diego $30.3 million and San Francisco $29.0 million.
The cash situation is even more precarious.
“An organization’s fiscal health may be assessed by the size of its cash reserves, and our limited cash remains a major problem for us,” Karpf wrote to staff and faculty last summer.
The hospitals have delayed purchasing state-of-the-art equipment, instead negotiating leases to preserve sparse cash. Officials said they will buy all-new equipment when replacement hospitals, now under construction, open in late 2005.
The UCLA system was hit hard in the late 1990s by reimbursement cuts from Medicare, the federal insurance program for the elderly and disabled, which accounted for 30% of its revenue last year. UCLA has a higher percentage of Medicare patients than other UC systems.
UCLA also receives lower fees from health insurers than in Northern California because intense competition in the Southern California market keeps rates low.
In addition, UCLA is amid a $926-million effort to rebuild its hospitals to current earthquake codes. UCLA has raised all but $41 million, largely through state and federal grants and gifts. But it still needs to come up with about $130 million, some of which will come from its day-to-day accounts, to furnish the hospitals and pay for the moves.
UCLA isn’t the first academic medical center to experience financial problems, and its trouble pales in comparison to the University of Pennsylvania health system and the Detroit Medical Center, each of which lost more than $100 million in the late 1990s. Both turned to the Hunter Group for advice.
At UC San Diego, the Hunter Group helped turn a $20.5-million annual loss in fiscal 1996 into a $26.1-million gain the next year.
Part of the turnaround was the result of layoffs and belt-tightening; the rest was due to increased Medi-Cal funding.
“The Hunter Group is well known for not pulling any punches,” said Dr. Stephen Wasserman, past chairman of the medicine department at the UC San Diego School of Medicine.
Karpf is smart to bring in experts now to avoid a “bloody mess down the road,” said Robert J. Baker, president and chief executive of the University HealthSystem Consortium, a coalition of academic medical centers. (Karpf is on the consortium’s board).
“I think he’s saying, ‘I’ve done about as much as I know how to do and I need someone else to come in and take a fresh look,’ ” Baker said.
