Messages from the Executive Vice President
February 25, 2009
Special Message to the Health Center Community
"I have learned throughout my life that what really matters is not whether
we have problems, but how we go through them."
To Members of the University of Connecticut Health Center Family:
As I now come to the six month point in my time here with you, two things are clearly evident to me: we have a tremendous number of challenges facing us, and we have a tremendous community of people here to take these challenges head on.
I believe we can eventually emerge from these challenges and obstacles better, stronger, and more powerful. I also believe these next months ahead will be difficult for ourselves, our state, and our nation.
I am personally honored and humbled to lead you at this time. I see your commitment every day. In a 24-hour period this week, I attended our Health Center's PAWS award event, which recognizes our own for the quiet excellence performed every day. I had an opportunity to pay my respects for a fallen colleague at a packed memorial event in the Food Court. I reflected on our community's ability to affirm an individualís worth and importance. At our medical and dental student research day I was invigorated to see what makes us special: our sense of inquiry, our pursuit of higher knowledge and our commitment to preparing the future.
As we continue on this journey, please know that your thoughts are important. The blog has been a great way to communicate with me and I encourage members of the community to continue the dialogue. I want you to know that I am grateful for your optimism, your encouragement, and your sense of deep commitment. These traits will be all the more important during the months to come.
As you know, my goal for the Health Center is that we move toward achieving top tier status. In many ways, we already have a top tier community. This community deserves a modern, top tier hospital. We have followed the CASE report process and have forged a partnership with Hartford Hospital to create a University Hospital on two campuses. Obtaining our dream of a new hospital will not be easyÖ but I believe it can happen. I need to underscore again that this process will not be easy. All great tasks require vision, perseverance and toilóbut I believe it can and should occur. The realization of the partnership will see UConn having one of the largest University Hospitals in the country, with new modern state of the art facilities.
While we are hopeful about this future, we must face head-on the economic realities of our Health Center, and the economic realities of our nation, if not our world. Whether our children will later call this the second depression or an extended economic downturn is unclear. What is clear is that we are living it now, and must find ways to not only survive, but flourish.
In the longer term, we must find ways to expand our clinical enterprise and this starts with each and every one of us at the Health Center telling the story to others about what makes this academic community special, and why their clinical care should be here. We will increase our public service announcements about the Health Center, and use our print media to get the word out. I welcome your suggestions and thoughts on how we can do this better.
In the short term, we must take appropriate steps to insure our viability and vitality. Again, no one pretends that this will be easy. Fiscal year 2008-2009ís budget began with a projected $11.5 million deficit. On my arrival it became quickly clear that our projected deficit could be as high as $30 million unless certain changes were made. To be clear, the clinical enterprise has certain structural issues that make it difficult to be profitable. These include inadequate hospital bed capacity for a number of revenue generating service lines, a disproportionate number of under-reimbursed clinical programs, many of which constitute our public mission, and state fringe benefit costs which are borne by John Dempsey Hospital.
The fringe benefit differential (the difference between JDH fringe costs and the average fringe cost of all hospitals in the state) accounts for nearly $13 million in added, unsupported state expense for JDH. The State in 08-09 is paying a portion ($3.6 million) of that differential. Starting in the summer of 2008, the Health Center implemented numerous cost controls including certain limitations on state supported travel, certain restrictions on new hiring and refilling vacant positions, and certain restrictions on food service, and overtime and compensation time controls. These efforts were followed by the implementation of recommendations from PricewaterhouseCoopers (PwC) regarding revenue enhancement and productivity improvements. The PwC cost improvement initiatives have already produced year-to-date savings totaling $7.7 million. Unfortunately, these efforts do not address the underlying structural problem which is fueling our deficits. Our deficit continues to outstrip our cost reduction and improvement efforts by ever increasing margins.
In the short term, we must do everything we can to decrease our level of deficit. At the same time, we must insure our future by moving toward and achieving a sustainable break-even run rate, which means operating at break-even on a monthly basis, month after month. This challenge forces us, once again, to make some painful decisions. Current projections require us to implement an immediate cost reduction and improvement plan in excess of $10 million. The cost reduction and improvement plan includes:
- Revenue Enhancements
- Nearly 50 percent of the FY09 planned improvements will come from $7.5 million in expected revenue enhancements achieved through the PwC recommendations resulting from supply chain improvements, improved collections, managed care contracting and charge capture improvements.
- An estimated $700,000 in new revenue will be generated through the institution of GME indirect cost payments coming from the area hospitals beginning in April 2009.
- Expense Reductions
- Non-personnel expense reductions including over $500,000 in savings on natural gas purchases.
- Maintenance/cleaning cost reductions of $250,000.
- Workforce and Salary Expense Reductions
- $900,000 to be achieved through a variety of personnel expense
reductions which include the following:
- Workforce reductions of approximately 25-30 filled and vacant positions.
- A freeze on managerial and confidential employee salaries through the elimination of merit increases.
- A freeze on faculty salary increases through the elimination of the academic merit program for the 08-09 year in both the SOM and SODM.
- $900,000 to be achieved through a variety of personnel expense reductions which include the following:
These actions are now being implemented and affected employees are being noticed for workforce reductions in the upcoming weeks per their contractual requirements. Each of these reductions will have an impact on the Health Center but none is more difficult or painful than the necessity of workforce and salary changes. I want to thank particularly the clinical and basic science department chairs that I recently met with from the school of medicine. Understanding the fiscal situation, it was the consensus of that group that we freeze faculty salary increases as detailed above. I also wish to thank Dean Monty MacNeil and the dental school faculty for collectively supporting a freeze on their faculty salaries as detailed above.
Even with this effort we are projecting that we will end the current fiscal year with an $18 million deficit. Moreover, based on the Governorís proposed budget we would anticipate a 09-10 loss approaching $21 million. The Governorís proposed budget reduces the general fund appropriation from the budgeted FY 2010 level of $117.8 million to $110.7 million and does not include a continuation of the $3.6 million we received this fiscal year as partial support of the fringe differential. Nor does that budget include the requested deficiency appropriation to cover the projected 08-09 $18 million deficit.
Further, the Governor has proposed actions which will effectively freeze UConn 21st Century capital project funding for 09-10. As we go through the capital budget process this is likely to negatively impact our ability to commence planning on new projects and will result in reduced capital funding availability for everything from information technology projects to deferred maintenance.
We must therefore immediately begin developing a second round of more aggressive cost reductions that will result in a break-even run rate in 09-10. The current and projected level of financial losses simply can no longer be sustained. We will continue to pursue at the legislature a deficiency appropriation for 08-09 (estimated to be $18 million) and the fringe benefit differential. However, it is clear to everyone in the state that Connecticutís economic crisis is real and growing. The Governor and the legislature are being confronted with very difficult and potentially draconian actions in the face of the mounting state deficit.
Hence it is all the more incumbent that we take aggressive action if we are to weather the next 12 to 24 months. I have asked John Biancamano, our new chief financial officer, to take the lead in the identification of a second round of cost reductions or revenue opportunities which will aggressively address the projected shortfall for 09-10. The next series of reductions will be all the more difficult coming off the heels of the 09-10 improvements. We have fewer alternatives for further expense reduction and will of necessity need to consider potential program curtailment in an effort to move toward a break-even run rate.
In my months here at the Health Center, I have experienced first-hand the dedication, commitment, and camaraderie that characterizes the Health Center. I thank every member of the Health Center family for their support of the Health Center. I ask for your continued support and understanding as we work over the next several weeks to implement the 08-09 cost reductions and improvements and as we begin to develop plans for further reductions. We will strive to continue the Health Centerís tradition of compassion and caring even as we face an ever-growing number of difficult choices. I offer to each of you my promise to do all that I can to provide the leadership that champions the Health Centerís excellence both in Connecticut and throughout the nation. I do believe we will eventually emerge from our local and global crisis better and stronger. The words of Dr. Martin Luther King from August 16, 1967, express my thoughts best:
ďAnd I must confess, my friends, that the road ahead will not always be smooth. There will still be rocky places of frustration and meandering points of bewilderment. There will be inevitable setbacks here and there. And there will be those moments when the buoyancy of hope will be transformed into the fatigue of despair. Our dreams will sometimes be shattered and our ethereal hopes blasted... But difficult and painful as it is, we must walk on in the days ahead with an audacious faith in the future.Ē
Cato T. Laurencin, M.D., Ph.D.
Vice President for Health Affairs
Dean, School of Medicine