Sick hospital? UVA’s rapidly expanding medical center is its biggest financial challenge

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Writing on the wall
The University has been keenly attuned to the challenges it’s facing. In its 2011-12 Medical Center budget—which followed close on the heels of Martha Jefferson’s acquisition by Sentara—the summary pointed to “significant changes in the strategic relationships of health care organizations” in its own backyard. It also anticipated the slowdown of revenue growth that was about to start eating up its operating margin, saying potential health care reforms and state budget pressures could seriously reduce government support.

So UVA strategized. That year, the University contracted with national health care consulting company Chartis Group to come up with a new strategic plan for the Medical Center. “This engagement is intended to be a ‘deep dive’ into the current market state of affairs in this arena,” the budget summary reads. “It will include an assessment of potential strategic scenarios available, a formulation of a new strategy and supporting tactics, a detailed execution plan, and periodic checks on the progress of execution.”

Just what that plan looks like is difficult to know. The University declined to release the plan, claiming a Freedom of Information Act exemption that allows it to restrict access to planning documents whose release could hurt the competitive power of the Medical Center. A two-page outline is all that’s available to the public, and while it describes such strategies as “Expand depth and breadth of our MD/Ambulatory network” and “Establish statewide network as a platform for clinical integration and growth,” there’s no evidence of just how UVA plans to get on the consolidation bandwagon.

The UVA Board of Visitors’ attempted ouster of University President Teresa Sullivan in June came on the heels of the development of a new strategic plan for UVA Medical Center, which is facing new competition and challenges. Photo: Cole Geddy/UVA Public Affairs

But among the thousands of pages of e-mails released under the FOIA in the wake of Sullivan’s attempted ouster are clues that the Board of Visitors and central administration knew what they were up against during the strategic planning process, and were ready to make major changes.

Late in 2011, a number of key players—Rector Helen Dragas, Sullivan, Strine, Provost John Simon, Board member Vincent Mastracco, and former COO and advisor Leonard J. Sandridge, planned a trip to Baltimore to talk about the future of the Medical Center with Hopkins’ CEO and Medical School Dean Dr. Edward D. Miller.

Miller, who had announced earlier that year that he would soon step down from his Baltimore post, spent 11 years on the faculty of UVA’s School of Medicine, and had gone on to climb through Hopkins’ ranks, becoming something of a legend in the world of hospital management. UVA’s Board wanted him close. Miller was appointed as an ex officio member of the Board of Visitors in 2011, and even as he was closing down his career at Hopkins, he was actively guiding UVA’s leaders as they planned for the future.

Ahead of the Baltimore meeting, Strine e-mailed the other travelers to share a new governance plan “in the strictest of confidence” so they could read up. The attachment with the details, titled “Principles of Delegated Authority,” wasn’t shared with the rest of the FOIA request, and UVA did not respond to follow-up requests for it. But Strine’s e-mail hints at a sea change, and perhaps at a planned overhaul that would give more autonomy to the Medical Center.

“I would be happy over a call or on the plane ride for us in advance to discuss how this governance structure came about, how it works, has evolved over time and where it is headed,” he wrote. Before the trip, he said, he and Sandridge would draft a more comprehensive breakdown of the plan “that pursues the integrated look at the clinical enterprise (safety, access, satisfaction, clinical differentiation and integration, etc.) but does so in a way that preserves the BoV and University role in key areas of approval like budgets and capital investment, debt and fundraising, research and teaching.”

References to the Medical Center’s “new clinical strategy” show up in e-mails through late May—just before the ax came down and Sullivan’s surprise resignation was announced. In the aftermath, Dragas’ statements and actions made it clear that Medical Center issues were still front and center.

In her June 21 statement defending the ouster, she referenced the Medical Center’s new strategic plan, and said implementing it “will require strong leadership and very ambitious interim steps.”

Now a member of UVA’s Board of Visitors, Dr. Edward D. Miller, former CEO of Johns Hopkins Medicine, was frequently consulted by UVA leaders during the creation of a strategic plan to guide the future of its Medical Center. Photo: Dan Addison/UVA Public Affairs

But perhaps the strongest sign that Medical Center governance was on her mind when she attempted to remove Sullivan from office was Dragas’ initial pick for interim president of the University: Ed Miller, the man two board members, an ex official, and the central administration triumvirate had talked Medical Center strategy with just a few months before. Miller told the Baltimore Sun he’d been approached as a possibility for the position, but said he’d only accept if he got a promise that it would temporary. Ultimately, the board selected McIntire School of Commerce Dean Carl P. Zeithaml, who served for all of one week.

But thanks to an act of the Virginia General Assembly, Miller is now a full member of the UVA Board of Visitors. Lawmakers changed the rules on Board appointments to allow the governor to add a seat for a health care expert, and Miller, who went from ex-officio to official this summer, had the honor of opening the Medical Center Operating Board meeting last week.

Assurances and uncertainty
Larry Fitzgerald, UVA Medical Center’s associate vice president for business development and finance for external business initiatives and the only University official who agreed to speak on the record for this story, firmly rebutted suggestions that the Medical Center is on uncertain financial footing.

It might have suffered a drop, but the Medical Center’s operating margin has averaged 5.6 percent over the last 10 years, he said, and that’s solid compared to the industry average. And UVA is strong in other areas, including case mix index, a measure of the volume of Medicare patients that helps calculate total cost-per-patient numbers. In 2012, UVA’s CMI has proven to be very high, Fitzgerald said, putting it in good standing relative to other medical centers around the country.

The Medical Center’s new transitional care center, which takes patients who need acute care but will be in the hospital for 25 days or more, will also enhance profitability, he said, because it scales back the average hospital stay and allows the main hospital to turn over more beds. There’s a great demand statewide for such facilities, said Fitzgerald—so much so that 36 percent of the transitional care center’s patients come from outside UVA.

And he challenged the idea that the University has been slow to innovate and make affiliations. Since the mid 1990s, the Health System has opened a rehabilitation hospital in Charlottesville, built a dialysis network in the region, and developed a telemedicine system that lets UVA specialists consult on treatment for patients all over the state. It’s also forged partnerships with hospitals in Newport News and Fredericksburg. “We’re in negotiations with others right now as I sit here,” Fitzgerald said.

The Medical Center has a niche in the region that nobody else can fill, he said because nobody else can duplicate its level of specialty care, and that will allow it to remain competitive. And health care doesn’t have to be a zero-sum game.

“We do not view this as an arms race,” Fitzgerald said. “There’s a role for us, and there’s a role for Martha Jefferson,” and both can succeed.

“The challenges for the University of Virginia Health System are the same challenges that every system in America has, whether it be us, or Martha Jefferson, or Johns Hopkins, or Utah,” Fitzgerald said, and the issue of the added oversight within the public system “is not a concern whatsoever.”

Neither, he said, is departure of Michael Strine, who came to UVA from a job overseeing finances at the highly health care-oriented Johns Hopkins University. Fitzgerald declined to comment on how deep concern over the strategic future of the Medical Center ran on the Board of Visitors, and whether those concerns fueled the failed ouster of Sullivan over the summer. But he emphasized that mapping and executing a plan for the future doesn’t rest on the shoulders of a single individual. The strategic plan “has input from University leadership, but that University leadership was not one person,” he said.

On top of the strategic plan intended to outline the Medical Center’s direction in the coming years, UVA is drafting a newer comprehensive plan that will address the entire University. That, too, is unavailable. But one thing is clear: The future is in flux.

Last month, during her first press conference since she was forced out and then reinstated over the summer, Sullivan brought the issue up herself. The biggest long-term issue the University faces is its Medical Center, she said—specifically, changes in its governance. “I can’t tell you what that may be, because I don’t know myself,” Sullivan said.