A Diagnosis of the Medical Center

In January 2010, UC Regents approved a $3.1 million bonus payment to 38 senior executives at the five UC medical centers. This controversial act took place at a sensitive time when the UC system faced an $813 million gap in state funding. Faculty and staff were furloughed, admission was halted, departments were shrunk and class sizes augmented. The Regents stated that the bonuses were funded by hospital revenue, not state or student funds. So who’s paying for what?

Fast forward to January 2011. Governor Jerry Brown has just proposed a new budget to close a $25.4 billion deficit. The plan includes a $500 million cut to the UC system, and a $1.7 billion reduction of Medi-Cal and Medicaid. UC medical centers are sure to take a hit, as Medi-Cal and Medicare payments of $294 million constituted nearly half of the UC Irvine Medical Center (UCIMC)’s net patient service revenues in 2010. UCIMC generates most of its revenue from the clinical service it provides.

UCIMC is an enterprise operation, meaning that it is self-sustaining. The hospital depends on fee-for-service and patient care costs. Grants constitute a fairly minor portion of the institution’s budget. In 2010, the medical center received additional state funding, including $29.8 million in Prop 61 funds from the state for children’s hospitals.

UCIMC Media Relations manager John Murray said it was premature to talk about the budget’s impact on the medical center. UCIMC remains somewhat isolated from the problems with state funding because it is fundamentally a hospital. People get sick no matter how the economy performs. However, future cuts in healthcare insurance may curb patient turnout rate and revenues in general.

On the other hand, physicians at the hospital are reimbursed according to the UCI School of Medicine (SOM)’s Health Sciences Compensation Plan. This plan stipulates physicians’ base salary according to three factors: 1. Stipends from holding academic, administrative, or managerial office, 2) Research grants that are mostly governmental, and 3. On-call rates and clinical practice. The fees associated with the clinical practice are paid through billing and insurance companies and overseen by the University Physicians & Surgeons, another UCI faculty practice organization.

Although public financial reports on the Medical Center explicitly show budget numbers, the magnitude of the institution causes problems when attempting to draw simple analyses. In 2010, the UCI Medical Center reported income “before other changes in net assets” of $33.6 million as compared to $52.3 million in 2009. Both amounts do not include cash, “committed” fees for charity care and university transfers. UCIMC reserves a portion of their revenue for charity care, which helps qualifying patients receive treatment at discounted or no charge.

UCIMC also funds SOM for physician services, medical direction, clinical research support, faculty practice plans, funding for SOM programs and malpractice insurance. UCIMC transferred $65.8 million in 2010 and $53.4 million in 2009 for the academic and clinical support. UCI, at its discretion, also transferred $16.6 million from UCIMC in 2010. The specific payee and purpose was undisclosed in UCIMC’s financial report.

Over the past years, UCIMC has maintained steady growth in revenue. The 2009-2010 financial report stated a 5 percent increase of $29.3 million in total operating venues for the year ended June 30, 2010.

Employee salaries and wages in 2010 increased by $24.6 million, or 10.6 percent in the same year due to increased full time equivalent employees (“FTEs”) and union negotiated salary rate increases. At the same time, responding to budget cuts last year, medical faculty under the Health Sciences Compensation Plan was subject to furloughs.

Despite paying incentives, the UCI Medical Center isn’t as prosperous as the public conceives it to be. The new UCI Douglas Hospital opened for patient care in March 2009, boasting 482,428 square feet of space with 424 licensed beds. It is currently still under phase II improvement projects including construction of the Clinical Lab Replacement Building, renovation in the University Hospital Tower and the Chao Cancer Center, as well as general site renewal. Development is scheduled to finish by January 2012.

The entire project cost $635 million, which was financed principally through state lease and university-operated revenue bond funds, hospital reserves, gift funds, external financing and debt. Gift funds were $18.6 million and $1.7 million for the years ended June 30, 2010 and 2009, respectively. The UCI Medical Center increased its long-term debt by $240.9 million in 2009 as the result of additional borrowings from issuance of new bonds.

The proposed $500 million shortage will not directly affect the UCIMC as the hospital operates chiefly on clinical fees. In trying to understand UCIMC’s budget, there is no simple answer to how the UCIMC and its physicians and staff are funded. Without a clearer and complete view of UCIMC’s budget, suggestions such as diverting their funds to resolve the expected cuts are infant ideas that need to be developed. In the mean time, UC students are left in a dire circumstance without any say, and have no choice but to pay up.