VOL.10 NO. 4      SPRING 2001









Photo of Sharon Kessel, R.N., by Brad Nelson

It’s 6:30 a.m. on a Monday, and Sharon Kessel, R.N., already knows it’s going to be a rough day. Her unit is full, she’s short two nurses, and more patients are on the way.

Kessel is the nurse manager of University of Utah Hospital’s Surgical Intensive Care Unit (SICU) and is responsible for 12 of the sickest patients in the Intermountain West.

She’s also a part of Utah medical history. She served on one of the state’s first cardiothoracic nursing teams, and was a nurse for the world’s first artificial-heart recipient, Barney Clark, in 1982.

During the next 10 hours, Kessel will meet with managers from the hospital’s other adult intensive care units, find a way to make room in her unit for two patients coming out of surgery, help train two nursing students, meet with an architect about changes in the unit, conduct patient rounds with her staff, review the unit’s budget, and fill the role of parent, counselor, and friend to the host of nurses, physicians, patient family members, and hospital personnel who will find their way to her office.

Kessel admits that her day is no more hectic than that of any of the hospital’s other 3,000 employees. “That’s why they’re here,” she says. “I love coming to work. There is no such thing as a typical day at University Hospital (UH). Academic medicine is a unique beast—you either love the pace and the complexity of the patients we see, or you don’t. There isn’t much middle ground.”

The SICU’s frantic pace is matched by that of the rest of the facility. For the past five years, the hospital’s daily census has averaged 82 percent (approximately 328 patients) of capacity (400 beds). It is so busy that trauma patients en route to the U’s emergency department are occasionally diverted to other local hospitals because the University’s intensive-care beds are full.

Trauma divert makes hospital administrators cringe. To combat the space problem, construction of a 110,000-square-foot addition to the north of the hospital will begin in the next few months and will provide additional intensive-care beds and operating rooms. Recent construction inside the hospital has already added seven new beds.

In addition to construction projects, administrators have come up with an innovative solution to bed shortage: the SMART Project (Strategic Management of Admission Resources Team). Its goal is to release 60 percent of all patients scheduled to be discharged on a given day by 11 a.m. Administrators anticipate that by streamlining the discharge process, they can free beds for 32 additional patients each day and increase annual revenue by $7 to $8 million.

With more patients than beds, the hospital should be making money—and on paper, it is. The reality, however, is that while the hospital continues to post a no-vacancy sign, it is experiencing the worst financial crisis in its history. Last year, it lost approximately $800,000.

Reductions in Medicare and Medicaid payments from the federal government, combined with lower reimbursement rates from insurance companies, have left the hospital collecting only 58 percent of the charges it bills for, according to Richard Fullmer, UH executive director. In addition, the hospital supports the University’s medical school in the range of $22 million a year. Both factors take their toll on the bottom line.

“The hospital operates on a budget of gross charges—what patients see on their bill—of about $550 million,” says Fullmer. “When we’re reimbursed from their insurance or government sponsors, the reimbursement is adjusted down by about 42 percent. So in fiscal year 2000, we wrote off more than $200 million as contractual adjustments, charity, and bad debt.”

Fullmer knows his numbers. He started his career at the hospital in 1976 as assistant controller and has risen through the ranks. In 1994 he was named chief financial officer, then left the hospital in 1998 to take the same position with the newly formed Faculty Practice Organization/University of Utah Health Network. Less than two years later, he was asked to serve as the hospital’s interim executive director; last spring he was given the job permanently.

It’s been a tough first year on the job. Last summer the decision was made to eliminate the hospital’s home health agency, as well as a number of other staff positions. “When it became obvious that we needed to do some serious expense reductions, we went to the hospital managers and said, ‘We need to cut,’” Fullmer says. “We decided to prioritize those things that protected bedside care.”

The cuts saved approximately $3 million a year. “Ideally, we would like a home-care operation to ensure continuity of care for our patients. It was just no longer possible to sustain the loss, given our current economic condition,” says Fullmer.

The tough decisions seem to be paying off. Due to a busier- than-expected first quarter, the hospital started fiscal year 2001 with $635,000 in the bank and is well on its way to a projected bottom line of $9.5 million in fiscal year 2001.

“While we’re going to have to be continually on guard, I don’t think we’re going to be looking at any more layoffs,” says Fullmer. “But it’s part of our mission to continually find ways to reduce the impact of inflation costs, technology costs, and drug costs.”

The question teaching hospitals have to ask themselves, says Robert J. Baker, president of the national University HealthSystem Consortium, is how far efficient management can take them. Baker’s organization is composed of 84 academic medical centers that have pooled resources in order to create economies of scale for group purchasing and to benchmark against one other. Utah has been very active in the organization.

"University hospitals across the country are very focused on being as cost effective as they can be, but that doesn’t change the fact that they’re always going to be more expensive to operate,” Baker points out. The cost of caring for patients at University Hospital is approximately 25 percent higher than it is at other local hospitals, according to Fullmer. The main reason, he says, is the hospital’s teaching mission.

“We pay the salaries and benefits for approximately 200 residents based at University Hospital, but we can’t bill for their services. Resident training also involves a number of indirect costs that we’re not compensated for,” he notes. In 1999 Medicare provided $2.4 million in direct medical education payments to the hospital, leaving an additional $5 million to be covered by the hospital.

“We’ve been very lucky up to this point because we’ve always been able to create solutions from inside the institution,” says Fullmer. “In the past, we were able to do a little cost-shifting to offset the costs of charity care and teaching. Now third-party payers are only willing to reimburse very narrowly for the services used by their enrollees.”

Fullmer adds that the hospital is one of the largest providers of charity care in the state, at a cost of approximately $21 million each year. “Forty million Americans do not have health coverage. That has put an unusual burden on the provider side of the equation, specifically teaching centers, which are ultimately the final backstop for the uninsured in most states. It puts a real pressure on our system and our finances,” he says.

One avenue being pursued is additional state support for the teaching mission of the hospital. The Utah Legislature currently provides about 1.2 percent of the hospital’s budget. “I wouldn’t suggest that the state needs to be the only solution. But in the long run, the state really has made a very small investment, and we need them to understand that,” says Fullmer.

Dr. Lorris Betz, senior vice president for health sciences and dean of the medical school, agrees that it is time to make the case for additional state support.

“I don’t see us as being in crisis mode yet,” he says. “We are taking a hard look at our business and taking steps to better utilize our resources. When I first started meeting with state government leaders a year ago, I told them it was possible I’d be coming back to talk to them about increased funding. I first wanted to be sure we were running as efficiently as we could.”

As part of that improved efficiency, Betz suggests that a new way of thinking about the University’s clinical delivery system is needed. “My business card says that I’m CEO of the University of Utah Health System,” he says. “‘Health system’ is a phrase that hasn’t been used much around here, but it’s an entity that needs to grow in identity and strength over the next several years.”

He describes the health system as all of the University’s clinical entities, including the hospital, the University Neuropsychiatric Institute, the University of Utah Health Network, and the University of Utah Medical Group (a clinical faculty group practice organization).

“The strength of academic medical centers like ours is that all the pieces support one other,” Betz says. “The hospital supports the medical school as a teaching laboratory, our primary care network supports the hospital with referrals, and so on. The different entities need to realize that we’re all in this together.”

Although University Hospital is facing tough financial times, it’s faring better than most of its peers across the country. According to information from the Association of American Medical Colleges (AAMC), almost 50 percent of major teaching hospitals in the United States are projected to have negative bottom lines by 2002. In California and Pennsylvania, teaching hospitals have already lost tens of millions of dollars.

Much of that loss has come from 1997’s Balanced Budget Act (BBA), a scalpel that cut deeply into Medicare payments to hospitals. Between 1998 and 2002, University Hospital is expected to lose $39.2 million because of the BBA.

While Congress recently passed an $11.5 billion relief package for teaching hospitals most impacted by the cuts, hospitals aren’t out of the woods yet, says Baker. “The message to federal and state leaders across the country is that we need continued BBA relief and continued sensitivity to the broader mission of teaching hospitals, or we’re going to be in real trouble down the road,” he says.

Fullmer worries that even with additional federal and state support, the health-care industry doesn’t have the will to find long-term solutions to the financial needs of teaching hospitals. “As long as we have profit-based systems, it seems to me that the common good is left in the dust. Health care is being driven by profit.

“We find ourselves in a situation where we’re penny-wise and dollar-foolish, because we don’t have good preventive care programs,” he notes. “We don’t have a system that is long-sighted. The payer system is, at most, looking just a few months ahead, because they know from experience that they’re not going to have the same enrollees in their programs 10 years from now. Why should they spend money today that will help someone else?”

Betz agrees, noting that the bottom line for teaching hospitals has to do with more than finances. “What would life in Utah be like without the U’s health sciences center? Would we have enough health professionals? Would the latest medical advances be available to us? Would your family be as healthy?”

He adds, “Residents in this community benefit from the hospital and health sciences even if they’ve never received care here. The University makes it an appealing place for doctors to practice medicine. So patients get better doctors and a higher quality of care.”

“Our challenge,” says Fullmer, “is to encourage the payer community to recognize and distinguish between us and primary- and secondary-care facilities that do not fulfill a teaching role.

” What does this mean for Sharon Kessel, back at another bedside in the SICU? “Over the past 30 years, health care has grown into something I never could have anticipated,” she says. “During the first open-heart-surgery patient I ever scrubbed on, the procedure was to drop the patient’s temperature low enough that we were able to operate in between beats of the heart. Today, with so many advances in technique and equipment, we’re regularly doing bypasses, transplants, and artificial hearts. It’s unbelievable,” she says. “That’s why academic medicine should be viewed in terms of service, not dollars.”

Christopher Nelson BS’96 is public relations officer for the John A. Moran Eye Center.

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