Committee Members:

Charles M. Caravati, Jr., M.D., Chair	Terence P. Ross
H. Christopher Alexander, III, M.D.	Elizabeth A. Twohy
William G. Crutchfield, Jr.	Harry J.G. van Beek
William H. Goodwin, Jr.	John P. Ackerly, III, Ex Officio

I. CONSENT AGENDA (Dr. Cantrell)

Fiscal Impact Statements

JCAHO Accreditation Survey

BACKGROUND: The School of Medicine is negotiating a sponsored research contract and a material transfer agreement with Upstate Biotechnology Inc., a New York company involved in funding research in and commercialization of bioreagents.

Two University faculty members serve on the company's scientific advisory board. One of the two receives annual income in excess of $10,000. Under the Virginia Conflict of Interests Act, the University's contracting with Upstate Biotechnology Inc. would place its faculty who receive income in excess of $10,000 in violation of the Act, unless the Board of Visitors approves the conflict created by their income in excess of $10,000. State law grants such approval authority to the Board in the case of sponsored research, in order to allow research furthering the public interest.

DISCUSSION: The research contract will help fund research for the development of immunological reagents directed at the chemical modification of histone proteins.

Virginia law and University of Virginia policy will require Dr. David Allis to file annual disclosure statements of his personal economic interests in the company. Neither of the faculty is involved in the University's negotiation, approval, or procurement of contract terms with Upstate Biotechnology, Inc. The chair of the Department of Biochemistry heads a University oversight team responsible for managing and overseeing the research, including independently supervising, evaluating, and making personnel decisions to ensure that the continuing best interests of the University are served. As an additional precaution, the chair will report at least each quarter to the dean on the progress of sponsored research activity and the utilization of University resources.

ACTION REQUIRED: Approval by the Health Affairs Committee and the Board of Visitors.

CONFLICT OF INTEREST EXEMPTION

WHEREAS, the School of Medicine wishes to enter into a sponsored research contract with Upstate Biotechnology Inc., a New York Corporation, for funding research in and commercialization of innovative and hard to find bioreagents; and

WHEREAS, David Allis, Ph.D., receives annual income in excess of $10,000 from Upstate Biotechnology Inc., and the University's entry into a research agreement with Upstate Biotechnology, Inc. would thereby expose him to violation of the Conflicts of Interest Act unless the conflict is approved by the Board as permitted by '2.1-639.6(c) (7) of the Code of Virginia;

RESOLVED that the conflict is approved by the Board of Visitors in order to permit the University to negotiate and enter into a proposed contract for the development of immunological reagents directed at the chemical modifications of histone proteins; provided, as required by the law, the faculty file the required annual disclosure statement of personal income from Upstate Biotechnology Inc., the University files the required annual report concerning the contract with the Secretary of the Commonwealth, and the department chair vigilantly oversees application of University resources and personnel engaged in the transaction so as to ensure the continuing best interests of the University and compliance with University policy.




UNIVERSITY OF VIRGINIA
FISCAL IMPACT STATEMENT

PROJECT/PROPOSED BOARD OF VISITORS ACTION: Upstate Biotechnology, Inc.

DESCRIPTION: The School of Medicine is negotiating a sponsored research contract with Upstate Biotechnology, Inc., a New York biotechnology start-up company created in the eighties. The Scientific Advisory Board includes two University of Virginia faculty members.

One faculty member receives annual income in excess of $10,000. Under the Virginia Conflict of Interests Act, the University may enter into a research contract with Upstate Biotechnology, Inc. without placing this faculty member in violation of the Act, if the Board of Visitors approves the conflict created by his receiving annual income in excess of $10,000.

The research contract would help fund research for the development of immunological reagents directed at the chemical modifications of histone proteins.

FISCAL IMPACT: Fiscal impact is negligible, at worst. The University Patent Foundation receives annual royalty income for products developed at the University of Virginia and licensed to Upstate Biotechnology. Therefore, major breakthroughs could result in significant revenue gain for the University.

CONCLUSION: It is recommended that the Board of Visitors approve the Conflict of Interest and enter into the proposed contract for developing gene therapy for slow growing brain tumors and prostate cancer.

RECOMMEND APPROVAL OF BOARD ACTION

__________________________
Leonard W. Sandridge
February 25, 2000

BACKGROUND: The School of Medicine is negotiating sponsored research contracts and a material transfer agreement with DirectGene, Inc., a Delaware biotechnology company created in 1999 to pursue the development of gene therapies for cancer and other diseases. Technology developed at the University of Virginia has been licensed to DirectGene by the University of Virginia Patent Foundation, which has a 1.2 percent equity interest in the company.

Four University faculty members and one University graduate student own three percent or less of the equity in the company. Four faculty members own in excess of three percent. Under the Virginia Conflict of Interests Act, the University's contracting with DirectGene, Inc. would place its faculty who own in excess of three percent in violation of the Act, unless the Board of Visitors approves the conflict created by their equity interest. State law grants such approval authority to the Board in the case of sponsored research, in order to allow research furthering the public interest.

DISCUSSION: The research contracts would help fund research of adenoviral based gene therapy for cancer and bone repair.

Virginia law and University of Virginia policy will require Drs. Chung, Zhau, Kao, and Jeng to file annual disclosure statements of economic interests in the company. None of the faculty is involved in the University's negotiation, approval, or procurement of contract terms with DirectGene, Inc. The chair of the Department of Urology heads a University oversight team responsible for managing and overseeing the research, including independently supervising, evaluating, and making personnel decisions to ensure that the continuing best interests of the University are served. As an additional precaution, the chair will report at least each quarter to the dean on the progress of sponsored research activity and the utilization of University resources.

ACTION REQUIRED: Approval by the Health Affairs Committee and by the Board of Visitors.

CONFLICT OF INTEREST EXEMPTION

WHEREAS, the School of Medicine wishes to enter into a sponsored research contract with DirectGene, Inc., a Delaware Corporation, for developing adenoviral based gene therapies for cancer and bone repair; and

WHEREAS, Leland W.K. Chung, Ph.D., and spouse, Haiyen E. Zhau, Ph.D., and daughters, Lynna K. Chung and Shunney H.C. Nair, Chinghai Kao, Ph.D., and spouse, Meei-Huey Jeng, Ph.D., have disclosed in advance their equity interests of 1.2, 2.7, 2.2, 2.2, 1.2, 2.1 percent, respectively, in DirectGene, Inc., and the University's entry into a research agreement with DirectGene, Inc. would thereby expose them to violation of the Conflicts of Interest Act unless approved by the Board as permitted by '2.1-639.6(c) (7) of the Code of Virginia;

RESOLVED that the conflict is approved by the Board of Visitors in order to permit the University to negotiate and enter into a proposed contract for developing adenoviral based gene therapies; provided, as required by the law, the faculty file the required annual disclosure statement of personal interests in DirectGene, Inc., the University files the required annual report concerning the contract with the Secretary of the Commonwealth, and the department chair vigilantly oversees application of University resources in the best interests of the University and in accordance with policy.

UNIVERSITY OF VIRGINIA FISCAL IMPACT STATEMENT

PROJECT/PROPOSED BOARD OF VISITORS ACTION: DirectGene, Inc.

DESCRIPTION: The School of Medicine is negotiating a sponsored research contract with DirectGene, Inc., a Delaware biotechnology start-up company created in 1999. The founding members of DirectGene, Inc. include eight University of Virginia faculty members and one University graduate student.

Four faculty members and one University graduate student each owns less than three percent of the equity in the company. The remaining four faculty own a total of ll.6 percent in the company. Under the Virginia Conflict of Interests Act, the University may enter into a research contract with DirectGene, Inc. without placing these faculty members in violation of the Act, if the Board of Visitors approves the conflict created by their ownership in excess of three percent.

The research contracts would help fund research into adenovirus tissue specific expression for cancer and bone repair, which has great potential for patient treatment.

FISCAL IMPACT: Fiscal impact is negligible, at worst. The University Patent Foundation retains a l.2 percent equity interest in DirectGene, Inc. Therefore, major breakthroughs could result in significant revenue gain for the University.

CONCLUSION: It is recommended that the Board of Visitors approve the Conflict of Interest and enter into the proposed contract for developing adenoviral gene therapies for cancer and bone repair.

RECOMMEND APPROVAL OF BOARD ACTION

__________________________
Leonard W. Sandridge
February 25, 2000

ACTION REQUIRED: None

BACKGROUND: The Medical Center prepares a financial report and reviews it with the Executive Vice President and Chief Operating Officer before submitting the report to the Health Affairs Committee of the Board of Visitors. The Health Services Foundation (HSF)prepares and presents financial statements to the Vice President and Provost for the Health System.

DISCUSSION: Admissions for the Medical Center for Fiscal Year 2000 are below budget by 1% and below Fiscal Year 1999 by 2%. Since admissions are down, we completed a comparison of our market share for the Medical Center for calendar year 1995 to 1999, and have concluded that overall market share is flat to slightly increased. The length of stay for the Medical Center for Fiscal Year 2000 has dropped to 5.2 days - 13.3% below the length of stay for Fiscal Year 1998. This positive trend contributes to our efforts to lower costs.

Net operating revenue for Fiscal Year 2000 is almost equal to Fiscal Year 1999 and 1% above the budget. The Balanced Budget Refinement Act of 1999 restored a portion of the Medicare funding reductions which had been made by the Balanced Budget Act of 1997. As a result of this Act, the Medical Center will realize $2 million of additional (non-budgeted) net revenue in Fiscal Year 2000. The December year-to-date financial statements reflect $666,000 additional net revenue from the Refinement Act. Each month through June 2000, the financials will reflect $222,222 of additional net revenue. The major item adjusted by the Refinement Act was indirect medical education payments.

Total operating expenses for Fiscal Year 2000 are $.5 million below budget and $4.8 million below Fiscal Year 1999. This is primarily the result of salaries/benefits and supplies being below budget and below Fiscal Year 1999. The number of full-time equivalent employees (FTEs) is 150 below budget and 159 below prior year.

After six months of Fiscal Year 2000, the operating margin is 4.0% We anticipate ending Fiscal Year 2000 with an operating margin of 4%. We also anticipate that expenses will increase in the next six months because of employee raises that were made in January 2000.

At the February 25th meeting financial results through January 2000 will be presented.

Accounting Policy

Each year the Medical Center prepares a Cost Report to determine the final payment by the Medicaid program. The Cost Report is prepared, filed, and audited after the year for which it applies. Historically, the Medical Center has recorded as net revenue the lump sum final settlement from the Medicaid Cost Report when it is received, generally two years after the year for which it applies. In June 1999, the Medical Center recorded $2.7 million as net revenue as the final settlement of the 1997 Medicaid Cost Report.

The practice historically followed by the Medical Center is in accordance with Generally Accepted Accounting Procedures (GAAP); however, it was a very conservative application of GAAP.

In June 2000, the Medical Center will receive approximately $5.6 million as a final settlement of the 1998 Medicaid Cost Report. We will record additional net revenue of $4.0 million from this anticipated settlement spread evenly over seven months starting December 1999. We will also restate the monthly financial statements for Fiscal Year 1999 as if this accounting practice had been followed in Fiscal Year 1999. This new accounting practice will not change the annual results for Fiscal Year 1999 or Fiscal Year 2000; however, it will change the historical pattern of recording a large increase to net revenue in the final month of the fiscal year.

ACTION REQUIRED: None

DISCUSSION: The Vice President and Provost for the Health System will utilize this portion of the Health Affairs Committee meeting to inform the Board of Visitors of recent events which do not require formal action, but of which they should be made aware.

ACTION REQUIRED: None

BACKGROUND: The JCAHO final report for the inpatient and ambulatory survey was received on January 26th, 2000. The final report on the home health care survey is expected soon.

DISCUSSION: The JCAHO uses a decision grid to provide a numeric summary of an organization's level of compliance with standards under the various performance areas surveyed. The summary grid score can be compared to a test score in that 100% reflects the best possible performance an organization can achieve.

Prior to beginning the most recent survey, the JCAHO surveyors announced that as the survey process has become more stringent, most hospitals have experienced a 20% decline in scores compared to prior surveys. The Health System's final score of 94, however, reflected a one-point increase over the score earned in 1996. This remarkable achievement is attributable to the excellent skills and dedication of the Health System's employees.

Recommendations made by JCAHO surveyors to further improve performance are being implemented.