HEALTH AFFAIRS COMMITTEE

Committee Members:

Charles M. Caravati, Jr., Chair
John P. Ackerly, III
William G. Crutchfield, Jr.
William H. Goodwin, Jr.
T. Keister Greer
C. Wilson McNeely, III
Albert H. Small
Hovey S. Dabney, Ex Officio

AGENDA

I. CONSENT ITEM (Dr. Cantrell)

Clinical Faculty Remuneration Plan

II. ACTION ITEM

Medical Center 1998 Budget Amendment (Dr. Cantrell to introduce Mr. Halseth; Mr. Michael J. Halseth to present)

III. REPORTS BY THE VICE PRESIDENT AND PROVOST FOR HEALTH SCIENCES (Dr. Cantrell)

A. Medical Center Personnel (Human Resources) System (Dr. Cantrell to introduce Mr. Bouchard; Mr. Ronald A. Bouchard to present)

B. Medical Center Financial Report (as of November 30, 1997) (Dr. Cantrell to introduce Mr. Halseth; Mr. Michael J. Halseth to present)

C. Vice President's Remarks

IV. EXECUTIVE SESSION

Discussion of proprietary, business related information of the Medical Center in connection with its proposed joint venture, and the investing of public funds where competition or bargaining is involved, when if made public initially the financial interest of the University would be adversely affected, as provided for in Section 2.1-344 A (6)(24) of the Code of Virginia.

AGENDA ITEM SUMMARY

I. Clinical Faculty Remuneration Plan

BACKGROUND: At the November 7, 1997, meeting of the Board of Visitors, Dr. Jones, chair of the Clinical Faculty Remuneration Task Force, presented the report of the Task Force to the Health Affairs Committee.

The current plan, which was approved by the Board in 1990, requires revision because of major changes in health care. These changes include a projected decrease in clinical income, the need for incentives for team approaches and the projected surplus of physicians, particularly specialists. Remuneration must also be aligned with the goals and mission of the Health Sciences Center and with individual productivity.

DISCUSSION: The Clinical Faculty Remuneration Task Force recommends that the negotiated salary for all clinical faculty consist of two portions. The first portion, the Base Salary, is the base level for general participation in the institution’s clinical, teaching, research and administrative activities. Levels are established for each academic rank and adjusted from time to time by concurrence of the Dean of the School of Medicine and the Vice President and Provost for Health Sciences. Base Salary defines the institution’s minimal financial responsibility to each member of the clinical faculty, assuming a minimally-acceptable level of productivity.

Additional salary may be paid, designated as Variable Salary. The sum of the Base Salary and the Variable Salary will be the Negotiated Salary. Fringe benefits, retirement, etc. will be calculated on the Negotiated Salary.

The Negotiated Salary will be reviewed annually for every clinical faculty member. The Health Sciences Center will guarantee the Negotiated Salary for 36 months for each new faculty member, subject to availability of funds, discretionary adjustment by the Dean and the Vice President and Provost for Health Sciences, or further Board of Visitors' action. Negotiated Salaries will be set no higher than the 60th percentile of the American Association of Medical Colleges Faculty Salary Survey, by rank and specialty. The Negotiated Salary of faculty may remain stable or increased or reduced, depending upon productivity; reductions will generally not exceed 10% per year, subject to availability of funds, and discretionary adjustment by the Dean and Vice President and Provost or further Board of Visitors’ action. On the other hand, faculty members whose annual revenues exceed expenses may receive incentive payments provided their department ends the year with a positive financial balance. Departmental accounting and reporting systems will be standardized. Compensation data and decisions will be provided annually by departments to each of their faculty members. The Dean of the School of Medicine must approve all salaries. Departmental support for professional meetings, travel, subscriptions, dues, tuition, books and entertainment shall not exceed 5% of Negotiated Salary.

This plan compensates the faculty based on the value they create for the institution. This proposal has been shared with the clinical faculty who have provided feedback; if the plan is approved the Dean of the School of Medicine will be responsible for its implementation.

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

CLINICAL FACULTY REMUNERATION PLAN

The President will propose the adoption of the following resolution:

WHEREAS, the current Practice Plan for the School of Medicine's Clinical Faculty was approved by the Board of Visitors in 1990; and

WHEREAS, health care is undergoing major changes directly impacting remuneration of the School of Medicine's Clinical Faculty; and

WHEREAS, a task force studied clinical faculty remuneration issues and made recommendations for changes, which were reviewed with the Health Affairs Committee of the Board of Visitors on November 7, 1997;

RESOLVED that the attached Clinical Faculty Remuneration Plan is approved as an addendum to the existing 1990 Practice Plan for implementation effective July 1, 1998.

CLINICAL FACULTY REMUNERATION PLAN

For the purpose of this plan, eligible clinical faculty members are those faculty who are employed by the School of Medicine and who also provide patient care services pursuant to a contract with Health Services Foundation. The Dean of the School of Medicine has the authority to include other faculty in this compensation plan, subject to the approval of the Vice President and Provost for Health Sciences. The current sources of Clinical Faculty Remuneration include the following:

Clinical Practice Faculty Earnings (Health Services Foundation)
Research Grants (School of Medicine)
Tuition (School of Medicine)
State Funds for Medical Education (School of Medicine)
Endowments and Gifts (School of Medicine)
Hospital Clinical Revenue (Medical Center)
Graduate Medical Education Funds (Medical Center)

All clinical faculty shall receive a Negotiated Salary consisting of two portions. The first portion called the Base Salary will define the institution’s minimal financial responsibility to each clinical faculty member, subject to the availability of funds and further Board of Visitors' (BOV) actions. The Base Salary for each academic rank for 1997-98 is as follows:

Academic Rank	Amount
Chair	$82,500
Professor	$65,000
Associate Professor	$55,000
Assistant Professor	$45,000
Instructor	$35,000

These amounts may be adjusted from time to time by the Board of Visitors upon recommendation of the President. Data from the American Association of Medical Colleges (AAMC) and American Association of University Professors (AAUP) and the State of Virginia's recommendation for Medical School Faculty salary may be used to determine the base salary levels.

Additional salary beyond the authorized base may be paid to clinical faculty and will be designated as Variable Salary. The sum of the Base Salary and the Variable Salary will be the Negotiated Salary. Fringe benefits and retirement will be calculated on the basis of Negotiated Salary to the extent permitted by law. Each new faculty member will receive the negotiated salary stated in his or her appointment letter for 36 months while employed by the School of Medicine, subject however to availability of funding by contemplated sources, approval by the Dean and the Vice President and Provost for Health Sciences, and further Board of Visitors’ action. Subsequently, the Negotiated Salary (Variable Salary portion) may be adjusted annually according to the faculty member’s productivity during the prior 12 months. The Variable Salary may be unchanged, raised or lowered. Reductions in Negotiated Salary are not anticipated to exceed 10% per year, again subject to availability of funding, approval by the Dean and Vice President and Provost for Health Sciences or further Board of Visitors’ action. The Negotiated Salary will not exceed the 60th percentile of the AAMC Faculty Salary Survey data by rank and speciality.

Faculty members whose annual revenues exceed their expenses may receive an incentive payment provided that their department ends the fiscal year with a positive balance, and all requirements of the 1990 Faculty Practice Plan, as it may be amended, are met.

Departmental accounting and reporting systems shall be standardized as directed by the Dean and the Vice President and Provost. Productivity, qualitative, quantitative and financial, will be documented individually per the attached Clinical Faculty Performance Report and Statement of Revenue and Expenses, as amended by the Dean and Vice President and Provost, and information regarding productivity will be provided to the faculty member, the Department Chair and the Dean annually. The Health Services Foundation will distribute monthly clinical income statements to faculty members documenting their income.

The Statement of Revenue and Expenses (see attached document) will be a major determining factor in the Negotiated Salary for the year. The difference between all revenue and expenses including the Negotiated Salary should produce a positive balance. Chairs can attribute revenue to faculty in recognition of documented, non- revenue generating activities that are vital to the mission of the institution such as teaching, providing uncompensated indigent care, administrative duties and leadership responsibilities.

Departmental support to a faculty member for professional meetings, travel, subscriptions, dues, tuition, books and entertainment shall not exceed 5% of that faculty member’s Negotiated Salary.

Final decisions on compensation will be made by the Dean and the Vice President and Provost upon recommendation by the department chairs. Nothing in this Plan is intended to create an express or implied contractual entitlement to receipt of a particular level of compensation by any faculty member. This Plan is subject to amendment at any time.

TABLE 1

CLINICAL FACULTY PERFORMANCE REPORT

NAME:
DEPARTMENT:
SPECIALTY:

PRODUCTIVITY INDICATORS	ACTUAL FOR FISCAL YEAR 1996-1997	PROJECTED FOR FISCAL YEAR 1997-98
PATIENT CARE RVU'S DELIVERED INDIGENT CARE WRITE-OFFS PATIENT SATISFACTION SCORE PUBLICATIONS QUALITY, PEER-REVIEWED PUBLICATIONS BOOK CHAPTERS OTHER (SPECIFY) AWARDS AND HONORS (SPECIFY) FINANCIAL SPONSORED PROGRAMS AWARDS PATENT INCOME @ UVA GIFT FUNDS TO UVA

STATEMENT OF REVENUE AND EXPENSES

PRODUCTIVITY INDICATORS	ACTUAL FOR FISCAL YEAR 1996-1997	PROJECTED FOR FISCAL YEAR 1997-98
REVENUE PATIENT CARE HSF BILLING SYSTEM INCOME OTHER HSF INCOME SUBTOTAL PATIENT CARE REVENUE EDUCATION SCHOOL OF MEDICINE BASE AMOUNT MEDICAL STUDENT TEACHING RESIDENCY TRAINING/SUPERVISION PROGRAM ADMINISTRATION OTHER (SPECIFY) SUBTOTAL EDUCATION REVENUE RESEARCH FACULTY SALARY SUPPORT INDIRECT COST RECOVERIES @ 60% OTHER (SPECIFY) SUBTOTAL RESEARCH ADMINISTRATION AND MANAGEMENT FROM MEDICAL CENTER FROM SCHOOL OF MEDICINE OTHER (SPECIFY) SUBTOTAL ADMINISTRATION/MANAGEMENT OTHER FACULTY SALARY SUPPORT (CHAIR, ETC.) TEMPORARY SUPPORT (SPECIFY) SUBTOTAL OTHER TOTAL REVENUE EXPENSES DIRECT COSTS BASE SALARY W/ FRINGES MALPRACTICE INSURANCE SUPPORT STAFF (SECRETARIAL, ETC.) OTHER SUPPORT COSTS (OTPS) SUBTOTAL DIRECT COSTS INDIRECT COSTS WORKGROUP/DIVISION OUTPATIENT CLINIC COSTS (CURRENT HSC POLICY) DEPARTMENTAL ACADEMIC ADVANCEMENT FUND HSF BILLING AND COLLECTIONS REGISTRATION OUTPATIENT CLINIC COSTS (PROPOSED HSC POLICY) GROUP PRACTICE FUND OTHER (SPECIFY) SUBTOTAL HSF SUBTOTAL INDIRECT COSTS TOTAL EXPENSES BALANCE INCLUD. BASE SALARY VARIABLE SALARY AMOUNT W/ FRINGE BENEFITS BALANCE

II. Medical Center 1998 Budget Amendment

BACKGROUND: When the Medical Center's 1998 budget was presented to the Finance Committee in June for approval, uncertainties were noted that would warrant quarterly review and potential updates during the year. These included the impact of changes in federal Medicare revenues, Medicaid reimbursement rates, patient volumes, and control of pharmaceutical costs. The Medical Center’s 1998 budget has been monitored carefully to identify potential amendments. Revenue and expenditure results thus far have led to a revision of fiscal revenue estimates and expenditures.

DISCUSSION: The Medical Center's gross patient revenue to date has exceeded budget because there have been more patients with severe illnesses. Revenue is consequently projected to outpace the increased deductions experienced so far this year to result in a higher net patient revenue than expected. Another factor contributing to higher revenues, is a decrease in expected indigent care costs as a percentage of gross patient revenue. The increased severity of illnesses being treated will also translate into higher reimbursements.

The original budget included a $6.0 million reserve of which $2.0 million was contingent on the revenue budget being achieved. With the favorable gross patient revenues in the first portion of the fiscal year, the Medical Center requests as part of this resolution that the $2.0 million contingency reserve be made available to support operations.

The budget amendments include support for three new programs. Two should generate equal or greater revenues: Post Acute Respiratory Care at $0.7 million, and Digestive Health Expansion at $0.3 million. The third, the Clinician Mentor Program, is budgeted at $0.3 million. Also included are increases to various expenses: medical supplies of $5.5 million, reflecting higher prices and usage; bad debt of $0.5 million; and depreciation and amortization at $0.7 million.

The non-operating section of the budget is being adjusted at this time to recognize an expected increase in interest revenue and an increase in non-operating losses for QualChoice. Coopers & Lybrand projects the Medical Center’s share of QualChoice's losses to be $5.2 million, but results to date indicate this may approach $8.0 million. This amendment only reflects the unbudgeted portion of Coopers & Lybrand's projection of $5.2 million.

The attached schedule includes both revenue and expenditure budget amendments.

REQUIRED ACTION: Recommendation by the Health Affairs Committee that the Medical Center budget as amended be adopted by the Finance Committee, and by the Board of Visitors.

MEDICAL CENTER 1998 BUDGET AMENDMENT

The President will propose the adoption of the following resolution:

WHEREAS, the Medical Center budget plan for 1998 anticipated the potential need to revise the budget after the beginning of the fiscal year; and

WHEREAS, the operating results through the first five months of the fiscal year have presented opportunities in financial performance over the original budget; and

WHEREAS, the Medical Center recommends adjustments in the budget to reflect expected improved revenues and additional expenditures to support operations;

RESOLVED that the Medical Center's 1998 Budget is approved according to the attached table.

UVA Medical Center
1998 Budget Amendment
(dollars in millions)

Description	Operating Revenue	Operating Expen. (a)	Operating Margin	Non-oper. Gain (Loss)	Total Margin
Original Budget	$440.5	$418.3	$22.2	$3.0	$25.2
Expected Revenue Increases	$12.5
New Programs		$1.3
Volume Related Exp - w/o Medical Supplies		$1.5
Medical Supplies		$4.0
Bad Debt		$0.5
Depreciation & Amortization		$0.7
Interest Revenue				$2.0
QualChoice non-operating losses				-$4.7
Amended Budget	$453.0	$426.3	$26.7	$0.3	$27.0

(a) Includes $30.3 in depreciation and amortization.

III.B. Medical Center Personnel (Human Resources) System

BACKGROUND: In June 1996, the Board of Visitors adopted an "interim" Medical Center Personnel System, as part of the Codified Autonomy legislation, to allow management the opportunity to develop a Personnel (Human Resources) system aligned with the health care industry. The "interim" Personnel System mirrored the Personnel System of the Commonwealth. The Medical Center retained the human resources consulting firm Watson-Wyatt to assist in the design of the new human resources system. A steering committee, co-chaired by the Medical Center's Chief Administrative Officer and the University's Chief Human Resources Officer, was established. A health care Human Resources Officer was hired as a project manager and five task forces composed of management and staff employees were established. Each of the five task forces was co-chaired by a Medical Center Manager and a member of the University Human Resources staff. The task forces focused on the following human resource functional areas: Compensation, Benefits, Employee Relations, Workforce Management and Communications.

DISCUSSION: The Human Resources system is being designed to align the Medical Center's policies and practices more closely with others in the health care industry. Health care is a business and our customers have many choices as to where they go for services. As more than half of our costs of operations are for the salaries and benefits of our employees, we must ensure that our Human Resource programs are designed to keep our costs competitive.

The Steering Committee adopted seven major objectives to help guide the development of the Human Resources system. The system must:

• Be flexible enough to adapt to a wide variety of situations and needs
• Allow for delegation of decision making to line management
• Reward behaviors that make us successful in the healthcare marketplace
• Provide efficient and timely processes for hiring, position creation, compensation adjustments, etc.
• Be viewed as a relevant and effective tool for its users
• Be innovative, taking advantage of the latest in technology
• Recognize the limitations and opportunities of the rural setting of the Medical Center.

The new Human Resources system is designed around certain key performance factors. These performance factors are competencies and behaviors that have been identified as critical to our success. All Human Resource programming must enhance and support these performance factors which will, in turn, lead to both individual and Medical Center success.

The performance factors are:

• Technical Excellence
• Communication and Interpersonal Skills
• Teamwork, Self-Management and Leadership
• Continuous Improvement
• Decision Making
• Customer Service

The Human Resources system overview is provided to the Board of Visitors as a "preview" of the proposed design, which will be finalized and presented for action in May.

REQUIRED ACTION: None.

III.C. Medical Center Financial Report (as of November 30, 1997)

BACKGROUND: A report of operating and financial results for the Medical Center is prepared quarterly and reviewed with the Executive Vice President and Chief Financial Officer before it is sent to the Health Affairs and Finance Committees of the Board of Visitors. Because the winter meeting of the Board is early this year, the financial information for the Medical Center will be reported for the first five months only of the 1998 fiscal year.

DISCUSSION: Since the report given at the November Board meeting, the Medical Center's operations have yielded another two months of year-to-date positive financial results. Operating revenues for the first five months exceeded expenses by $11.1 million. Medical Center gross patient revenues were $5.2 million higher than budgeted. Admissions, although down from last year by less than 1% for the first five months, exceed expected levels budgeted for the same period. Year-to-date statistics indicate an increase of 13,344 clinic visits over the comparable period of last year. Operating expenses were held to just $0.9 million (0.5%) above last year when prior year’s expenses for that period are restated to capture final adjustments and expenses as reported by year-end last year. Appropriate portions of expected adjustments and expenses for fiscal year 1998 are currently being accrued and are reflected in the results reported for the first five months of this year. Operating cash reserves remain stable at approximately $85.3 million. Days in patient accounts receivable have increased to 65.1 days. The increase of managed care, which is processed manually by most HMO's at this time, has slowed down payments and increased receivables.

Somewhat higher expenditures are anticipated for the second half of the year because of December salary increases and expense budget amendments. Better medical management, however, should begin to yield a cost per discharge that is reflected in real expense reduction by year-end.

In addition, cash flows from operations will be used to fund capital expenditures in excess of $30 million, including the unexpended items from last year's budget and new dollars budgeted for 1998.

REQUIRED ACTION: None.

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