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Meeting Information

HEALTH AFFAIRS COMMITTEE
Saturday, May 15, 1999
8:30 - 9:30 a.m.
East Oval Room, The Rotunda

Committee Members:

Charles M. Caravati, Jr., Chair
Terence P. Ross
William G. Crutchfield, Jr.
William H. Goodwin, Jr.
Elizabeth A. Twohy
John P. Ackerly, III, Ex Officio


AGENDA

I. CONSENT AGENDA (Dr. Cantrell)

A. Conflict of Interest Exemption (E-site)
B. Conflict of Interest Exemption (MMS)

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

A. Medical Center Financial Report (as of March 31, 1999) (Dr. Cantrell to introduce Mr. Carter) (Mr. William E. Carter to report)
B. Medical Supply and Pharmaceutical Cost Review (Dr. Cantrell to introduce Dr. Massaro) (Dr. Thomas A. Massaro to report)
C. Vice President's Remarks

III. EXECUTIVE SESSION

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


I.A. Conflict of Interest Exemption

BACKGROUND: The School of Medicine is negotiating a sponsored research contract with E-SITE THERAPEUTICS, INC., a Delaware corporation ("E-Site"), for funding basic research in the use of antibodies in the diagnosis, imaging, prevention, treatment and monitoring of cancer. This research contract would fund approximately $500,000 in the laboratories of Drs. Ronald Taylor and Leland Chung. This is an extension of work already in progress in these laboratories supported by grants from the National Institutes of Health and the Defense Advanced Projects Agency. A change in state law now requires approval of such arrangements by the Board of Visitors.

DISCUSSION: The research funding would help support the on-going cancer research by Drs. Taylor and Chung. Dr. Taylor's 10% equity interest in the company creates a conflict of interest that will prevent agreement with E-SITE unless the Board approves the conflict. Such action is permitted under state law in the case of sponsored research contracts.

The design of the law is to advance the public interests in approved research undertaken by state institutions of higher education, while requiring disclosures of employee financial interests for administrative management and oversight. The law and University policy provides that Dr. Taylor will be required to file annually a disclosure statement of economic interests as long as he holds an equity interest in the company exceeding 3%. (The University Patent Foundation also holds a small equity interest in E-Site less than 10%). Dr. Chung has no equity interest in the company or other known conflict, except that he works occasionally as a paid consultant to the company. Dr. Chung's consultancy does not create any unlawful conflict in the proposed contract because he is not involved in the negotiation, approval, or procurement of the contract terms.

As a separate but related conflicts consideration, the spouses of each researcher work in the laboratories of Dr. Taylor and Dr. Chung respectively and are employed by the University. The dual employment of the spouses is permissible under state law if approved by the Board and so long as one spouse does not exercise sole authority over to supervise, evaluate, or make personnel decisions as to the other.

Neither Dr. Taylor or Dr. Chung is involved in the University's negotiation, approval, or procurement of contract terms with E-SITE, nor are their spouses. The departmental chairs are responsible for managing and overseeing the research including independently supervising, evaluating and making personnel decisions concerning the spouses to ensure that the continuing best interests of the University are served. As an additional precaution, the chairs will report at least each quarter to the dean on the progress of sponsored research activity and utilization of University resources.

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

CONFLICT OF INTEREST EXEMPTION

The President will propose the adoption of the following resolution:

WHEREAS, the School of Medicine wishes to enter into a sponsored research contract with E-SITE THERAPEUTICS, INC., a Delaware corporation, for investigation and research into the use of antibodies in the diagnosis, imaging, prevention, treatment and monitoring of cancer; and

WHEREAS, as noted, Dr.Taylor has a conflicting equity interest exceeding 3% in E-SITE THERAPEUTICS, INC. which has been disclosed to the University as provided by '2.1-639.6(C)(7) of the Code of Virginia and as required by University policy; and neither Dr. Taylor nor Dr. Chung is involved in the University's negotiation, approval, or procurement of the sponsored research contract, nor are their spouses;

RESOLVED that the exemption under '2.1-639.6(C)(7) of the Code of Virginia is approved by the Board of Visitors in order to permit the University to contract with E-Site and secure funding of ongoing cancer research provided the annual disclosure statement of economic interests is filed by Dr. Taylor as required by law, the University files its required annual report with the Secretary of the Commonwealth reporting the contract and responsible managers overseeing its administration, and the chairs of both departments vigilantly oversee and monitor the utilization of University resources in implementation of any contract with E-SITE THERAPEUTICS, INC and report to the dean on at least a quarterly basis.

RESOLVED FURTHER that the exemption for dual University employment of the spouses of Drs. Taylor and Chung, under '2.1-639.6(C)(2) of the Code of Virginia, is approved in order to maintain ongoing cancer research which appears to be in the public interest and to retain competent scientists familiar with the subject matter, with the understanding and on the condition that neither Dr. Chung nor Dr. Taylor evaluate, supervise or otherwise make personnel decisions concerning their spouses and that these actions will be taken independently by the chairs of their departments in strict accordance with applicable University personnel policies.


I.B. Conflict of Interest Exemption

BACKGROUND: The School of Medicine, with assistance from the Office of General Counsel, is negotiating a contract with Multimedia Medical Systems Inc. (MMS), a Delaware corporation with its principal place of business in Charlottesville, Virginia to test and evaluate software developed by MMS with the capability of transmitting medical images over the Internet.

The Internet is expected to have significant impact on the delivery of health care and the economics and quality of service delivery. Health care institutions will face enormous challenges in evaluating the benefits of this technology. The proposed contract with MMS will allow the University to gain considerable insight into the practical aspects of incorporating this technology into its health care delivery network. The proposed testing activity will also help position the University's School of Medicine as an innovator in using the Internet to pioneer new methods of delivering health care services. It is hoped that the contract will be a model for attracting industry investment and related opportunities to advance health care delivery systems.

DISCUSSION: Neal Kassell, M.D., a member of the faculty in the School of Medicine, owns a 13.3% equity interest in MMS, and his spouse, Lynn Kassell, owns a 0.1% equity interest. The University also has a 3.3% equity interest in MMS. Neither Dr. Kassell nor Ms. Kassell will have a role in negotiating, approving or procuring the contract with the company or involvement in the research and evaluation, but a contract with MMS places them in technical violation of the Virginia Conflict of Interests Act unless the conflict is approved by the Board of Visitors which is permitted by state law in the context of such research and development contracts.

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

CONFLICT OF INTEREST EXEMPTION

The President will propose the adoption of the following resolution:

WHEREAS, the School of Medicine wishes to enter into a sponsored research contract with Multimedia Medical Systems, Inc., a Delaware Corporation, for testing MMS computer software for transmitting medical images over the Internet; and

WHEREAS, Neal Kassell, M.D., a faculty member in the School of Medicine, and his spouse, have equity interests of 13.3% and 0.1%, respectively, in Multimedia Medical Systems, Inc. and the University's entry into an agreement with Multimedia Medical Systems, Inc., would thereby expose them to violation of the Conflicts of Interest Act unless approved by the Board as provided 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 testing MMS computer software, which transmits medical images over the Internet; provided, as required by the law, the faculty file the required annual disclosure statement of personal interests in Multimedia Medical Systems, Inc., the University files the required annual report concerning the contract with the Secretary of the Commonwealth, and the department chair vigilantly oversees implementation of University resources in the best interests of the University and in accordance with policy.


II.A. University of Virginia Medical Center Financial Report as of March 31, 1999

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

DISCUSSION: At the end of the first nine months, gross inpatient revenue was 3.4 percent less than budget and gross outpatient revenue was 6.1 percent less than budget. A decrease in indigent care charges ($9.7 million less than budget year-to-date) offsets an increase in bad debt ($1.8 million greater than budget year-to-date). Better than expected contractual adjustments were experienced resulting in an $7.7 million favorable comparison to budget. These activities, in combination with miscellaneous revenue being $0.7 million lower than budget, result in total operating revenue being $1.9 million lower, or six-tenths of a percent lower, than budget.

Expenses are $14.6 million higher than budget through March primarily because of medical supplies and pharmaceuticals, which represent $8.7 million of the budget variance. Purchased Services & Other expenses represent another $4.6 million of the variance. Salaries and wages increased to $1.9 million over budget and Bad Debt is $1.8 million greater than budget. Favorable Contracts, Fringe Benefit Expenses and Depreciation & Amortization partially offset these unfavorable variances. The resulting operating margin is 1.1% of net operating revenue and $16.5 million less than budgeted.

The financial position at the end of the first 9 months is less than optimal. Lower than budgeted gross inpatient and outpatient revenues have been experienced despite higher than budgeted admissions. Although this is offset by favorable indigent and contractual adjustments, higher admissions contribute to expenses being higher than budget. The resulting operating margin positions the Medical Center poorly for the remainder of the year as it faces increased costs and decreased reimbursements.

The commitment to achieving an acceptable operating margin as a percentage of net operating revenue holds firm, despite challenges of the first 9 months' financial results. Management continues to aggressively apply medical management, cost containment, and process improvement with an emphasis on both quality patient care and lower cost.

REQUIRED ACTION: None


II.B. Medical Supply and Pharmaceutical Cost Review

BACKGROUND: Pharmaceutical and medical supply costs are spiraling nationally and at the UVA Health System. Management's attention is focused on controlling this inflationary situation.

DISCUSSION: Tremendous scientific advances have brought powerful new tools for patient care. Patients are increasingly making decisions based on availability of the latest innovations and advances.

Todays managed care and prospective payment systems often make it impossible for providers to pass on these additional expenses to consumers (patients and insurance companies). The UVA Health System is responding in several ways.

Our first response is to "buy smart". UVA is a partner in the University Health System Consortium buyers cooperative, "Novation", currently the largest buying group in the world, with over $11.5 billion in annual transactions for 2000 health care organizations. This virtually guarantees the best price, but even these are rising steadily. As a result, major efforts are underway to use these products more efficiently and effectively.

Improved utilization is a two pronged approach. The first targets specific drugs or technologies and focuses best practice for those items. The second basic and probably more sustained change requires fundamental reengineering of the clinical practice process. It is multi-disciplinary. At times it conflicts with the prevailing medical culture of autonomous decision-making at the level of the patient and physician.

Several examples of each approach in this area will also be discussed.

REQUIRED ACTION: None


II.C. Vice President's Remarks

The Vice President and Provost for Health Sciences will use 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.

The Vice President and Provost for Health Sciences will introduce Mr. Robert J. Baker, President and CEO of the University Health System Consortium an alliance of more than 80 academic health centers and over 60 affiliated health care organizations. He has extensive experience in managing academic health care enterprises, having served as chief executive officer for the University of Nebraska Hospital and Clinic and in senior management positions at the University of Minnesota Hospital Clinics. He holds an MBA with a concentration in hospital administration from the University of Chicago.

Mr. Baker will present an overview of the financial impact of the Balanced Budget Act on university health systems nationwide.

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