Board of Visitors of the University of Virginia

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

Conflict of Interest Exemption (Adenosine Therapeutics, LLC)
- Fiscal Impact Statement

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

A. Medical Center Financial Report (as of June 30, 1999) (Dr. Cantrell to introduce Mr. Fitzgerald; Mr. Larry Fitzgerald to report)

Discussion of proprietary business-related information pertaining to operations of the Medical Center, where disclosure of such information would adversely affect the competitive position of the Medical Center, and consultation with legal counsel with respect to IDX’s performance under its agreement. Consultation with legal counsel regarding compliance with federal regulations concerning clinic operations of the Medical Center. Discussion of proprietary business-related information pertaining to the operations of the Medical Center, where disclosure of such information would adversely affect the competitive position of the Medical Center. Consultation with legal counsel with respect to possible restructuring of the University of Virginia Health System. All of these items are provided for in Section 2.1-344(A)(7) and (23) of the Code of Virginia.

BACKGROUND: The School of Medicine is negotiating two sponsored research contracts with ADENOSINE THERAPEUTICS, LLC, a Virginia biotechnology company created in 1998 to pursue the use of various compounds to either activate or inhibit specific adenosine receptors found on various tissues. The biotech company expects to receive two awards from the National Institutes of Health, and technology has been licensed to it by the University of Virginia Patent Foundation which has a 5% equity interest in the company.

Six University faculty members own three percent or less of the equity in the company. Five faculty members own in excess of three percent. Under the Virginia Conflict of Interests Act, the University’s contracting with Adenosine Therapeutics would place its faculty who own in excess of 3% 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 into synthetic compounds. It is believed that these compounds have great potential as agents to better detect coronary artery disease.

Virginia law and University of Virginia policy will require Drs. Beller, Kron, Linden, MacDonald, and Sullivan 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 Adenosine Therapeutics. The Chair of the Department of Internal Medicine heads a University oversight team responsible for managing and overseeing the research, including independently supervising, evaluating, and making personal 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

WHEREAS, the School of Medicine wishes to enter into a sponsored research contract with Adenosine Therapeutics, LLC, a Virginia Corporation, for developing therapeutic agents; and

WHEREAS, George Beller, M.D., Irving Kron, M.D., Joel Linden, Ph.D., Timothy MacDonald, Ph.D., and Gail Sullivan, Ph.D., have disclosed in advance their equity interests of 4%, 6%, 25%, 8% and 4%, respectively, in Adenosine Therapeutics, LLC., and the University’s entry into a research agreement with Adenosine Therapeutics, LLC, 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 arrangement with Andenosine Therapeutics, LLC, is approved by the Board of Visitors in order to permit the University to negotiate and enter into a proposed contract for developing therapeutic agents. This approval is granted provided, as required by the law, the faculty file the required annual disclosure statement of personal interests in Andenosine Therapeutics, LLC, the University files the required annual report concerning the contract with the Secretary of the Commonwealth, and the Chair of the Department of Medicine vigilantly oversees application 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 June 30, 1999

BACKGROUND: The Medical Center prepares a quarterly financial report and reviews it with the Executive Vice President and Chief Financial 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 HSF Board and to the Vice President and Provost for Health Sciences.

DISCUSSION: For Fiscal Year 1999, gross inpatient revenue was 3.0 percent less than budget and gross outpatient revenue was 3.7 percent less than budget. The Medical Center has experienced a decrease in indigent care charges ($10.1 million less than budget for the Fiscal Year) while there was an increase in bad debt of $0.7 million greater than budget for the Fiscal Year. In addition, the Medical Center is experiencing better than expected contractual adjustments resulting in a $11.2 million favorable comparison to budget. These activities, in combination with miscellaneous revenue being $0.5 million greater than budget, result in total operating revenue being very close to budget at $2.6 million above or only six-tenths of a percent greater than budget.

Expenses are higher than budget primarily because of the cost in the category of Medical Supplies and Pharmaceuticals, which represent $12.6 million of the variance from budget. Purchased Services & other expenses represent another $7.4 million of the variance. Salaries & Wages have increased to be $1.0 million over budget, Medical Center Contracts are $2.3 million over budget, and Bad Debt is $0.7 million greater than budget. Favorable Fringe Benefits and Depreciation & Amortization partially offset these unfavorable variances. As a result, the operating margin is 2.3% of net operating revenue and $17.2 million less than budgeted.

The Medical Center’s financial position at the end of Fiscal Year 1999 is sound. The 2.3% operating margin compares favorably to other academic hospitals around the country. The greater than budget total revenues were enough to offset operating expenses that were 4.5% greater than budget.

The commitment to achieving a 4% operating margin as a percentage of net operating revenue in Fiscal Year 2000 holds firm, albeit very challenging given the Fiscal Year end 1999 financial results. In response to this situation, the Vice President and Provost for the Health System and the entire staff of the Medical Center, continue to work toward ensuring aggressive medical management, cost containment, and process improvement with an emphasis on both quality patient care and lower cost.

BACKGROUND: In light of increased competition and economic challenges facing academic health centers, the Medical Center is vigorously pursuing opportunities to cut costs. Intense focus is on improving medical management and on streamlining administration to create savings. Considerable progress has been made to date. Continuing and expanded efforts are planned.

DISCUSSION: Mr. Carter will review steps that are underway to streamline the Medical Center’s administrative activities to effect savings.

DISCUSSION: Dr. Cantrell will update the Board of Visitors on significant events and developments at the Health System since the May meeting. An overview of items presented to the Health Affairs Committee at its June, July, and September meetings will be presented.