Report of the Executive Vice President and Chief Operating Officer

REPORT OF THE EXECUTIVE VICE PRESIDENT
& CHIEF OPERATING OFFICER

Maintaining Our Balance and Our Momentum

The University of Virginia concluded fiscal year 2000 in an exceptionally strong operational and financial position. The endowment grew significantly. We ended the year with good reserves. University operations were not only efficient, but also effective. The level of professionalism, innovation, and commitment on the part of our employees rivaled that found at the most dynamic corporations. Most important, our academic and health care enterprises flourished. The clinical services provided to patients were among the most advanced anywhere, and the Medical Center ended the year ranked as one of the top hospitals in the nation. The University's faculty were among the leaders in their fields, and we attracted the very brightest students the nation had to offer.

The very nature of these accomplishments in a highly competitive, highly volatile, and highly complex environment creates its own challenges. Because we have been successful, our stakeholders have the right to expect even more of us. Our students, by virtue of their drive and intelligence, expect a rigorous academic environment that tests their abilities and hones their skills. The patients at the Medical Center expect care that is both friendly and convenient and state of the art. Our alumni and friends expect us to maximize the exceptional opportunity that their generosity affords us. And our faculty and staff expect a working environment that encourages their best efforts and provides appropriate rewards. These tremendous expectations continually challenge us to be the best institution that we possibly can be.

Addressing Our Own Rising Expectations

In the face of these challenges, the University has not been complacent. We have struck a balance between maintaining our current levels of excellence and envisioning new initiatives, new programs, and new ways of conducting our business that will enable the University of Virginia to take its place among the premier universities in the world.

This balance can be seen in the capital projects we have slated for the future–renovations to Garrett Hall, the Lambeth Field student apartments, and several clinical facilities; restoration of buildings in the historic district; additions to Clark Hall, the Darden School, University Hospital, the Aquatics and Fitness Center, Campbell Hall, and Monroe Hall; construction of new research and vivarium facilities and parking garages. These projects are designed to maintain our existing strengths and provide for future growth of programs.

The University also recognizes its obligation to extendstudents' educational experiences beyond the classroom, creating an environment rich in the kind of resources that can help them explore ideas and master new knowledge. The Board of Visitors has approved plans to construct a new residence for Asian language students and establish our third residential college based on an international theme. Over the course of the next several years, we will support academic and health care programs on a global scale never seen before at the University.

Creating a world-class educational environment also means that we continue to upgrade our computing network, renovate, modernize, and expand our existing housing and dining facilities, and provide safe and convenient parking and transportation services for our students. Our support systems and support operations must be just as good as our academic, research, and health care programs if we are truly to be as good as we can be.

To achieve the balance and results that we must have, we will invest in our people. Training is being given a higher priority for all staff persons. We are seizing opportunities to build our "bench strength" in key areas. We are encouraging new leaders and tearing down traditional walls that define departments to free the flow of information and improve service delivery. And we are implementing industry-proven tools to reduce our operational "defects" in a systematic and rational manner with the objective of improving overall results.

Building an Institution that Adapts to Change

The University has embarked on a number of programs that will ensure our operational and financial strength over the long term. One of them is the Integrated Systems Project, which will bring the organization together in ways that improve its responsiveness and efficiency. The University is in the midst of replacing outdated and sometimes incompatible record-keeping and software programs with an interlocking Oracle software suite. We have completed the critical design stage of this project and have begun the build-and-test stage. The University will implement the financial components of the systems by July 2001. A similar effort is underway in the patient care areas, where the Integrated Healthcare Information Management System is being developed to serve both clinical needs and administrative functions.

This year, the Board of Visitors approved an Institutional Performance Agreement (IPA) between the University and the state that addresses major funding, quality, and accountability issues over a six-year period. The University is one of five Virginia public institutions that have agreed to participate in a pilot IPA program. The concept of the IPA supports long-range planning to a degree that has not been possible with the more traditional two-year planning horizon inherent in the state biennial budget process.

Moody's Gives U.Va. Bonds Its Highest Rating

MOODY'S INVESTORS SERVICE, one of the world's leading credit rating, research, and risk analysis companies, this year upgraded the University's General Pledge Revenue Bond Issues to Aaa status. Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally preferred by investors. Only two other public universities--the University of Texas at Austin and the University of Michigan--have been assigned Aaa bond ratings by Moody's Investors Service.

The University's upgrade was based on a number of factors. It included the University's superior balance sheet, bolstered by a sophisticated treasury office and successful fundraising efforts. Moody's also cited the well-established reputation of the University's educational and research programs, its manageable plans for additional borrowing, improved operations at the Medical Center, and its consistent annual operating surpluses from a diverse revenue base.

Moody's gives its ratings not simply on demonstrated performance, but on outlook--and here the rating service is equally definitive. Moody's expects that under its strong leadership, U.Va. will maintain and strengthen its reputation as one of the nation's leading public universities in terms of financial resource base, academic reputation, and student demand."

We have continued to implement improved practices through our process simplification efforts. These efforts have led to consolidation of administrative offices and the reduction of bureaucracy resulting in improved efficiency and service to our customers. Driven by employees who are empowered to simplify the way we do business, the process has led to prompt and effective changes to our operating culture.

Strengthening the University Health System

The University of Virginia Medical Center, like academic medical centers around the country, has faced sharp declines in reimbursements from payers at the same time that the costs of labor and medical supplies have escalated. The Balanced Budget Act of 1997 and the Balanced Budget Refinement Act of 1999 had the net effect of reducing Medicare reimbursements by approximately $42 million for the three fiscal year periods from 1998 to 2001.

Dealing with the consequences of these changes requires close monitoring and a willingness to innovate. While cost-containment efforts continue in earnest, we now also look to revenue enhancements, sound business decisions, and performance improvements to meet our bottom line expectations. Our focus is on investing strategically in the enterprise rather than on massive cost cutting. We intend to seek previously unpaid interest on operating balances held by the state. The Integrated Healthcare Information Management System currently under development serves as a tool that will encourage process improvements and lead to improved effectiveness and reduced costs. As a consequence of these efforts and others, the Health System attained a 4.4 percent operating margin for the fiscal year ending June 30, a result that marks U.Va. as one of the more successful academic medical centers of similar size and complexity.

The University has launched a number of initiatives to retain and recruit nurses in the face of a national nursing shortage. These initiatives, which include higher pay for nurses who work the less desirable schedules and more flexibility in scheduling work hours, are designed to ensure that the highest levels of patient care and safety are preserved. We are committed to making the U.Va. Medical Center a place of choice–both for patients who seek the best possible care and staff who want to work at the best hospital in Virginia.

Recognizing the Importance of the Medical Center

THE MEDICAL CENTER IS AN INTEGRAL and important part of the University. Patient care is an essential element of the University's statewide and international service mission. A sizable portion of the University's faculty and staff work at the Medical Center, and 40 percent of University revenues are derived from Medical Center operations. In recognition of its service role and its importance to the well-being of the University as a whole, the President and the Board of Visitors this year placed the managerial and financial oversight of the Health System's clinical enterprise including the University Hospital with the Executive Vice President and Chief Operating Officer. This decision recognizes the complex issues that teaching hospitals face. Academic medical centers must set the highest standards of patient care and safety, create an inviting and satisfying workplace, provide a comfortable and convenient environment for patients and their families, and train the next generation of physicians and nurses within the fast-changing world of medicine today. The Board of Visitors' decision is designed to help the U.Va. Medical Center avoid the kinds of problems that have plagued other academic medical centers as their operations grew increasingly complex and expensive. The Medical Center is clinically successful and financially stable. Its nurses, physicians, and support staff are dedicated and committed to the quality care of patients. It uses up-to-date technology and the most advanced medical techniques. The Center strives to be the best place to work in Virginia and expects to achieve a reputation bar none for excellence in patient care and safety.

Looking Ahead to Our Third Century

As outstanding as these financial and operational achievements are, the 2020 Commissions and the Medical Center strategic planning team simply took the University's efforts to sustain and strengthen the University's financial and operational base for granted–and rightly so. The drafters of these reports envisioned a university moving briskly forward, finding new areas of strength and new centers of excellence while sustaining and building on a foundation of excellence.

What will it take to achieve the vision of the commissions and sustain the preeminence of the University into the future? It will require superior leadership and an organizational structure that enables these leaders to be effective. We must embrace the U.Va. brand of "quality" and build on our core values of integrity, excellence in all things we do, service to our customers, and respect for our people. We must deliver the skills, energy, and credibility needed to translate our aspirations into established programs. To reach our goal, we must remain flexible enough to respond to opportunities when they arise. We must value the creativity of employees at all levels and empower them to do their best, whether they teach, care for patients, or maintain the services on which the University of 2020 will rest. Our reputation and achievements now and in the future depend on the quality of our greatest asset–our people. We have a responsibility to create an environment that facilitates, rather than hinders, the important work that they do. Because of the strength and commitment of our people, we have positioned ourselves to accomplish what we could have only dreamed of a few years ago.

Sincerely,

Leonard W. Sandridge


PRESIDENT'S REPORT TABLE OF CONTENTS	FINANCIAL REPORT TABLE OF CONTENTS	ADMINISTRATION AND BOARD OF VISITORS	IMPRESSUM, CREDITS, AND NONDISCRIMINATION STATEMENT

REPORT OF THE EXECUTIVE VICE PRESIDENT & CHIEF OPERATING OFFICER

REPORT OF THE EXECUTIVE VICE PRESIDENT
& CHIEF OPERATING OFFICER