UCI Medical Center: Where Does the Money Go?

By Jessie Lee


Earlier in 2009, the UC Irvine Medical Center (UCIMC) received a $21-million gift aid to finish the final construction phase of its new UC Irvine Douglas Hospital. Initiated in 2005, the 7-story unit is expected to be completed by the end of 2011 with 424 beds, 15 high-tech and spacious operating rooms, 45 neonatal ICU’s and more. The total project totaled $555.9 million, the largest project in Orange County. While the UCIMC continues to expand and build up its state-of-the-art unit, UCI students are struggling for survival at the bottom of the UC system due to the ongoing budget crisis.

With the financial shortfall resulting in budget cuts, fewer services for students, programs eliminated, furloughs, and layoffs, there have been complaints from unions and critics that physicians are still paid enormously high compensations. They have expressed opinions in seeking assistance from UC medical centers. Among the protesting voices against UC's budgeting transparency is Charles Schwartz, Professor Emeritus of Physics at UC Berkeley. He is a vocal critic who provides organized information and concepts on the finance, secrecy, and governance on his blog University Probe. Schwartz has written about redirecting medical revenues and faculty bonus pay generated from UC medical schools to cover the financial shortage. Through e-mail, Schwartz was also able to answer a few questions and offer some more pointers on the issue of alternatives to financing the UC.

To understand the medical center’s perspective, I met John Murray, spokesperson for the UCI Medical Center (UCIMC), who generated a great deal of knowledge on how funds work in the institution, and about physician compensation amidst the financial crisis.

The following are issues relating to the UCIMC amidst the financial crisis:

• Medical revenues cover expenses, reimbursement shortages, physician compensation, and bonus pay for the SOM
• Management reorganization in the UCIMC eliminates vacant positions and reduces costs
• UC medical centers are exempt from the system-wide furlough program
• Critical disparity in remuneration for senior management group and staff physicians

Source of Money

The UCI Medical Center (UCIMC) is an enterprise operation, meaning that it is self-sustaining. The institution is funded mainly through service fees and patient care, according to John Murray. There are a few grants, but they constitute only a minor portion. In the fiscal year ending on June 30, 2008, the UC Irvine Medical Center Audit Report records total operating revenues at $526.4 million in which net patient service revenue contributed to $502.8 million. The remaining “Other operating revenue”, amounting to $23.6 million, comes from chiefly State Clinical Teaching Support (CTS) funds, referral lab, cafeteria and parking operations. Government-supported health insurance programs Medicare and Medi-Cal provide for almost half the net patient service revenue.

(Click to enlarge, or download full document from link below)

UCIMC Statements of Revenues, Expenses, and Changes in Net Assets for the Years Ended June 30, 2009 and 2008, page 16.

While UCIMC earned $584.3 million in total operating revenue, its total operating expenses amounted to $530 million. Much of the profit earned goes out to pay for expenses, to purchase new equipment or medical technology, to construct the new hospital, and to license their technicians, Murray said. He added that the medical center expands moderately with small business, generating more revenue for continued development with the help of government-issued hospital revenue bonds.


READ THE FULL UC IRVINE MEDICAL CENTER AUDITED 2008-2009 FINANCIAL REPORT HERE.


SEE MORE UC and UC MEDICAL CENTER AUDITED ANNUAL FINANCIAL STATEMENTS: http://www.universityofcalifornia.edu/finreports/


Medical Revenues Cover Reimbursement Shortages and SOM Bonus

In response to the budget cuts, critics have expressed the possibility of using medical center revenues to patch up the financial deficit. Charles Schwartz wrote that “some of that extra money at the Medical Centers should be on the table,” in referring to the $512 million UC-wide “Unrestricted Net Assets” for the end of the fiscal year 2008 (UniversityProbe.org).

The UCIMC counters that these revenues are often used to cover other “committed” fees. For one, insurance companies may debate paying for clinical service fees at the going rate. This problem exists even with government payors such as Medicare and Medi-Cal, as official documents have evaluated. Government auditors, contractors, and intermediaries may dispute on many issues, including the diagnosis, and clinical procedure. Thus, the medical center allocates a portion of its revenue to charity care, which is omitted from net patient service revenue. Charity care helps provide clinical services to uninsured patients at lower or no charge. They also cover differences from insurance reimbursements less than the actual cost of hospital fees. In the fiscal year ending June 30, 2009, UCIMC spent $81 million on charity care.

Each year, the medical center transfers a portion of its revenue to the university to “further education”, as hospital officials said. Another portion of these revenues were given to the UCI SOM, named Transactions with the University and University Affiliates. Part of it goes to pay physicians for their services, and after the expenses are deducted from that amount, the rest is called “health system support”. The excess is a bonus. The center transferred a little less than $75.3 million to the UCI School of Medicine (SOM) in the fiscal year 2009 for “academic and clinical support”, and the final health system support was reported as $53.4 million.

The UCIMC does not seem to have any additional money to contribute to the UC system. Sources show that the sum of charity care and SOM transfers is around $134.4 million. This number is surpasses their income from operations alone, stated in official 2009 fiscal year audit reports. Despite that, there is an imbalance in what this financial gift for the SOM is used for. This issue will be discussed further later in the article.


Effects of the Budget Cuts on the UCIMC

Despite the economical downturn, healthcare remains a necessity to the public. As the hospital seeks methods to “absorb the cuts internally,” no programs at the UCIMC have been cut, the PR said. By getting more juice out of every penny, the hospital has felt minimal impacts. There have been halts on salary raises, and job duties are redistributed due to hiring freezes, which is the key method of compensating for these cuts. The MC has also “winded down contracts” with consultants, a position that generally requires higher compensation than other employees. A majority of these consultants are in the information technology department. Although union members have claimed four layoffs from the medical center (read more about it in Sebastian Ontiveros and Emily Ma's report), the hospital stated that there have been no furloughs and layoffs among UCIMC employees.



UC Medical Centers Free From Furloughs

The UC Regents exempted medical centers from the regular furlough program. The rationalization behind this decision, as Murray explained, is because hospitals need to stay open for service to the community. Even if employees were furloughed, the institution would still need to hire other people to come in and do the job. If a furlough program were instigated to save $20 million, these positions would still need to be filled up. In essence, additional help would be needed, amounting to more expenditure. The PR said,

"On Thanksgiving holiday, it takes roughly $1 million to operate the medical center."

If you place these employees on furlough for 18 days, that would cost the institution $18 million. Furloughs would not be an efficient strategy to implement at medical centers.

While there have not been any furloughs, there has been restructuring in the management division. But whether or not the restructuring is driven by the financial cutbacks is undetermined. In March 2008, the Regents combined two positions into one: Chief Financial Officer – Medical Center and Associate Dean for Fiscal Affairs – School of Medicine. The gross pay for these positions in the year 2007 was $368,750.04 (Ronald L. King) and $201,056.67 (Mona M. C. Wapner), respectively. This reorganization resulted in one new position: Chief Financial Officer – Health Affairs, Irvine campus. Ronald L. King was given a 13% raise for this new position, earning $431,500 in base salary. (Numbers obtained from The Sacramento Bee and ucpay.globl.org). Slap on an additional $60,518 bonus pay, cited from official sources, and $492,018 is King’s total compensation in calendar year 2008 (Annual Report on Executive Compensation for Calendar Year 2008). As CFO – Health Affairs, King is responsible for overseeing the finance of UCIMC, the University Physicians & Surgeons, SOM, and also School of Nursing and Programs in Pharmaceutical Sciences and Public Health. UC Davis, UC Los Angeles, and UC San Francisco have all adapted a similar position, too.

Currently, the UCIMC has no Chief Financial Officer of its own or Chief Nursing Director. The responsibilities of these jobs are distributed among existing officials. In the case of the nursing division, nurse managers assume the extra duties of Chief Nursing Director.

Another reformation occurred in July 1, 2009, when Dr. David N. Bailey, former UCI Vice-Chancellor for Health Affairs, resigned. This position was then separated into two positions: Vice Chancellor of Health Sciences and Dean of the School of Medicine. Ralph V. Clayman is currently an Interim Dean of the SOM. Similarly, over at the UCIMC, Terry A. Belmont is an Interim CEO at the UCI Medical Center. Both are still awaiting announcement for the search of a permanent Dean/CEO.


Who is Responsible for Hospital Faculty Compensation?

As one institution, UCIMC has two employers. The UCI School of Medicine is accountable for compensating the hospital faculty, including physicians, RN’s, and Ph.D’s. On the other hand, the medical center itself compensates around 60% of the base pay of its 600 residents and fellows.

The compensation of physicians at the UCIMC is determined and distributed through the Health Sciences Compensation Plan (HSCP). As described in documents from the UCI School of Medicine (SOM)’s website, this plan is an organization of the SOM faculty that “hold a University appointment at 51% or greater, funded by the SOM”. Murray stated that HSCP compensates the base pay for these physicians working at the UCIMC. There are three factors affecting the amount:

1. Stipends from duties including teaching, assuming administrative/management offices such as Vice Chair, Division Chief, or departmental committees
2. Research grants, funded mostly by the government
3. On-call rates, and clinical practice, which are paid for separately through billing and insurance companies and managed by the University Physicians & Surgeons.

In addition to that, surgeries are mostly cash procedures, which increase cash compensation. The University Physician & Surgeons is another UCI faculty practice organization, formed in 2005. They manage “capitated contracts” and “oversee the entire clinical practice for UC Irvine’s faculty” (School of Medicine Timeline). Therefore, in correct terms, UC Irvine Healthcare, the clinical entity of UC Irvine Health Affairs, is made up of two parts, the UCIMC and the University Physicans & Surgeons.


Bonus Pay and High Compensations

Unions and critics say that money from medical centers could smooth out budgetary differences. Unexpectedly high compensations are one of the major aspects that has been criticized and attacked consequently after the budget setback. Charles Schwartz writes that, “[Yudof] chose not to mention that all the bonus income from the physician practice enterprise would be exempt from the paycuts” in University Probe. Through an e-mail Q&A with Schwartz, the professor concisely suggests that instead of compensating faculty bonus pay, the money should be used to cover budget holes. He refers to his previous essay "Financing the University - Part 7," which writes,

"If we were to take (or borrow) 15% of that bonus pay, to help preserve the core missions of UC, that would bring something like $100 million to the table."

("Budget Alternatives for the UC").

UC doctors and coaches are substantially the highest paid UC employees. The large compensations mostly result from a hefty “bonus pay” as several California newspapers show in a 2008 salary database they have compiled. These may be stipends for temporary office, merits, one-time relocation allowances, bonuses, and more. In the case of the medical center, official UCIMC salary guidelines regulate these bonuses to be paid for by the funds that remain from patient care professional fees after expenses have been met (Faculty Salary Guidelines).

Hospital officials commented that UC medical centers are under more scrutiny, because they are part of the UC system. As a public institution, many documents are required by law to be disclosed, whereas private clinics are not. In actuality, physicians’ salaries at UC Medical Centers are already lower than free market compensation levels. Many can easily ask for salaries 30% to 40% higher in private practice. To be willing to work at the UC medical center would require a more serious devotion to academia than the monetary compensation. The PR stressed that many administrators at the UCIMC are far from the top in the list of high salaries UC employees. The Dean of the School of Medicine, Ralph V. Clayman, is paid around 33% lower than the market average, Murray enumerated.

In 2008, Clayman’s compensation as “Professor-MedComp” in 2008 was $439,507.73. This number doesn’t make it to the top 50 in the UC system. UCI takes its first ranking at #49, with John Stuart Nelson raking in a meager $663,257.12, compared to #1 from UCLA, Ronald W. Busuttil with $1,776,403.71. In a separate category of “Executive Dean of School/College” on ucpay.globl.org, the highest paid UC faculty in 2008 was Gerald S. Levey of UCLA ($630,190.98). UCI enters the billboard at #23, with Thomas C. Cesario earning $397,274.97.

The total compensation for Gregory R. D. Evans, a clinical professor and plastic surgeon at UCIMC, in 2008 was $564,325 (ucpay.globl.org). Amidst the recessive economy, budget cuts, and financial deficits, how do physicians similar to Evans continue to receive these seemingly large compensations? According to the Association of American Medical Colleges (AAMC), the annual earnings for plastic surgeons ranges anywhere from $300,000 to $791,510. Aside from being a clinical professor, Evans is also the Chief of Aesthetic and Plastic Surgery Institute at the UCI Department of Surgery. Without considering demographics, geographic location, and the income effect, at $564,325 from the University of California, he is only roughly in the middle of that range.

Furthermore, Murray also emphasized that salary level does not determine a job’s value in society. He said the high bonus pay of plastic surgeons could simply reflect a trend in Orange County that people like to do plastic surgery.

An important fact is that while some management officials have been given raises ranging from 10%-25%, they may at the same time assume two titles at once. By eliminating one office, the Regents save tens of thousands of dollars. Nevertheless, this still brings to question the need for such raises and high compensations, especially among senior management administrators, during this time of budget deficit.

The UCOP’s website provides the 2009 Update of Total Remuneration Study for Campus and UCOP and Medical Centers, evaluated by Mercer and Hewitt. The companies compared UC medical centers to 12 national and 10 California academic medical centers including Johns Hopkins Hospital, Stanford Hospital, University of Michigan Medical Center, University of Virginia Medical Center, Kaiser North and South, Long Beach Memorial, and more.

The following graphs show the results of the study, highlighting a significant imbalance for staff physicians and senior management groups.

(Click on any of the images to enlarge picture; download link provided below)

(p. 61) Official study shows that all UC medical center employees are within 5% above or below market average for cash compensation, except for staff physicians, which are 18% below average.

Any comparative search on various faculty members with ucpay.globl.org will reveal a significant disproportioned income among physicians of different departments, and also with management officials.

(p. 62) Graph compares that health and welfare benefits for all medical center employees are all below the mean by 2-7%, except for senior management groups and professionals and support staff (PSS) that are 2% and 3% higher, respectively.

(p. 63) Documents show that retirement benefits for UC medical center employees are all significantly above market average but at the same time widely disparaging amongst groups (the lowest being 22% for nurses, and highest being 100% for senior management groups)

(p. 66) In general, besides staff physicians whom are down by 9%, all UC medical center employees are remunerated uniformly above market average by 4-6%.

READ THE COMPLETE DOCUMENT, titled “New Retirement Plan Ideas for New Hires and Related Collective Bargaining Issues”


Overall, medical benefits for UC medical center employees are “close to market median,” while retirement benefits are 66% higher than average. To conclude on compensation, official documents analyze that “cash compensation for many [UC] employee groups is below market, significantly so in many cases, but that UC’s benefits are currently ahead of market.” Total cash compensation for employees of UC medical centers is 2% below market average. There exists a large disparity between categories: Management and Senior Professionals (MSP) are 1% above average while Staff Physicians are lower than their average by 31%. Yet cash compensations are defined as base salary, which exclude one-time relocation allowances, stipends for additional temporary responsibilities, one-time bonuses, and etc. Remuneration reports do not take into account bonus pays, which are often over the top. This places bonus stipends in an overlooked territory.

Information observed from official online resources show that the medical center spends what it earns, and that they contribute their share in the UC system. But even after extensive research, it is still hard to fully understand the budget. There are broad categories in financial reports, such as “Other.” As one of the administrators in the SOM Dean’s Office said, “Even we don’t know the numbers.” Yet ultimately it is the unwillingness of the UCI School of Medicine to speak that provides the public more reason to look at the medical center with more skepticism.

The School of Medicine receives millions each year from its teaching hospital in support of education, but when that money is simply regurgitated as bonus compensation for executive administrators and chief physicians, to what extent does that really further education?

As the Regents continuously approve of raises: 32% tuition fees for students, and salary increases for UC executives and physicians, there is only one obvious fact. Students are a segregated sector from all other categories. Students and the system are put to the test when students can’t keep up with the large fee hikes. Financial capability will become another stratification in public higher education. How much should the rules of economics weigh in on public education?