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UAMS’ Projected Deficit Rises to $72MLock Icon

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The University of Arkansas for Medical Sciences’ finances are getting worse.

UAMS has projected a deficit of $72.3 million for the current fiscal year, which ends June 30. At the beginning of the fiscal year, UAMS had projected a deficit of $39.8 million.

UAMS is reviewing ways to increase revenue and slash costs, including possible layoffs to its staff of about 10,000. It is one of the state’s largest employers.

“Everything is on the table,” Stephanie Gardner, interim chancellor of UAMS, told Arkansas Business last week.

For the quarter that ended Sept. 30, UAMS reported an operating loss of $27.3 million, $6.2 million more than the same quarter in 2016. The operating loss includes depreciation but doesn’t include items such as state appropriations and investment gains.

When the nonoperating revenue is factored in, the loss for the quarter was $13.6 million, $10.6 million more than the previous year’s comparable quarter.

The loss comes on the heels of an bottom-line loss of $21 million for the fiscal year that ended last June.

Also unsettling for UAMS are changes proposed to the Arkansas Works program. Arkansas accepted federal Medicaid expansion money and used it to buy private insurance for households with incomes just above the poverty line — the working poor who earn too much to qualify for traditional Medicaid but too little to afford health insurance.

Proposed changes to Arkansas Works, which remain subject to the Trump administration’s approval, call for capping the eligibility at 100 percent of the federal poverty level, down from 138 percent. That means that of the 315,000 or so people on Arkansas Works, about 60,000 will be removed from the program.

UAMS Chief Financial Officer William Bowes told Arkansas Business last week that when the current year’s budget was being created, UAMS couldn’t estimate what the changes to Arkansas Works would mean for the academic medical center’s finances. “There’s a lot of unknowns,” he said.

Still, he thinks UAMS can hit its budget for this fiscal year by increasing revenue and cutting expenses.

In the meantime, UAMS is cutting costs where it can — including canceling Christmas parties.

On Nov. 30, UAMS asked its leaders not to spend UAMS money on holiday celebrations, spokeswoman Leslie Taylor said in an email to Arkansas Business. “Every dollar counts and spending funds on holiday parties does not seem like a wise use of our money,” she said. “Some events that were already planned were canceled. Some leaders opted to personally pay for events.”

Meanwhile, the University of Arkansas System continues its search for a replacement for Dan Rahn, who retired in July as UAMS chancellor. In August, the two finalists to become the next chancellor withdrew their names from consideration.

Some factors that led to the $27.3 million operating loss for the quarter that ended Sept. 30 included lower-than-projected patient revenue. UAMS generated $302.5 million in net patient revenue for the first quarter, $10.6 million more than it generated during the same quarter in 2016. But the amount was about $5 million less than UAMS had budgeted.

“I think we were were very aggressive in the budget,” said Bowes.

Rising Expenses
Meanwhile, expenses were millions of dollars more than budgeted. The highest increase came from its compensation and benefits line item that was $262.7 million for the quarter, $22.4 million more than the same quarter last year.

Gardner said UAMS had decided to give raises for the first time in years to most employees. “We knew that we were in the midst of a projected deficit but felt it was critical for us to maintain our staff,” she said.

Bowes said the raises were given to employees whose salaries were below the market rate. “In the case of nursing, because we were experiencing an 18 percent turnover rate, we were trying to get nurses back to full market value,” he said. “That’s the environment with which we’re competing.”

Gardner said the raises, in some cases, equaled a few thousand dollars a year per employee. “They weren’t huge, but when you added them all up across the enterprise, it came up to $20 million,” she said.

To curb salary expenses, UAMS will limit the hiring of new and replacement employees to those who are critical to the academic medical center. UAMS currently has “several hundred” vacant positions, Bowes said.

Gardner said UAMS hasn’t made any decisions about layoffs.

“Right now the senior leadership team reviews every position, every vacancy that we have before we move with any hire.” She said that she hopes UAMS can reduce its staff through natural attrition.

UAMS’ expenses for supplies and services also rose $2.5 million in the quarter, compared with the same quarter in 2016.

Budget Deficit
The projected budget deficit grew from $39.8 million to $72.3 million because through the first four months of the fiscal year, the deficit for UAMS’ clinical operation, which includes items such as the hospital and physicians, increased by $15 million, which includes higher-than-expected expenses and lower-than-expected revenue.

In addition, UAMS has had several expenses — totaling $17 million — that weren’t in the original budget. Those items include about $3 million for the cost of forming the Accountable Care Alliance it is undertaking with Baptist Health of Little Rock to manage the care of about 36,000 Medicare patients in Arkansas; $3 million for its initial investment in the Provider-owned Arkansas Shared Savings Entity, which is a new approach to managing Medicaid costs for patients with behavioral health and developmental disability issues; a $5 million deficit in Medicaid supplemental payments; and $500,000 from a contract that was terminated by Medicaid.

Taylor, the UAMS spokeswoman, said there were “several other initiatives” that were unknown at the time the budget was being developed.

Bowes said that if UAMS has a deficit at the end of the fiscal year, that amount typically “shows up as a reduction in the net unrestricted assets.”

At the end of June, UAMS’ unrestricted net assets were about $77 million.


University of Arkansas for Medical Sciences        
For the three months ended Sept. 30

  2017* 2016 2015
Total operating revenue $372,115,599 $353,786,538 $334,499,105
Total operating expenses** $399,458,668 $374,896,864 $348,162,230
Operating loss -$27,343,069 -$21,110,326 -$13,663,125
Total nonoperating revenue $13,707,880 $18,028,669 $1,605,833
Income or loss -$13,635,189 -$3,081,657 -$12,057,292
Other changes in net position# $989,419 $830,047 $3,812,215
Increase (decrease) in net position -$12,645,770 -$2,251,610 -$8,245,077

*Unaudited
**Includes depreciation and amortization
#Includes capital gifts and appropriations, federal grants for capital projects and interagency transfers


Suggestion Email
In a Nov. 15 email to the UAMS staff, Gardner said that UAMS’ goal is to have a balanced budget for the fiscal year that starts July 1.

“This means we must all work together even harder to enhance revenue and identify and eliminate unnecessary costs,” she said in the email.

Gardner told Arkansas Business that UAMS created an email address for employees to send their suggestions about ways to eliminate waste or to generate more revenue.

She said that she has received more than a dozen responses. And UAMS has created small groups to meet to discuss ways to improve its finances.

“So we’re hoping that over the next few weeks that we get input and ideas from across the organization,” she said.

In the meantime, UAMS has suspended its annual department and division budget hearings, Gardner said in the email to UAMS staff.

“Given our need to get things back to a balanced budget, we did not feel that that formal process was something that we should be doing this year,” Bowes said.

Bowes also said UAMS is in the process of “doing a complete evaluation” of its patient revenue cycle. And it is looking at the coding of bills so that insurers pay for everything that they should. Bowes had estimated that UAMS could see an increase in revenue of between $10 million and $40 million.

Still, Gardner said UAMS will have to reduce expenses only by about 5 percent to hit its budget this fiscal year.

“So I’m not expecting it to compromise our ability to provide high-level care or to educate students or to conduct scholarly work,” she said.

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