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UAMS’ Turbulent Year Was Years in the MakingLock Icon

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The University of Arkansas for Medical Sciences’ financial troubles slowly simmered for years before bubbling over in the fall.

Months into a fiscal year that started July 1, UAMS’ deficit — which had been budgeted for $39.2 million — was on track to reach $72 million.

“It became apparent that corrective action needed to be taken fairly quickly to keep it from ballooning out of control, and a lot of hard choices had to be made and made fairly quickly,” C.C. “Cliff” Gibson III of Monticello, a trustee of the University of Arkansas System, said.

Some 600 positions, 258 of them filled, were slashed in January. A month later, UAMS, which employs about 10,300, said it would eliminate another 125 positions through attrition. After the job cuts and other cost-saving measures, UAMS is back on track for a deficit of $39 million for the fiscal year that will end this month. A balanced budget for fiscal 2019, which starts July 1, has been adopted.

“During his time as chancellor, Dr. Dan Rahn said many times that UAMS had an unsustainable financial model and must look for new sources of revenue and ways to cut costs without jeopardizing the UAMS mission,” UAMS spokeswoman Leslie Taylor said in an email response to Arkansas Business.

Rahn retired at the end of July. Stephanie Gardner, senior vice chancellor and provost, was named interim chancellor. In December, the UA System hired Dr. Cam Patterson, SVP and COO at New York Presbyterian Hospital’s Weill-Cornell Medical Center, as chancellor. His first day was Friday.

UA System President Don Bobbitt said the decline of UAMS’ operating reserves caught the trustees’ attention in the fall.

UAMS’ campus operating reserves were $167 million on June 30, 2011, the high point during Rahn’s eight-year tenure. By June 30, 2017, the reserves had plummeted to $77.4 million, and through the first three quarters of the current fiscal year, they had fallen to $47 million.

UAMS’ deficit was linked to depreciation being included as an expense, Bobbitt said. But with declining revenue eventually “it actually ceases to become a paper loss. It becomes a real loss.”

While the reserves were falling, financial support from the state of Arkansas has remained flat, providing about 6 percent of a $1.5 billion budget. UAMS has said that other medical schools receive bigger state subsidies. For instance, the University of Mississippi Medical Center received a state appropriation of $172.5 million for fiscal 2017, while UAMS received $112 million.

Last month, Gov. Asa Hutchinson gave UAMS $5 million from the state’s “rainy day” fund, saying it “should provide the new chancellor … the opportunity to address a longer term plan, financially, for UAMS.”

UAMS will continue to lobby the Legislature for more money. “We work very closely with our state officials to keep them informed about UAMS and its needs and will continue to do so,” Taylor said.

UAMS relies on patient revenue for 78 percent of its budget and must generate enough money to cover the cost of running the college and conducting research.

“It may be that if the state appropriation is not adequate and clinic revenues flatline, we have to make some hard decisions about where are the state’s most critical needs,” Bobbitt said. “We may not be able to do all things that we’ve done in the past.” But, he said, “We’re not at that stage right now.”

Trustee Gibson praised Gardner, saying she “has done a fabulous job under very difficult circumstances. She walked into a real problem.”

Bobbitt echoed Gibson’s praise.

“I am very appreciative of the leadership of Dr. Gardner because she could have attempted to pass these things down the road, arguing that when we have a permanent chancellor in place, let him or her deal with them,” Bobbitt said. “If that had happened, the situation, I think, would be much worse.”

Rahn started cutting costs upon becoming chancellor in November 2009, generating about $100 million annually through cost savings and increased revenue, Taylor said. Still, support from the state has stayed around $110 million a year, and most of that is used to match federal Medicaid payments. For fiscal 2016, UAMS’ net state appropriation was $7.9 million; the next year it was $31.3 million.

Three years between fiscal 2014 and 2017 ended with deficits, draining UAMS’ reserves. One critical expense was a $100 million electronic medical records system required by federal regulations.

In May 2017, UAMS submitted a fiscal 2018 budget that anticipated a deficit of $39.2 million. The budget included what UAMS considered aggressive patient revenue growth of 5 percent, to $1.2 billion.

Morril Harriman, a UA trustee, said the budget was approved because it appeared to be a “one-year deficit” with better things to come. In the fall, the trustees became concerned when “it appeared that we were headed toward a larger deficit than was initially predicted within the budget,” Harriman said.

Starting in January, the board’s Hospital and Audit & Fiscal Responsibility committees met together monthly to monitor UAMS’ financial health. Those monthly meetings have been discontinued until after the start of the fiscal year. “Merely because we’re not meeting formally does not mean that we’re not monitoring,” Harriman said.

Gardner said last week that UAMS is in a better position than it was a year ago.

“We’ve turned the corner with regards to our financial picture with a budget that balanced for the first time in a number of years,” she said.


University of Arkansas for Medical Sciences’ Turbulent Fiscal Year

July 2017

← Dr. Dan Rahn, who became the fourth chancellor of UAMS on Nov. 1, 2009, retires on July 31.

Stephanie Gardner, senior vice chancellor for academic affairs and provost at UAMS, replaces Rahn as interim UAMS chancellor. → 

August

The two finalists to become the next chancellor at UAMS withdraw from consideration.

Baptist Health of Little Rock and UAMS announce they have expanded their partnership to offer a wider range of educational opportunities and deliver clinical services more efficiently.

September

UAMS reports a loss for the first quarter of $13.6 million, $10.6 million more than the previous year’s comparable quarter. The loss, which comes on the heels of a loss of $21 million for the fiscal year that ended in June, raises concerns among the University of Arkansas System board of trustees.

October

Arkansas Business reports that a consultant has suggested that UAMS could start a joint venture with Baptist Health in Conway by the end of the year. The report alarms Conway Regional Health System, which competes with Baptist. UAMS has been providing emergency room and orthopedic services at Baptist Health Medical Center-Conway, which opened in September 2016. Conway Regional views the arrangement as unfair competition.

November

UAMS’ finances continue attracting scrutiny from the UA trustees as UAMS’ projected deficit for the fiscal year that ends June 30 rises to $72.3 million. At the beginning of the fiscal year, UAMS had projected a deficit of $39.2 million.

December

Dr. Cam Patterson, the senior vice president and chief operating officer at New York-Presbyterian/Weill Cornell Medical Center, is named UAMS chancellor. His first day was June 1.

January 2018

To deal with the deficit, UAMS announces it will cut its workforce by 600 positions, including 258 that were occupied.

Mark Kenneday, UAMS’ vice chancellor for campus operations, announces his retirement, effective June 30.

Dan Riley, UAMS Medical Center’s CFO and associate vice chancellor for clinical finance, resigns but agrees to stay until June 30.

UAMS, Baptist Health and Conway Regional appear before the Legislature’s Joint Performance Review Committee over questions raised by Conway Regional involving UAMS’ contract to provide emergency room and orthopedic services at Baptist’s hospital in Conway. Conway Regional alleges there is an unfair alliance between taxpayer-supported UAMS and Baptist Health of Little Rock.

February

Dr. Pope Moseley resigns as executive vice chancellor and dean of UAMS’ College of Medicine. He will return to the faculty to pursue his research.

UAMS says it will eliminate an estimated 125 positions through attrition.

April

UAMS temporarily suspends its Cardiac Surgery Program because its main heart surgeon retires.

May

Dr. Peter Emanuel resigns as director of the Winthrop P. Rockefeller Cancer Institute at UAMS. He says he will stay on until July 31.

UAMS submits and trustees approve a balanced budget for fiscal 2019, which will start July 1.

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