Report 2013-111 Summary - January 2014

UCLA and UCSF Medical Centers

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Although They Supply Significant Monetary Support to Their Campuses' Schools of Medicine, Their Finances and Key Measures of Patient-Care Quality Have Remained Stable

HIGHLIGHTS

Our review of the revenues and expenditures at the University of California Los Angeles (UCLA) and the University of California San Francisco (UCSF) medical centers highlighted the following:

RESULTS IN BRIEF

In providing health care services, the five medical centers within the University of California (university) generate significant revenue each year. The university medical centers use their revenues partly to support programs on their respective campuses, including the medical schools that educate future health care providers. From fiscal years 2008-09 through 2012-13, the two medical centers that were the focus of this audit—the University of California Los Angeles Medical Center (UCLA Medical Center) and the University of California San Francisco Medical Center (UCSF Medical Center)—experienced positive growth in their net positions while key quality of patient care measures remained stable. In addition, UCLA and UCSF medical centers generally offered higher executive compensation than did the university's three other medical centers, and they generally had higher proportions of employees who earned $200,000 or more annually primarily because of labor market trends in the two medical centers' geographic locations. Despite these expenditures, UCLA Medical Center's net position increased from $1.3 billion to $1.9 billion, and UCSF Medical Center's net position grew from $761 million to $1.3 billion. These assets remained within the university system because the medical centers are part of campuses within the university and the university has the authority under the state constitution to use its funds as it deems appropriate to fulfill its educational mission.

Both medical centers appear to have transferred portions of their revenues appropriately to other departments on their campuses. However, although the medical centers' reporting practices complied with current university policy, they provided too little transparency about the transfers' specific purposes. The amounts of the two medical centers' transfers rose over the five-year period under review, nearly doubling at UCSF Medical Center and nearly tripling at UCLA Medical Center. Apparently, these increases occurred in part because UCLA and UCSF medical centers' respective schools of medicine experienced growing financial needs as the years progressed. Most transfers provided salary support for faculty physicians from the schools of medicine or funding for strategic programs, and these purposes appear valid. Nonetheless, the two medical centers' financial reports lack specificity about the reasons for these transfers of millions of dollars, and the university does not otherwise report details of these transfers. Without detailed explanations of these transfers, not only does the university's governing authority, the University of California Board of Regents (regents), remain underinformed about the university health system's monetary needs, but legislators, university employees, university students, potential donors, taxpayers, and other interested individuals also lack useful information about each medical center's financial situation.

The medical centers depend almost entirely on patient revenue to cover their financial obligations. Patient revenue constituted almost all of UCLA and UCSF medical centers' total operating revenue between fiscal years 2008-09 and 2012-13. For example, in fiscal year 2012-13, UCLA Medical Center's patient revenue of $1.8 billion constituted 96 percent of its total operating revenue, and UCSF Medical Center's patient revenue of $2.1 billion constituted 97 percent of total operating revenue. Salaries and wages represented both medical centers' largest category of expenditure, and salaries and wages grew by about 20 percent at both centers from fiscal year 2008-09 to fiscal year 2012-13. In the final fiscal year we reviewed, UCSF Medical Center spent $773 million on salaries, while UCLA Medical Center spent $744 million. However, payments for employee benefits, such as retirement plans and health insurance, grew at faster rates over the five-year period—more than 70 percent for each medical center—rising to $224 million at UCSF Medical Center and $239 million at UCLA Medical Center.

Between 2009 and 2012, UCLA and UCSF medical centers generally provided higher total compensation for executive employees, such as their chief executive officers, than did the other three university medical centers primarily because of UCLA and UCSF medical centers' perceived need to pay salaries comparable to those offered at other top national hospitals.1 However, nonexecutive staff—a category of employees that includes nurses and pharmacists—did not always receive higher compensation than their counterparts at the other three medical centers. Additionally, the proportion of a medical center's total number of employees who each earned more than $200,000 annually varied by employee classification across the five university campuses. For example, UCSF Medical Center consistently employed more nurses who each earned more than $200,000 annually than did the other university medical centers, but University of California Irvine Medical Center had the highest proportion of managers earning more than $200,000 each.

Although employee compensation was not uniform across the medical centers, UCLA and UCSF medical centers' administrations followed policies for approving compensation increases, thus indicating that the medical centers use their compensation funds appropriately. These policies require that medical center employees' salaries be set within specific ranges established by the regents and by the medical centers themselves, and that the medical centers comply with this requirement. Employees can also earn augmentations to their base pay, such as incentive payments, as long as the augmentations receive proper approvals. Our review of a selection of 20 employee files at UCLA and UCSF medical centers found that the files contained evidence of necessary approvals for salary changes and incentive payments.

Key measures concerning quality of patient care at UCLA and UCSF medical centers have remained stable between fiscal years 2008-09 and 2011-12 despite staffing level changes. During these four years, overall staffing levels at UCSF Medical Center increased moderately and at UCLA Medical Center remained relatively flat, while staffing levels for management positions rose at both medical centers. At the same time, federal measures of patient-care quality, such as the volume of pneumonia deaths and readmission rates, remained steady at both medical centers. Moreover, patient satisfaction at both medical centers improved during these years.

Not only did UCLA and UCSF medical centers comply with policies for establishing compensation rates and maintain stability in the quality of their patient care during fiscal years 2008-09 through 2012-13, both medical centers also followed state requirements for reporting their activities concerning the provision of charity care, which is free or discounted health care to certain patients. However, between fiscal years 2008-09 and 2011-12, UCLA and UCSF medical centers reported less charity care as a percentage of their operating expenses than did the other three university medical centers and several other medical facilities outside of the university system that we considered for comparison purposes. Disparities in reported charity care among the university's medical centers may reflect differences in the patient populations they serve.

RECOMMENDATION

The university should take steps to increase the transparency of its campuses' health system support transfers. Specifically, the university should establish a process ensuring that it annually issues a report through its Web site that is available to the public and describes the financial and programmatic impact of each campus's health system support transfers.

AGENCY RESPONSE

The university's Office of the President stated that the university accepts our recommendation, and commits to an action plan that will include issuance of an annual disclosure to fulfill the recommendation.

1 Some data that the California State Auditor reviewed for this report were available only on a fiscal-year basis, while we reviewed other data on a calendar-year basis. Throughout this report, when we do not state that we reviewed fiscal-year data, we instead reviewed data in calendar-year form.