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UAMS touts belt-tightening 

But it's not enough, chancellor tells UA board.

click to enlarge OUTMODED: Chancellor Daniel Rahn in the Central Building, built in 1955 and with few updates since. It has until 2021 to be brought up to code, at a cost of $13 million; UAMS would like to renovate the building for more efficient and attractive office space. - BRIAN CHILSON
  • Brian Chilson
  • OUTMODED: Chancellor Daniel Rahn in the Central Building, built in 1955 and with few updates since. It has until 2021 to be brought up to code, at a cost of $13 million; UAMS would like to renovate the building for more efficient and attractive office space.

Terry Bradshaw, the former NFL quarterback turned Fox Sports commentator, kicked off the good news portion of the University of Arkansas for Medical Sciences' presentation to the UA Board of Trustees last Thursday, Jan. 28, praising orthopedic surgeon Dr. Lowry Barnes for his skill at replacing Bradshaw's knee. The football great said Barnes reduced his pain by 100 percent. "Honest to God, this is a wonderful place," Bradshaw told the trustees. 

Barnes, chair of orthopedics at UAMS, and Dr. Jim Suen, UAMS' famed head and neck surgeon of 41 years, brought the trustees up to date on the progress their departments have made in clinical care. Barnes touted an increased staff, patients and revenues and new procedures now available; Suen gave the long view of change at UAMS.

Suen said the Affordable Care Act, which has reduced uncompensated care, had been a major boon to the hospital's bottom line. But, he added, Arkansas remains at the bottom of all measures of health and needs more doctors. At UAMS, research and teaching are taking a backseat to clinical work because doctors have to generate their salaries from clinic fees.

Suen noted that UAMS employees generate more revenues in the way of income taxes and their own spending for the state than the state gives back to UAMS for operating costs.

That was the segue into UAMS' real business of the day: Chancellor Daniel Rahn's plea for more state dollars for an institution he called "critically important for the future of Arkansas."

UAMS has run a deficit each year since 2012, largely thanks to depreciation, which hit nearly $70 million this year. Its loss in net assets in 2015 was $26 million.

The depreciation, a noncash loss, comes from growth at the hospital —including the $130 million Winthrop Rockefeller Cancer Institute (2010) and the new $197 million hospital tower (2009) and the Psychiatric Research Institute (2008), and other construction, as well as the cost of high-dollar medical equipment.

UAMS could have opted not to grow and increase its programmatic offerings. But then UAMS would not be the institution it is. Investments in equipment must be made; growth of program services addresses the state's health needs.

In consultation with Navigant Research, UAMS has managed to save around $82 million in the past five years, Rahn told UA system trustees. That meant leaving staff positions unfilled; other savings have come from energy costs, procurement and other business practices.

If UAMS were to continue its current expense reduction strategy, projected to save $23 million, it predicts it will still see a deficit of $24 million in fiscal year 2017, a number that will rise to $45.8 million in fiscal year 2021.  

"The No. 1 issue," Rahn said after the presentation, "is recurring operating dollars," money that can be counted on year after year.

State aid to UAMS in 2015 was $106.6 million, and it remains at that level. That was a $14 million reduction from 2014, when the state appropriation was $120.1 million in 2014 (a peak). The reasoning for the reduction was that the hospital's indigent care costs were going to go down because of the ACA. In previous years, state aid has been around $114 million.

UAMS gets less in state support as a percentage of its budget than peer institutions in Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee and Texas, Rahn told the trustees.  

Of the $106.6 million, UAMS must use $85 million as its Medicaid match, leaving only around $21 million, or 1.46 percent of its budget, for academic and hospital support. Requiring the institution to shoulder the Medicaid match, UAMS Chief Financial Officer William Bowes said, is unique among medical institutions.

UAMS has an immediate capital need: Its Central Building, built in 1955, must be brought up to state fire code by 2021. That will cost UAMS an estimated $13 million. The work is such that UAMS needs to start within months to meet the deadline.

The Central Building is the old hospital; now it's used as quirky, outdated and inefficient office space, with offices that once were hospital rooms, each outfitted with a bathroom; wide hallways, and empty nursing stations. The Col. T.H. Barton building, a former research facility built in 1960, is also outdated: a human resources office there is located in a former laboratory; some floors are vacant.

UAMS says it would be smarter to renovate the old hospital and the Barton building as proper office space, rather than spend $13 million to bring it up to code when the building at some point will need to be completely remodeled. That would cost at least $85 million; financing would cost $6 million annually.

A study by Deloitte shows that UAMS' cash flow is not enough to attract a good bond rating. Nor can UAMS raise $85 million in philanthropic dollars for a project that is not revenue generating.

Rahn warned the UA trustees of threats to future revenues, including a possible decline in Medicare reimbursement by 20 percent and the "unsettled" future of the private Medicaid option, or "Arkansas Works," as Gov. Hutchinson has named it.

Revenues from its clinical programs now make up 74 percent of UAMS' budget.

Rahn also said that because the College of Public Health and the UAMS Northwest Campus were "launched with inadequate funds," the clinical programs must support those programs, along with pharmacy, nursing and its other schools. 

Without additional funding, Rahn told the board, UAMS will not be able to offer the programs it does today, which would trigger what he called "a death spiral." He wants to see immediate state support increased by $18.2 million, through a restoration in its budget allocation to previous years' levels and the elimination of the administrative transfer of $9 million it's required to make to the Department of Human Services from its Medicaid match dollars.

UA Trustee C.C. "Cliff" Gibson III, who with other trustees had been given a tour of the Central Building before the meeting, called the building's condition "embarrassing for a world-class institution," with boarded up windows, air-conditioning units hanging from others, and poor office space. He said UAMS needed to get its message "out to the people of Arkansas, their representatives and the governor."

"All I see is red on the page," Gibson said. "How long is UAMS able to run a deficit before cutting services more?"

The answer, Rahn said, is up to the UA board.

In a comment on UAMS' desire for more state dollars provided to the Times by the governor's press office, Hutchinson said, "I was briefed on the UAMS budget and am aware of their financial situation as well as the steps they are taking. I certainly applaud Dr. Rahn for his initiative in making sure UAMS gets an early handle on their budget concerns, as well as remaining strong as a leader in training and research."

Meanwhile, the legislature has implemented cuts in capital gains and income taxes in the past three years that have cost the state an estimated $182.5 million ($102 million during Hutchinson's tenure and previous cuts in capital gains of $24.5 million and income taxes for high earners of $56 million).

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