Fiscal cure sought for UConn Health
The teaching hospital struggles with deficits and escalating expenses
Escalating costs and ongoing deficits at UConn Health are forcing the administration of Gov. Ned Lamont to question whether the state can afford to continue subsidizing the public teaching hospital, a vast complex of 26 buildings spread across 209 acres in Farmington.
The state last year picked up $244 million of UConn Health’s $1 billion budget. This year, state funding is on pace to total $286 million. Despite this infusion, and a $255 million state-financed facility expansion that was expected to help make the institution more fiscally sustainable, the health center is facing a significant deficit next year. At the same time, expenses have mushroomed by 54% over the last decade.
Melissa McCaw, the Democratic governor’s budget chief, said UConn Health has requested a $50 million increase in state funding next year, $75 million more the following year, and an additional $100 million the next. But the Lamont administration is not prepared to support that 41% boost in funding without first doing a forensic review of the hospital’s finances, she said.
“When we look at the longer term trajectory, the question is how are we going to afford that? And is that the right level of growth?” McCaw told the legislature’s budget-writing committee last week during their first meeting of this year’s legislative session. “… Is that the appropriate ending result for a public hospital? That’s the type of question we have to ask.”
At issue is who should pay the cost of providing health and retirement benefits for staff: state taxpayers or revenue generated by UConn Health from the medical students and patients it serves. UConn Health currently covers about 60% of those costs itself, but officials there believe the state should be covering substantially more of these costs, just as it does for every other state agency.
“You know what, we just don’t have the revenue to pay those dollars anymore so the state has to pay it.”
Jeffrey P. Geoghegan
CFO, UConn Health
Jeffrey P. Geoghegan, the chief financial officer of UConn Health, said the university can’t afford the raises the state negotiated with the unions and the steady increase in health and retirement costs.
“You know what, we just don’t have the revenue to pay those dollars anymore so the state has to pay it. It either comes from patients or tuition dollars or from other sources and we just can’t raise it to the extent to cover these costs. So yes, the state needs to pick up more and more of it,” said Geoghegan.
While state lawmakers sort out what level of state aid is appropriate long-term, the governor and legislature last spring agreed to somewhat stabilize UConn Health’s finances by boosting state aid by $33 million for the current fiscal year.
In the budget Lamont released last week, the governor proposed maintaining that $33 million support next fiscal year but labeled it “temporary.” His administration also made a point of highlighting the institution’s deep fiscal challenges and noted that the institution is one of the state’s fastest growing expenses.
“There’s an ongoing conversation with respect to the financial viability of the UConn Health Center,” McCaw said on the opening day of this year’s legislative session.
“We should have never done the UConn Health Center hospital. It has come back to haunt us. It has not made money and it is not making money.”
Senate Minority Leader Len Fasano, R-North Haven
The Lamont administration’s public statements about UConn Health has generated mixed reactions from legislative leaders.
State Rep. Greg Haddad, the co-chairman of the legislature’s Higher Education Committee, told McCaw he is “frustrated” with the administration’s insistence that UConn Health needs a state bail-out because it’s in massive debt.
“What we have here is a public institution, a public hospital, a public medical school and dental school, and I think as a result of that, there is an expectation that there should be a public subsidy for those entities,” said Haddad, D-Storrs. “I think we need to take seriously the responsibility we have to maintain the excellence at public institutions in Connecticut.”
Senate Republican Leader Len Fasano has a completely different take.
“We should have never done the UConn Health Center hospital,” said Fasano, R-North Haven. “It has come back to haunt us. It has not made money and it is not making money.”
What’s causing the bleeding?
UConn Health officials insist its financial problems are linked to the fiscal sin of past administrations and legislatures, who promised benefits to future retirees but didn’t put away the money to pay for them.
That bill has now come due – and is tacked on as an added opperating cost. Providing the health and retirement benefits to a doctor with a $100,000 salary cost UConn Health $31,300 in 2004. Today, the cost is $60,000. Over the next three fiscal years, the amount the state must pay toward those promised health and pension benefits is projected to increase by 8% a year.
“If the state paid those costs for us, we would be running surpluses or at least breaking even. We do not feel like we have a structural deficit,” said Andrea Keilty, chief of staff at UConn Health.
Not so, says the Lamont administration.
“If the state paid those costs for us, we would be running surpluses or at least breaking even. We do not feel like we have a structural deficit.”
Chief of Staff, UConn Health
Only about one-quarter of the UConn Health Center’s (UCHC) fiscal “loss” of $262 million this year can be blamed on those unfunded liabilities, the administration insists.
“We certainly understand UCHC – like the state government in general – is grappling with the impact of legacy costs, but the system has other growing structural financial concerns that must be addressed – and not purely through state subsidies,” Chris McClure, spokesman for the governor’s Office of Policy and Management, wrote in a statement. “We will continue our work to better understand the appropriate level of resources they need and pursue opportunities to best position UCHC financially for decades to come.”
Nearly every aspect of UConn Health is in the red and reliant on state aid, according to figures presented by McCaw during her budget presentations last week. The school of medicine is $67 million in the red, while outpatient medical services is $62 million in deficit.
The hospital is the only entity in the larger operation that is funding itself without a state subsidy.
But the Lamont administration’s insistence that it is closing deficits at UConn Health is upsetting to officials there.
“We just really disagree with that characterization as it being a subsidy or a loss,” said Keilty.
The state should be looking at that funding as a way to provide beds for those in mental health crisis, caring for low-income residents, or hosting the only dental school in the state, Keilty added.
What’s the solution?
The state has spent hundreds of millions of dollars in recent years renovating and constructing new buildings for the hospital, medical school and research staff in an effort to inject fiscal stability into UConn Health.
University leaders for years have said John Dempsey Hospital was too small and outdated to be financially viable, but three separate attempts failed between 2008 and 2010 to overhaul the campus or merge the hospital with a larger network.
In 2011, Gov Dannel P. Malloy had better luck and led the passage of legislation to spend $255 million to build a new patient tower, garage and outpatient center, and renovate the hospital’s existing patient tower and research facilities. At the time, the university said these improvements would help double research spending at the health center.
State lawmakers also allocated $291 million in 2011 to help the Jackson Laboratory build a genomics institute on campus.
As UConn Health heads into the fifth full year since the new facilities opened, officials there acknowledge they are still facing “significant deficits” unless the state steps up. Figures provided by UConn Health show the institution faces a $19 million deficit next year, a 2% structural shortfall. The governor’s proposed budget would cause that shortfall to increase by about $5 million.
While UConn officials say they need an infusion of state funding, others are demanding that it find an outside partner to help rightsize its finances once and for all.
“If this was a private company and they were going into debt like this, they would say we cannot make it. But because they can go to the mothership and suck some more money out of the state budget to run it, there is no need for them to cut salaries or reduce staff.”
Senate Minority Leader Len Fasano
Almost three years ago, the legislature ordered UConn Health to “seek to establish public-private partnerships with hospitals or other private entities.”
But officials say no other hospitals or organization presented a suitable plan to team up with the Farmington complex that sits on a hill with a distant view of the state’s capital city.
“There is no silver bullet. The solution is more difficult to arrive at,” said Keilty. But, the health center remains open to such a possibility. “It’s an ongoing exploration. We are not actively talking to partners right now but we have been working with the administration to develop plans.”
Fasano, the Republican minority leader of the state senate, questions how aggressively UConn Health sought outside partnerships.
“You are asking the beast itself to analyze itself to determine how it can sell itself – and it doesn’t want to be sold. So you’re not going to get the right result,” Fasano said during an interview. “We need to move UConn Health out. We need to sell it or get together with somebody have someone else else run it. But it should not be a leech on the Connecticut budget the way it has been. …
“The problem we have here is that it’s not their money. If this was a private company and they were going into debt like this, they would say we cannot make it. But because they can go to the mothership and suck some more money out of the state budget to run it, there is no need for them to cut salaries or reduce staff.”
UConn Health’s expenses have grown rapidly over the last 10 years – from $778 million in 2010 to $1.2 billion this year. This $420 million, 54% spike, would be even higher if the nearly $100 million contract to provide health care to prison inmates wasn’t discontinued last fiscal year.
About one-third of these increased costs are tied to retirement and health benefits.
McCaw, the governor’s budget chief, told the appropriations committee the time has come to find other ways to offset state funding by looking at whether the state is subsidizing the medical school too heavily and whether doctor’s caseloads are too low.
“Is this the right level of support? Some of that is data-oriented and some of that is our own philosophical views about what we want to do here in the state of Connecticut,” she said. “But I must ask the question: should a student go to medical school, get a degree and leave the state of Connecticut and only have paid 5% of their medical school tuition? I don’t know if that’s the right balance.”
UConn officials say they’ve done the comparison and the tuition they currently charge is already on the higher end, while workloads would need to be negotiated with the unions.
Health center officials also say they’ve done what they can to rein in costs, but they cannot scale back the retirement and health costs. Those benefits were set during negotiations between the governor’s office and the state employees bargaining coalition, and were approved by the legislature.
“It’s a difficult position for us to be in. We calculate the impact but we don’t have a seat at the table. We are just stuck with the results of those negotiations,” said Keilty.
But Fasano and Republicans insist UConn Health stays largely silent during debates about employee contracts – until it needs more money from the state to pay for the cost of those new contracts.
“Where was UConn when the debate was happening?” said Fasano. “And now they want more money. Unbelievable.”
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