HOSPITAL SEEKS TO BOUNCE BACK FINANCIALLY Hard
knocks to the health care industry and leave the UCLA Medical
Center in poor financial condition SOURCE: UCLA medical center
Original graphic by VICTOR CHEN/Daily Bruin Web adaptation by
STEPHEN WONG/Daily Bruin Senior Staff  ANGIE LEVINE Westwood
Replacement Hospital is scheduled for completion in 2004.
By Marcelle Richards
Daily Bruin Senior Staff
The University of California’s biggest capital investment
ever is on its way to completion, but whether it will be able to
financially support itself in daily operation is a matter on
shakier ground.
The $1.3 billion hospital replacement project at UCLA is dodging
the hard knocks of a tough health care industry, but it may not be
able to maintain its stamina once its doors open, said Steve Olsen,
vice chancellor of finance and budget.
Add to the problems of earthquake damage, budget cuts, falling
stocks, more patients and fewer staff, a near-empty cash reserve,
and the situation is one of rising concern at the UCLA Medical
Center.
“That’s what (Medical Center administrators) do
every day ““ they worry about it,” Olsen said.
According to Sergio Melger, chief financial officer of the
Medical Center, the operational budget is $800 million, though only
$250 million is secured.
Gerald Levey, dean of the School of Medicine, said he’s
optimistic about the replacement hospital, though its success will
depend on how fast the hospital can rotate out patients and how
many donors they can attract ““Â two variables the
hospital may have little control over.
Thus what began as an opportunity for innovation has since
become a potential thorn in the side of UCLA.
The project was spawned after the 1994 Northridge earthquake
left the hospital in shambles.
Medical Center buildings, consisting of the Neuropsychiatric
Institute, the Center for Health Sciences and the main hospital,
were deemed “very poor,” according to earthquake safety
standards set by the Federal Emergency Management Administration.
The buildings must be seismically retrofitted by 2008 to comply
with California Senate Bill 1953, which mandates that all state
hospitals be earthquake safe.
Officials decided to replace, rather than repair, the center,
since relocating patients during reconstruction was not
feasible.
Levey said the current 1950s buildings had aged and were up for
renovation anyway. The earthquake provided UCLA an opportunity to
build its ideal hospital, and at the time, the money was there to
afford it.
FEMA is granting $432 million in earthquake relief, and the
state is providing $44 million to build the one million square
foot, 525-bed complex that will come with sleeping chairs for
visitors and “state of the art technology,” all under a
virtually electronic administration.
“The new hospital should be an absolute model of
efficiency,” Levey said. “This one is an old structure,
it’s hard to be efficient.”
While the Medical Center originally pledged to commit $160
million to cover the purchase of major equipment and project costs,
the purse strings were tightened when the California legislature
passed the Balanced Budget Act of 1998.
Under the act, reimbursements from Medicare and MediCal were
reduced, resulting in a loss of roughly $70 million annually at the
Medical Center as revenue plunged 46 to 55 percent, Olsen said.
To date, the Medical Center has lost roughly $200 million in
reimbursements, according to Levey, who said the largest dip
occurred in 1999.
Hospitals with a large patient base, like UCLA, which boasts of
four million, are prone to foot a higher bill, Levey said.
But Medical Center Director Michael Karpf is hopeful of the
future.
“Because we’re the quality provider in Southern
California, the decreases in reimbursement seems to be minimally
turning around,” he said.
Nevertheless, the reserve has yet to heal from the wounds.
The hospital reserves currently total $15 million for a four-day
span, though a hospital of its size should have enough for a 10- to
15-day span, Levey said.
In order to operate with the financial leeway desired, the
Medical Center hopes to get its reserves in the 30- to 50-day
range, though the UC sets a guideline of about 60 days, Karpf
said.
While UC San Diego and UC Davis are above the 60-day mark, Karpf
said UCLA’s low reserves are largely due to the reduction in
reimbursements ““ a situation the entire state has to
combat.
“We don’t get paid well enough for what we
do,” he said. “Reimbursement in California for medical
services is, if not the lowest in the country, near the lowest in
the country, and it doesn’t cover the cost of care for the
majority of medical procedures.”
Since the reserves are so low, the Medical Center cannot seek
external sources for help, which was to account for $192.66 million
of the project.
The inability to borrow money was a result of the
hospital’s inability to pay it back, Olsen said.
Despite the hospital’s projected difficulties, the rest of
the campus has not had funds diverted to pay for hospital
expenses.
“The chancellor has made it very clear to me that
he’s not willing to do that,” Olsen said. “The
hospital needs to take steps to better its operating
conditions.”
Funds that were to originally come from the Medical Center and
external sources will now come from donors and bonds which have not
yet been secured.
The drop in reimbursements was snowballed by other events and
incidents. In 1999, the state budget drastically cut funding for
capital projects.
The hospital’s ability to keep financially afloat was
further strained by the need to keep the nursing staff, as private
sectors of the healthcare industry lured away nurses from public
hospitals, Olsen said.
Unexpected costs recently arose with the purchase of equipment
for the new complex, which exceeded estimates of $100 million.
California had heavy investments in the dot-com industry, which
resulted in booming revenues for the state, but it peaked and
crashed six months ago, Olsen said.
“(The Medical Center) was getting 20 percent of its
revenue from that,” he said. “It’s very volatile.
Those things go away in a hurry, and that’s what
happened.”
Costs had to be cut to deal with the financial crisis.
To date, 600 full-time employees have been laid off, and the
hospital is still at full capacity about twice a week, Levey
said.
“We have asked people to work harder in order to
survive,” Karpf said. “Had we not gone through what
we’ve gone through, it’s questionable UCLA would have
survived.”
The efficiency campaign is carrying over to the two new
locations in Santa Monica and on Westwood Boulevard.
The Santa Monica hospital will handle minor or routine cases
while severe injuries and ailments will be reserved for the
Westwood location.
But the combined total of beds in the replacement hospital will
already be 275 beds short of the status quo, and Karpf expects to
see the number of patients rise.
Olsen said next year will be bleak , though the situation could
repair itself in another year, depending on the economy.