Healthy year for UC med centers, but challenges loom

CATEGORY: Spotlight

Healthy year for UC med centers, but challenges loom

January 21, 2010. Tags: Administration

uch_healthyyear_story University of California medical centers had a strong year in fiscal 2009, increasing revenue and operating margins amid a challenging environment, but that success is fragile, health leaders told UC Regents today (Jan. 21).

UC medical centers increased their revenue 12 percent from $5 billion in fiscal 2008 to $5.6 billion in fiscal 2009. Margins rose from 4.6 percent to 7.2 percent during that period. This performance helped UC medical centers maintain their economic vitality and contribute $400 million to UC’s health sciences training program, the nation’s largest.

“The financial success of our hospitals and health professional schools are inextricably linked, and this success is fragile in these times,” said Dr. John Stobo, UC senior vice president for health sciences and services. Those concerns include wage and capital commitments, restarting contributions to the UC Retirement Plan and the impact of health care reform.

As a marker of the medical centers’ success, Regents approved $3.1 million in payments to 38 UC Health senior managers today under the Clinical Enterprise Recognition Management Plan. Overall, UC Health has 22,000 participants, including more than 17,000 union employees, in 21 clinical incentive plans, with a total fiscal 2009 payout of about $33.7 million. UC pays for these programs with clinical revenue — no state funds are used.

Expert panelists told Regents that such incentive plans are the industry norm and a key tool to help raise the quality of care, increase efficiency and compete for the best talent.

Incentive pay programs for hospital executives “are very common,” said panelist Dan Schleeter, senior vice president with consulting firm Integrated Healthcare Strategies. At the average large, public hospital system, up to 25 percent of CEO pay is awarded only if they meet their performance goals, he said. At UC Health, up to 30 percent of CEO pay is based on incentives.

“I strongly believe that incentives are a very important part of doing well as an organization,” said panelist Lee Domanico, CEO of the Marin Healthcare District, where up to 42 percent of his salary is based on incentive pay. “They will motivate high achievers and help retain high achievers.” Without incentive pay, base salaries would have to be higher to attract the best talent, he said.

Panelist Lloyd Dean has led Catholic Healthcare West since 2000, helping turn around an organization that had lost $1 billion over the previous three years into one of the highest performing systems in the United States. Carefully constructed incentive pay plans “allowed us to refocus the organization” and attract and retain the necessary talent, he said.

Regents approved the incentive payments with only Regent Charlene Zettel abstaining. “I don’t feel comfortable supporting this but won’t vote no,” she said.

UC Health runs five medical centers, 10 hospitals and 16 health professional schools, training 3 of every 5 medical students in California. Incentives helped focus the system to improve patient safety, achieve group purchasing savings and enhance clinical payment rates. “Our hospitals are acting very much like a system,” Stobo said. “They work together.”