Summary

January 2014 UCLA and UCSF Medical Centers Although They Supply Significant Monetary Support to Their Campuses’ Schools of Medicine, Their Finances and Key Measures of Patient-Care Quality Have Remained Stable Report 2013-111 COMMITMENT INTEGRITY LEADERSHIP The first five copies of each California State Auditor report are free. Additional copies are $3 each, payable by check or money order. You can obtain reports by contacting the California State Auditor’s Office at the following address: California State Auditor 621 Capitol Mall, Suite 1200 Sacramento, California 95814 916.445.0255 or TTY 916.445.0033 OR This report is also available on our Web site at www.auditor.ca.gov. The California State Auditor is pleased to announce the availability of an online subscription service. For information on how to subscribe, visit our Web site at www.auditor.ca.gov. Alternate format reports available upon request. Permission is granted to reproduce reports. For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at 916.445.0255. For complaints of state employee misconduct, contact the California State Auditor’s Whistleblower Hotline: 1.800.952.5665. Elaine M. Howle State Auditor Doug Cordiner Chief Deputy January 30, 2014 2013-111 The Governor of California President pro Tempore of the Senate Speaker of the Assembly State Capitol Sacramento, California 95814 Dear Governor and Legislative Leaders: As requested by the Joint Legislative Audit Committee, the California State Auditor (state auditor) presents this audit report concerning the finances and compensation practices of the University of California Los Angeles (UCLA) and the University of California San Francisco (UCSF) medical centers. This report concludes that UCLA and UCSF medical centers experienced positive financial growth from fiscal years 2008–09 through 2012–13. UCLA Medical Center’s net position, or net assets, increased from $1.3 billion to $1.9 billion and UCSF Medical Center’s grew from $761 million to $1.3 billion. During this period, the medical centers transferred money each year to their campuses’ schools of medicine to provide financial support for strategic programs and faculty physicians at the respective schools of medicine. The amounts of the transfers rose over the five-year period, nearly doubling at UCSF Medical Center and nearly tripling at UCLA Medical Center. While these transfers appeared to be for valid purposes, we found there was too little transparency regarding the purposes of the transfers. Without more information about these transfers, university leaders, legislators, and other stakeholders lack useful information about each medical center’s financial situation. In addition, we found that UCLA and UCSF medical centers complied with applicable policies for approving compensation increases, but that they generally provided their executives higher total compensation than did their counterparts at the University of California’s (university) other medical centers. We also found that although UCLA and UCSF medical centers experienced changes in staffing levels, key measures of patient-care quality at the medical centers remained stable. Moreover, patient satisfaction improved at both medical centers during these years. Further, although these two medical centers reported less charity care from fiscal years 2008–09 through 2011–12 than did the other university medical centers, they met the State’s limited requirements concerning charity care. Respectfully submitted, ELAINE M. HOWLE, CPA State Auditor 621 Capitol Mall, Suite 1200 Sacramento, CA 95814 916.445.0255 916.327.0019 fax www.auditor.ca.gov Blank page inserted for reproduction purposes only. California State Auditor Report 2013-111 v January 2014 Contents Summary 1 Introduction 5 Audit Results The University of California Los Angeles and University of California San Francisco Medical Centers Were Financially Sound Between Fiscal Years 2008–09 and 2012–13 11 UCLA and UCSF Medical Centers Do Not Report Enough Information About the Support They Provide to Their Respective Schools of Medicine 15 The Financial Performance of UCLA and UCSF Medical Centers Does Not Correlate Directly With Measures of Their Patient Caseloads 18 UCLA and UCSF Medical Centers Complied With Applicable Policies for Approving Compensation Increases 21 Executives at UCLA and UCSF Medical Centers Generally Received Higher Total Compensation Than Did Their Counterparts at the University’s Other Medical Centers 23 UCLA and UCSF Medical Centers Increased Their Proportions of Employees Who Received More Than $200,000 in Compensation Annually 25 Although the Two Medical Centers Experienced Changes in Staffing Levels, Key Quality of Patient Care Measures Remained Stable 28 UCLA and UCSF Medical Centers Meet the Limited State Requirements Concerning Charity Care 34 Recommendation 37 Response to the Audit University of California Office of the President 39 vi California State Auditor Report 2013-111 January 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-111 1 January 2014 Summary Results in Brief Audit Highlights . . . In providing health care services, the five medical centers within Our review of the revenues and the University of California (university) generate significant revenue expenditures at the University of California each year. The university medical centers use their revenues partly Los Angeles (UCLA) and the University of to support programs on their respective campuses, including California San Francisco (UCSF) medical the medical schools that educate future health care providers. centers highlighted the following: From fiscal years 2008–09 through 2012–13, the two medical centers that were the focus of this audit—the University » Both medical centers’ net position of California Los Angeles Medical Center (UCLA Medical increased over a five-year period despite: Center) and the University of California San Francisco Medical Center (UCSF Medical Center)—experienced positive • Experiencing growth in growth in their net positions while key quality of patient care their expenditures. measures remained stable. In addition, UCLA and UCSF medical centers generally offered higher executive compensation than did • Generally offering higher executive the university’s three other medical centers, and they generally compensation than the University had higher proportions of employees who earned $200,000 of California’s three other or more annually primarily because of labor market trends in medical centers. the two medical centers’ geographic locations. Despite these expenditures, UCLA Medical Center’s net position increased from • Increasing their financial support $1.3 billion to $1.9 billion, and UCSF Medical Center’s net position through transfers for other grew from $761 million to $1.3 billion. These assets remained departments on their campuses— within the university system because the medical centers are part of the amounts nearly doubled at campuses within the university and the university has the authority UCSF Medical Center and nearly under the state constitution to use its funds as it deems appropriate tripled at UCLA Medical Center. to fulfill its educational mission. » The medical centers provided too little Both medical centers appear to have transferred portions of their transparency about the purpose of revenues appropriately to other departments on their campuses. transfers of their revenue to other However, although the medical centers’ reporting practices departments on their campuses. complied with current university policy, they provided too little transparency about the transfers’ specific purposes. The amounts » The medical centers depend almost of the two medical centers’ transfers rose over the five‑year entirely on patient revenue to cover their period under review, nearly doubling at UCSF Medical Center financial obligations while salaries and and nearly tripling at UCLA Medical Center. Apparently, these wages represent both medical centers’ increases occurred in part because UCLA and UCSF medical largest category of expenditure. centers’ respective schools of medicine experienced growing financial needs as the years progressed. Most transfers provided » Key measures concerning quality of salary support for faculty physicians from the schools of medicine patient care at UCLA and UCSF medical or funding for strategic programs, and these purposes appear centers have remained stable between valid. Nonetheless, the two medical centers’ financial reports fiscal years 2008–09 and 2011–12 lack specificity about the reasons for these transfers of millions despite staffing level changes. 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 2 California State Auditor Report 2013-111 January 2014 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 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. California State Auditor Report 2013-111 3 January 2014 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. 4 California State Auditor Report 2013-111 January 2014 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. California State Auditor Report 2013-111 5 January 2014 Introduction Background The University of California (university) has five medical centers that serve to educate future health care providers, conduct medical research, and provide a wide variety of health care services. They provide many different types of care, including primary and preventive care as well as treatment of severe illnesses. The medical centers are state‑licensed and federally certified health care facilities, and they are subject to regulation by numerous agencies. The medical centers annually report various types of data, such as financial information, staffing information, and charity care data, to the California Office of Statewide Health Planning and Development. The University of California Los Angeles Medical Center (UCLA Medical Center) and the University of California San Francisco Medical Center (UCSF Medical Center) are well known for the quality and complexity of patient care services they provide.2 The 2013 U.S. News and World Report hospital rankings rate UCLA Medical Center as the fifth‑best hospital in America and UCSF Medical Center as the seventh‑best. Only one other hospital in California—Cedars‑Sinai, a nonprofit hospital in Los Angeles, rated 13th—is among the top 15 in these national rankings. Throughout the United States, academic medical centers based at universities, such as those at the university, rely on their campuses’ schools of medicine to assist them in providing patient care. The physicians who provide care at the medical centers are medical school faculty, not medical center employees. To support their delivery of patient care, the medical centers compensate the schools’ physicians‑in‑training in their roles as residents. These residents receive their training as they help faculty physicians care for patients. The faculty physicians join administrative entities called medical groups to facilitate their billing of patients—which occurs separately from the billing the medical center performs for the services its personnel provide. Figure 1 on the following page illustrates the relationships among UCLA Medical Center, UCSF Medical Center, and other campus health entities. 2 UCLA Medical Center includes Ronald Reagan UCLA Medical Center, Santa Monica UCLA Medical Center and Orthopaedic Hospital, and Resnick Neuropsychiatric Hospital at UCLA. 6 California State Auditor Report 2013-111 January 2014 Figure 1 Key Relationships Among University of California Los Angeles and University of California San Francisco Medical Centers and Other Campus Health Entities Campus School of Medicine (school of medicine) Campus Medical Center (medical center) Faculty physicians from the school of medicine provide Employs services to patients at the medical center. faculty physicians. Employs nurses and hospital staff. Bills patients for Medical center supports school of medicine with financial transfers $ physicians’ services to meet strategic goals and help compensate faculty physicians. in coordination with an administrative entity known as the campus medical group.* Bills patients for hospital services. Source: California State Auditor’s analysis of various materials describing academic medical centers. * At the University of California San Francisco, the medical group exists within the school of medicine; at the University of California Los Angeles, it is a separate entity. UCLA and UCSF Medical Centers Have Financial Relationships With Their Campuses’ Schools of Medicine and With Physicians’ Medical Groups A key relationship in the university medical system is between a campus’s medical center and its school of medicine. Two components of this relationship are the purchase of services and general support. In the first, the medical center pays the school of medicine for specific services provided by school personnel that benefit the medical center. These include services such as patient care and on‑call availability in the event of emergencies. The second component of this financial relationship involves providing more general support for essential physicians or programs, which, for example, helps the school of medicine compensate physicians in cases where their work generates insufficient revenue to support them through their professional fees alone, or where a program requires additional capital to remain viable. Where these payments to the schools of medicine are concerned, the medical centers explained that they transfer all funds to the schools and never pay faculty physicians directly. California State Auditor Report 2013-111 7 January 2014 All five university medical centers report their finances in a similar way, and they share similar financial characteristics.3 All five generate most of their revenue from collecting payments for providing medical services to patients, have expenses related to treating those patients, and conduct other types of financial activities, such as paying interest expenses and transferring money to other departments of their campuses. Figure 2 provides a simplified example and description of a medical center’s annual statement of revenue, expenditures, and change in net position.4 Figure 2 Overview of a University of California Medical Center’s Annual Financial Activities and Change in Net Position Campus Medical Center (medical center) $ Operating Revenue The medical center obtains operating revenue from collecting payments from treating patients. Operating Expense The medical center pays operating expenses associated with treating patients, such as costs for personnel and medical supplies. Operating revenue less operating expense is the medical center’s Net Operating Revenue $ net operating revenue. $ $ Revenue less expenses unrelated to operations The medical center recognizes other revenue, such as investment income, less other expenses, such as interest payments on debt. Other changes in net position The medical center accounts for other types of financial transactions that affect its net position; these transactions are primarily transfers to its campus’s school of medicine. $ Change in Net Position for Fiscal Year The resulting figure is the medical center’s change in net position for that fiscal year. Source: California State Auditor’s analysis of various materials describing academic medical centers. 3 All five medical centers must receive an independent financial audit each year as a condition of bond financing, discussed later in this report. As of fiscal year 2012–13, the university began combining all five medical centers’ audited financial statements in one document. 4 A nonprofit organization’s change in net position is similar to a for‑profit organization’s year‑end profit. Change in net position is the medical center’s increase or decrease in net assets calculated by subtracting all expenditures, transfers, and other costs from total revenues for the fiscal year. 8 California State Auditor Report 2013-111 January 2014 The Medical Centers Receive Little Financial Support From the State The university’s medical centers have historically received a small amount of the State’s General Fund revenue for use in operations. In total, the Legislature appropriated between $2.4 billion and $3.3 billion in General Fund money for the university system for each year of the period we audited. However, the amount the University of California Board of Regents (regents) allocated to the two medical centers represented less than 1 percent of each center’s annual operating revenue; in fiscal year 2011–12, UCLA Medical Center received $13.5 million in General Fund support, while UCSF Medical Center received $4.3 million. In fiscal year 2012–13, UCSF Medical Center received no General Fund money, and UCLA Medical Center once again received $13.5 million. Scope and Methodology The Joint Legislative Audit Committee (audit committee) directed the California State Auditor to conduct an audit of UCLA and UCSF medical centers’ compensation, staffing, and provision of charity care. The analysis the audit committee approved contained three separate objectives. Table 1 lists the audit committee’s objectives and the methods we used to address those objectives. Table 1 Audit Objectives and the Methods Used to Address Them AUDIT OBJECTIVE METHOD 1. Review and evaluate the laws, rules, • Reviewed federal and state laws and regulations relevant to the University of California (university) and its and regulations significant to the medical centers. audit objectives. • Reviewed university policies governing the medical centers. 2. For the time period 2009 through 2012, perform the following analysis related to the University of California Los Angeles (UCLA) and the University of California San Francisco (UCSF) medical centers: a. Identify the major categories • Analyzed the audited financial statements and other financial information for UCLA and UCSF medical of revenues and expenditures. centers for fiscal years 2008–09 through 2012–13. Identify and examine the • Analyzed trends in major categories of revenues and expenditures, including expenditures for employee categories that had the most salaries and benefits. significant changes, including • Interviewed key officials at UCLA and UCSF medical centers. any changes in salaries and compensation. b. To the extent possible, • Reviewed the financial statements for UCLA and UCSF medical centers for fiscal years 2008–09 determine the annual profit and through 2012–13 to identify annual profit levels and caseload measures. the annual caseload volume • Interviewed key officials at UCLA and UCSF medical centers. and composition for UCLA and • Compared caseload volume statistics to financial indicators in the medical centers’ financial statements. UCSF medical centers. Compare the annual profit to the caseload volume. California State Auditor Report 2013-111 9 January 2014 AUDIT OBJECTIVE METHOD c. Identify the number of • Reviewed applicable university and campus policies regarding compensation. employees receiving annual • Judgmentally selected a total of 20 employees at UCLA and UCSF medical centers earning more than compensation in excess of $200,000 and determined whether university personnel properly approved and justified compensation $200,000 and compare their increases between 2009 and 2012. level of compensation to • Reviewed university compensation data for 2009 through 2012. similarly situated employees at • Interviewed key officials at UCLA and UCSF medical centers. other university medical centers. Further, determine the reasons • Reviewed compensation data for chief executive officers at academic medical centers outside California. for any significant change in • Compared data for all five university medical centers on employees receiving compensation in excess of the number or compensation $200,000. levels of employees receiving • Analyzed changes in compensation levels and their possible relationships to changes in levels of patient compensation in excess care staff. Analyzed patient care data from the federal Centers for Medicare and Medicaid Services. of $200,000. To the extent • Identified national benchmark patient‑care quality data and compared it to data for the medical centers. possible, determine whether • Analyzed staffing level data from UCLA and UCSF medical centers. there is a correlation between changes in compensation levels to patient care and/or nonmanagement staff. d. Determine the amount of • Reviewed relevant laws and regulations related to charity care. charity care provided by the • Reviewed financial information from the university medical centers, other hospitals, and the California UCLA and UCSF medical centers Office of Statewide Health Planning and Development. and compare it to the amount • Interviewed key officials at UCLA and UCSF medical centers. of charity care provided by the other university medical centers, and to the extent possible, private hospitals. 3. Review and assess any other issues • Analyzed financial transfers occurring between fiscal years 2008–09 and 2012–13 from the medical that are significant to the staffing, centers to other departments of their campuses. personnel costs, and revenues and • Interviewed key officials at UCLA and UCSF medical centers to confirm their processes for providing expenditures of the UCLA and UCSF health system support. medical centers. • Reviewed information regarding financial transfers at other academic medical centers. • Interviewed key officials at the University of California’s Office of the President regarding the extent of the university’s reporting of health system support. Sources: California State Auditor’s analysis of Joint Legislative Audit Committee audit request number 2013‑111, and information and documentation identified in the table column titled Method. Assessment of Data Reliability In performing this audit, we obtained electronic data files extracted from the university Office of the President’s Corporate Data Warehouse, which contains current and historical data extracted from the Corporate Personnel System and from the Decision Support System (earnings data). The U.S. Government Accountability Office (GAO), whose standards we follow, requires us to assess the sufficiency and appropriateness of computer‑processed information that we use to support our findings, conclusions, or recommendations. We performed data‑set verification procedures and electronic testing of key data elements and did not identify any issues. We did not perform accuracy and completeness testing of the earnings data because they are from primarily paperless systems, and thus hard‑copy documentation was not available for review. Alternatively, following GAO 10 California State Auditor Report 2013-111 January 2014 guidelines, we could have reviewed the adequacy of selected system controls that include general and application controls. However, we did not conduct these reviews because each campus’s system is different, and the campuses are spread throughout the State, making such testing cost prohibitive. Consequently, we determined the earnings data were of undetermined reliability for the purpose of identifying the number of employees and calculating employee earnings by job classification at the university medical centers at Los Angeles, San Francisco, Davis, Irvine, and San Diego for the period from January 2009 through December 2012. California State Auditor Report 2013-111 11 January 2014 Audit Results The University of California Los Angeles and University of California San Francisco Medical Centers Were Financially Sound Between Fiscal Years 2008–09 and 2012–13 The University of California Los Angeles Medical Center (UCLA Medical Center) and the University of California San Francisco Medical Center (UCSF Medical Center) reported positive financial results for fiscal years 2008–09 through 2012–13.5 Their annual revenue resulted almost exclusively from income derived from providing patient services. This income outpaced growth in the medical centers’ increasing personnel costs and other operational expenses. However, transfers of funds to support campus entities affiliated with the medical centers—such as schools of medicine—reduced the amount of revenue that the medical centers retained at the end of each year. Further, the size of these transfers increased substantially. To the extent that they continue to increase in size, the transfers may affect the financial health of the medical centers and the patient services they provide. As discussed in this report, the overall financial health of UCLA and UCSF medical centers depends on many factors, including external pressures such as changes in reimbursement rates from insurers and health care reform. However, our review identified that financial transfers are an important factor in the ongoing operations of the medical centers. State law gives the University of California Board of Regents (regents)—the University of California’s (university) governing board as established in the state constitution—the authority to manage the university’s finances, including the revenue generated by the medical centers. Specifically, the state constitution grants the regents authority to govern the university, with allowances for the Legislature to ensure the security of state funds. In addition, state courts have ruled that the university is subject to legislative control in just three areas: appropriation of state funds, exercise of general police power to provide for public health and welfare, and application of legislation on matters of general statewide concern. However, law indicates that the Legislature cannot direct the university’s internal affairs, and therefore it cannot substitute its judgment for that of the regents in setting university policy. Therefore, without the regents’ agreement, the Legislature cannot redirect university‑generated funds for a purpose of its own choosing, such as the establishment of a new medical center. 5 The UCLA Medical Center includes Ronald Reagan UCLA Medical Center, Santa Monica UCLA Medical Center and Orthopaedic Hospital, and Resnick Neuropsychiatric Hospital at UCLA. 12 California State Auditor Report 2013-111 January 2014 Limits also exist on the regents’ authority to determine uses of university funds. For example, federal tax law states that nonprofit entities, such as the university, must be organized and operated exclusively for a tax‑exempt purpose. Unlike private businesses that make various types of distributions with their profits, nonprofits cannot use their net earnings to benefit any individual. Moreover, some of the terms of the medical centers’ bonds require the university to retain sufficient revenue to pay off the bonds. Generally, nonprofit entities that generate revenue in excess of expenditures retain excess revenues in reserve in case they face deficits in future years, and they must comply with laws governing nonprofits’ use of funds in order to maintain tax‑exempt status. Therefore, although the regents may exercise considerable discretion over the use of the university’s assets, certain external factors constrain their use of those assets. Treating Patients Produced Almost All of the Two Medical Centers’ Revenue Income from providing patient services was UCLA and UCSF medical centers’ largest source of revenue from fiscal years 2008–09 More than 95 percent of the total through 2012–13. More than 95 percent of the total revenue revenue generated by each medical generated by each medical center during this time came from center during fiscal years 2008–09 providing patient services, such as transplants, neurosurgery, through 2012–13 came from and cancer treatment. For example, in fiscal year 2012–13, providing patient services, such UCLA Medical Center’s patient revenue of $1.8 billion constituted as transplants, neurosurgery, and 96 percent of its total operating revenue, and patient revenue cancer treatment. of $2.1 billion constituted 97 percent of total operating revenue at UCSF Medical Center. From fiscal years 2008–09 through 2012–13, net patient service revenue—the revenue from patient services remaining after the medical center deducts an allowance for bad debts and estimated allowances for reductions in payments from government and private insurance—increased by 32 percent at UCLA Medical Center and by 29 percent at UCSF Medical Center. In their financial statements, the medical centers attributed this growth to increased reimbursement rates from government and private insurance. When citing contributors to growth in patient revenue, UCSF Medical Center also pointed to increases in the complexity of the cases treated, while UCLA Medical Center noted an increase in outpatient caseload. The Two Medical Centers’ Salary Payments Constituted Their Largest Category of Expenditures Salaries and wages represented the largest category of expenditures for both centers from fiscal years 2008–09 through 2012–13. Salaries and wages made up nearly 40 percent of operating California State Auditor Report 2013-111 13 January 2014 expenditures at UCSF Medical Center and more than 44 percent at UCLA Medical Center during this period, and grew by 24 percent at UCLA Medical Center and by 20 percent at UCSF Medical Center. In fiscal year 2012–13, UCSF Medical Center spent $773 million on salaries and wages, while UCLA Medical Center spent $744 million. In their financial statements, frequently cited reasons for salary expenditure increases during this time included hospital staffing increases and salary rate increases. In addition to increased expenditures for salaries and wages, Expenditures on employee expenditures on employee retirement and other benefits grew retirement and other benefits grew rapidly, increasing by 74 percent at UCLA Medical Center and rapidly, increasing by 74 percent at 71 percent at UCSF Medical Center from fiscal years 2008–09 UCLA Medical Center and 71 percent through 2012–13. As a percentage of total annual expenditures, at UCSF Medical Center from fiscal these employee benefits grew from 10 percent to 14 percent at years 2008–09 through 2012–13. UCLA Medical Center during this period, and from 8 percent to 11 percent at UCSF Medical Center. In fiscal year 2012–13, UCSF Medical Center spent $224 million on employee retirement and other benefits, while UCLA Medical Center spent $239 million. These costs rose primarily because of rapidly increasing contributions by the medical centers to the university’s employee retirement plan. Other major categories of expenditures at both medical centers included medical supplies, other supplies, and purchased services. Purchased services include faculty physician (physician) services that benefit the medical center, such as medical direction and clinical coverage, as well as repairs, maintenance, and administrative services. Purchased services do not include direct payment to physicians for providing patient care at medical centers. Monetary Transfers to Their Campuses’ Schools of Medicine Reduced Available Funds at the End of Each Year The transfer of funds from UCLA and UCSF medical centers to other campus departments, primarily their schools of medicine, grew significantly from fiscal years 2008–09 through 2012–13. The medical centers commonly refer to these transfers as health system support. Health system support reduced the amounts of funds available to the medical centers at the end of each fiscal year. At UCLA Medical Center the annual amounts of health system support nearly tripled from fiscal years 2008–09 through 2012–13, and they nearly doubled at UCSF Medical Center during this period. Although these transfers were not the only transactions that affected each medical center’s change in net position each year— interest payments on loans for construction projects were also often significant—the health system support generally represented the largest type of financial transaction that did not relate to the medical center’s operating income but reduced the medical center’s 14 California State Auditor Report 2013-111 January 2014 change in net position.6 The purposes of these transfers include helping to support the salaries of physicians providing services to medical center patients, as well as funding strategic initiatives. As such, the growing size of the transfers may have implications for long‑term sustainability of providing certain types of services. In contrast to their amounts of health system support, the medical centers’ changes in net position fluctuated from year to year. Overall growth in net position was significant: From fiscal years 2008–09 through 2012–13, 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. Figure 3 contrasts the generally steady growth of the medical centers’ health system support with annual changes in net position that, although positive, varied significantly. One factor that contributed to the variability in the centers’ changes in net position was the fact that both medical centers received substantial payments in fiscal year 2010–11 through a state program associated with the federal American Recovery and Reinvestment Act; these payments supplemented Medicaid revenue for hospitals.7 In that year, UCLA Medical Center reported receiving $48 million in revenue from the program, and UCSF Medical Center reported receiving revenue of $51 million. In light of the medical centers’ Without these funds, the medical centers’ ultimate increases in increases in health system support net position would have been much lower.8 In light of the medical and the variability of their changes centers’ increases in health system support and the variability of in net position, the medical centers their changes in net position, the medical centers could eventually could eventually reach their reach their capacity to increase payments to the schools of capacity to increase payments to medicine. If this occurs, the medical centers will have to make the schools of medicine. difficult choices about which areas of medical care to support. 6 A nonprofit organization’s change in net position is similar to a for‑profit organization’s year‑end profit. Change in net position is the medical center’s increase or decrease in net assets calculated by subtracting all expenditures, transfers, and other costs from total revenues for the fiscal year. 7 Assembly Bill 1383 (Chapter 627, Statutes of 2009) established a state program that provided supplemental payments to hospitals for various health care services. The state program relied in part on enhanced Medicaid payment percentages contained in the American Recovery and Reinvestment Act. 8 Both medical centers also reported some revenue under the program in fiscal year 2011–12, but those reported amounts were significantly smaller, totaling $2.4 million for UCLA Medical Center and $5 million for UCSF Medical Center. California State Auditor Report 2013-111 15 January 2014 Figure 3 Amounts of Health System Support and Changes in Net Positions at University of California Los Angeles and University of California San Francisco Medical Centers Fiscal Years 2008–09 Through 2012–13 (Dollars in Thousands) $250,000 200,000 150,000 100,000 50,000 0 2008–09 2009–10 2010–11 2011–12 2012–13 Fiscal Years $250,000 200,000 150,000 100,000 50,000 0 2008–09 2009–10 2010–11 2011–12 2012–13 Fiscal Years selegnA soL ainrofilaC fo ytisrevinU ocsicnarF naS ainrofilaC fo ytisrevinU retneC lacideM )ALCU( retneC lacideM )FSCU( Health system support* Change in net position† Sources: UCLA and UCSF medical centers’ audited financial statements for fiscal years 2008–09 through 2012–13. * Health system support consists of financial transfers made by a medical center to other campus departments, most of which go to the campus school of medicine for purposes such as funding school of medicine operating expenses. † Change in net position is the medical center’s increase or decrease in net assets calculated by totaling all revenue and subtracting expenditures, transfers, and other costs for the fiscal year. UCLA and UCSF Medical Centers Do Not Report Enough Information About the Support They Provide to Their Respective Schools of Medicine Although UCLA and UCSF medical centers provided millions of dollars in health system support to other campus departments, the two medical centers’ financial reports lack specificity about the purposes for these monetary transfers, and the university does not 16 California State Auditor Report 2013-111 January 2014 include details about them in other reports it issues. From fiscal years 2008–09 through 2012–13, the amount of these transfers ranged from a low of $30 million in fiscal year 2008–09 at UCSF Medical Center to a high of $103 million in fiscal year 2012–13 at UCLA Medical Center. During this period, the school of medicine on each campus received the largest proportions of these transfers. Such transfers are common among academic medical centers in other states, and the transfers at the UCLA and UCSF medical centers appear to be similar in type and proportion to those that We noted the lack of clear occur at other academic medical centers. We did not identify any explanations in the UCLA and inherent problems with these transfers, but we noted the lack UCSF medical centers’ financial of clear explanations for the specific purposes of these transfers reports for transfers made to other in UCLA and UCSF medical centers’ financial reports, despite campus departments, despite the transfers’ substantial and increasing financial importance. the transfers’ substantial and Without detailed explanations for these transfers, not only do the increasing financial importance. 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. Because the descriptions of health system support listed in the medical centers’ financial statements do not clearly explain the specific purposes to which the funds are put, and the university does not issue a report describing details about these transfers, we analyzed available internal documents about the specific purposes for those transfers and the processes by which the medical centers identify those purposes. We focused on documentation from fiscal year 2011–12 for UCLA Medical Center and from fiscal year 2012–13 for UCSF Medical Center; these records were the most recent such documentation that the medical centers had available at the time of our review. Our work at the two medical centers revealed similar, though not identical, processes by which the centers transfer funds to the schools of medicine and the purposes for which they do so. In each case, the total amount of support transferred by the medical center appears to be the result of agreements with medical departments within the schools of medicine. At UCSF Medical Center, some agreements we reviewed provide for health system support each time a physician provides a service to a medical center patient. For example, one agreement provided for gastroenterology services with a payment amount based on a fee for each unit of service that the medical center expected the physician to provide. Other agreements more broadly support a specific program or physician. For example, an agreement from UCSF Medical Center guaranteed to provide salary and bonus support to the school of medicine for a neurological physician in the event that the California State Auditor Report 2013-111 17 January 2014 physician did not generate enough revenue from clinical services to pay for the physician’s compensation. At UCLA Medical Center, an employment offer to a prospective chair of the school of medicine’s department of orthopaedic surgery indicated that the medical center would provide financial support to this department for trauma services. Methods used to determine the amounts the medical schools need differ: The chief financial officer of UCSF Medical Center shared spreadsheets with us demonstrating the computations used to identify the amount of financial support included in two agreements. UCLA Medical Center’s chief financial officer shared a letter that the school of medicine’s executive chair sent to the chief executive officer of UCLA’s health programs, advocating for additional financial support for staffing a hospital patient care program and explaining how much health system support was needed. Both medical centers’ chief financial officers reported that the Both medical centers’ chief financial increasing amounts of health system support to the schools of officers reported that the increasing medicine are being driven by the growing gap between the revenue amounts of health system support the schools generate from physicians’ services and the costs of to the schools of medicine are being operating clinical practices—including the costs of employing driven by the growing gap between physicians. In addition, UCLA Medical Center’s chief financial the revenue the schools generate officer stated that in 2010 the medical center directed $25 million from physicians’ services and the in health system support funds to purchase a clinical practice in costs of operating clinical practices. Santa Monica. Both chief financial officers also said that their provision of health system support is consistent with practices of academic centers nationwide, and UCLA Medical Center’s chief financial officer added that the recent amounts the medical center provided are in line with other academic medical centers. Our review into the practices of several other academic medical centers, while limited, suggests that this type of support is commonplace and that the amounts reported by UCLA and UCSF medical centers in recent years are not out of proportion to those of other academic medical centers located elsewhere in the United States. In addition, benchmark data from the University HealthSystem Consortium indicate that UCSF and UCLA medical centers were below the industry median in fiscal year 2010–11 in providing funding to their respective schools of medicine.9 Fiscal year 2010–11 was the most recent year for which the medical centers were able to provide these benchmark reports for our review. 9 The University HealthSystem Consortium is a national alliance of 120 academic medical centers and 300 of their affiliated hospitals that collects and reports comparative data on various subjects related to performance improvement. 18 California State Auditor Report 2013-111 January 2014 Notwithstanding the apparently valid reasons for these transfers, and the fact that UCLA and UCSF medical centers comply with current university accounting policies in reporting them, these policies and related practices provide too little transparency regarding the specific purposes of the transfers, especially in light of the increasing amounts of health system support previously discussed. As the proportion of total medical center costs consisting of these transfers and the services they support increases, so does We believe it would benefit the the need for greater transparency. Accordingly, we believe it would university and its stakeholders benefit the university and its stakeholders to increase transparency to increase transparency in this in this area by periodically making public information detailing area by periodically making public the transfers. The university’s senior vice president and chief information detailing the transfers. compliance and audit officer agreed that this recommendation is reasonable. The Financial Performance of UCLA and UCSF Medical Centers Does Not Correlate Directly With Measures of Their Patient Caseloads From fiscal years 2008– 09 through 2012–13, UCLA and UCSF medical centers’ volume of patient cases showed fluctuations, but the medical centers’ net operating revenue—generally revenue from treating patients that exceeds the costs of providing treatment—rose significantly. UCLA Medical Center’s number of patients formally admitted to the hospital (inpatients), as measured in patient days, increased by 2 percent during those five fiscal years, while UCSF Medical Center’s patient days declined by 7 percent.10 Both medical centers generally saw increases in outpatient caseloads during this period, with UCSF Medical Center experiencing 14 percent growth and UCLA Medical Center experiencing a 4 percent increase.11 We compared the medical centers’ fluctuations in inpatient and outpatient caseloads with data in a March 2012 report by the federal Medicare Payment Advisory Commission.12 These data show that the two medical centers’ experiences are in line with the national trend among hospitals. Table 2 displays patient days and outpatient visits by fiscal year for both medical centers. 10 According to the California Office of Statewide Health Planning and Development (OSHPD), patient days are the number of days that all patients formally admitted to the hospital, or inpatients, are hospitalized. Patient days include the day of admission but not the day of discharge. If a patient’s admission and discharge occur on the same day, it counts as one patient day. 11 An outpatient is a patient who receives medical treatment without being admitted to an overnight stay in a hospital. 12 The Medicare Payment Advisory Commission is an independent congressional agency that advises the United States Congress on issues affecting the federal Medicare program. California State Auditor Report 2013-111 19 January 2014 Table 2 Caseload Measures for University of California Los Angeles and University of California San Francisco Medical Centers Fiscal Years 2008–09 Through 2012–13 PERCENTAGE FISCAL YEAR CHANGE FROM FISCAL YEARS 2008–09 CASELOAD CATEGORIES 2008–09 2009–10 2010–11 2011–12 2012–13 THROUGH 2012–13 Patient Days* University of California Los Angeles (UCLA) 261,021 261,895 263,717 263,261 267,136 2% Medical Center University of California San Francisco (UCSF) 190,870 182,641 182,397 179,611 177,646 (7) Medical Center Outpatient Visits† UCLA Medical Center 894,667 869,670 928,590 971,207 932,313 4 UCSF Medical Center 791,189 807,529 831,280 830,747 899,218 14 Sources: UCLA and UCSF medical centers’ audited financial statements for fiscal years 2008–09 through 2012–13. * According to the California Office of Statewide Health Planning and Development, patient days are the number of days that patients formally admitted to the hospital, or inpatients, are hospitalized. † An outpatient is a patient who receives medical treatment without being admitted to an overnight stay in a hospital. Because net operating revenue increased at a greater rate than did the caseload measures we reviewed—patient days, outpatient visits, caseload complexity, and the composition of the pool of payers for patient services (payer mix)—we concluded that caseload alone cannot account for the medical centers’ revenue growth. UCLA Medical Center reported net operating revenue that was more than 50 percent higher in fiscal year 2012–13 than in fiscal year 2008–09. UCSF Medical Center’s net operating revenue rose 22 percent during the same time frame.13 By contrast, no caseload measure we analyzed increased by more than 4 percent over this period except UCSF Medical Center’s outpatient activity. Depicting the lack of correlation between the medical centers’ caseload measures and net operating revenue, Figure 4 on the following page compares changes in this revenue to changes in the patient days recorded by the medical centers from fiscal years 2008–09 through 2012–13. 13 Because the medical centers’ changes in net position are affected by transactions unrelated to their operations and not directly linked to treating patients, we used trends for net operating revenue to analyze the relationship between the medical centers’ caseloads and their financial performance. 20 California State Auditor Report 2013-111 January 2014 Figure 4 Correlation Between Changes in Net Operating Revenue and Patient Days at the University of California Los Angeles and the University of San Francisco Medical Centers Fiscal Years 2008–09 Through 2012–13 (Patient Days in Thousands) (Net Operating Revenue in Millions) University of California Los Angeles (UCLA) University of California San Francisco (UCSF) Medical Center Medical Center 300 300 250 250 200 200 150 150 100 100 50 50 0 Patient days 0 Net operating revenue 2008–09 2009–10 2010–11 2011–12 2012–13 2008–09 2009–10 2010–11 2011–12 2012–13 Fiscal Years Fiscal Years Sources: UCLA and UCSF medical centers’ audited financial statements for fiscal years 2008–09 through 2012–13. Note: According to the California Office of Statewide Health Planning and Development, patient days are the number of days that all patients formally admitted to the hospital, or inpatients, are hospitalized. As the previous paragraph on page 19 suggests, additional factors beyond patient volume complicate the relationship between the medical centers’ caseloads and their revenue trends. For example, we noted that higher complexity of cases treated can increase revenue collected because the medical centers are able to charge more for complex treatments. However, according to a standard industry measure known as the case mix index, the complexity of UCLA and UCSF medical centers’ respective caseloads increased only marginally from fiscal years 2008–09 through 2012–13. In addition, the chief financial officers for both medical centers stated that payer mix can have a large impact on revenue generated by providing medical services, primarily because reimbursement rates from insurance companies are higher than reimbursement rates from government payers such as Medicare. Our review found that the proportion of patient revenue received from commercial payers at both UCLA and UCSF medical centers increased slightly from fiscal years 2008–09 through 2012–13, accounting for some but not all of the increases in patient revenue the centers experienced during that period. Finally, our review identified still other factors—some only indirectly related to caseload—that could influence revenue trends. For example, both chief financial officers California State Auditor Report 2013-111 21 January 2014 noted that their medical centers negotiated improved rates from commercial payers during this period, which also contributed to revenue growth. UCLA and UCSF Medical Centers Complied With Applicable Policies for Approving Compensation Increases UCLA and UCSF medical centers use their revenue principally for paying salaries and benefits, and the two medical centers followed relevant policies for determining this compensation. Additionally, the procedures that UCLA and UCSF medical centers followed in setting and increasing pay levels for highly compensated employees complied with policies set by the University of California Office of the President (Office of the President). In doing so, the medical centers helped ensure that their employees were appropriately compensated and that compensation increases were justified. Types of compensation adjustments that employees may receive to increase their base salaries primarily Definitions of Terms include merit increases, promotional increases, Related to University Compensation and equity increases. Further, employees may also receive incentive awards as an addition to An equity increase is an increase in compensation to their base salary. Equity increases and incentive correct a significant salary inequity caused by factors such awards are defined in the text box. Other types of as rapidly changing external market conditions or a disparity compensation employees can receive in addition to in salaries created by new hires in the same or substantially base salaries include shift differentials and on‑call similar jobs who have comparable levels of skill and pay. We selected for review employees that had experience but receive higher salaries. at least one compensation increase from 2009 Incentive awards are cash awards that are intended to through 2012. We reviewed files at UCLA and motivate individuals or teams to produce results that UCSF medical centers and found that the medical have been predefined and communicated to participants centers complied with applicable policies when in advance and to reward them for achieving the stated justifying and approving compensation increases. performance objectives. These objectives should require Moreover, all 20 of the employees whose files we participants to stretch their performance beyond their normal duties and responsibilities. reviewed received incentive awards during the years under review, and we found that the medical Source: Various University of California policies. centers complied with applicable policies when justifying and approving these incentive awards. Salary adjustments for employees at all five university medical centers are governed by a number of different policies, with both universitywide and campus‑specific policies governing different groups of employees. The medical centers have four basic categories of employees: senior managers, managers and senior professionals, professionals and support staff not represented by unions, and professionals and support staff represented by unions. Compensation increases for employees in the senior management group require regents’ approval, while compensation increases for the other groups of employees require other approvals, 22 California State Auditor Report 2013-111 January 2014 as Table 3 illustrates. Uniquely, salary increases and adjustments for represented professionals and support staff are governed by the collective bargaining agreements for the specific unit type. At both UCLA and UCSF medical centers, we analyzed compensation adjustments for 10 employees making more than $200,000 in at least one calendar year from 2009 through 2012, to determine whether university personnel appropriately justified and approved the adjustments. Table 3 Types of Policies Governing and Authority for Approving the Compensation Increases of Employees at University of California Los Angeles and University of California San Francisco Medical Centers EXAMPLES OF POSITIONS IN TYPES OF POLICIES GOVERNING DECISION MAKER RESPONSIBLE FOR EMPLOYEE CATEGORY THE EMPLOYEE CATEGORY COMPENSATION FOR CATEGORY APPROVING COMPENSATION CHANGES Senior management group Executives, such as Policies of the University of California Regents chief financial officers Board of Regents (regents) Managers and Managers, such as Policies of the University of California Campus chancellor senior professionals controllers and senior Office of the President (Office of the associate directors, and President) and of the local campus’s senior professionals, human resources department such as nurses Nonrepresented professionals Nurses, pharmacists, Policies of the Office of the President Campus chancellor and support staff technicians and of the local campus’s human resources department Represented professionals Nurses, pharmacists, Collective bargaining agreements Collective bargaining agreements and support staff technicians Sources: California State Auditor’s analysis of University of California Los Angeles Medical Center’s, University of California San Francisco Medical Center’s, and the regents’ policies related to compensation. Note: This table does not include physicians because the university medical centers generally do not employ them. The policies reflected in the table are applicable during the audit period from 2009 through 2012. In November 2012 the regents adjusted the approval authority standards required for compensation for the senior management group. For purposes of this report, compensation includes all earnings paid to the employee, including base salary, incentive awards, and allowances. It does not include future payments, such as pensions. Policies require that medical center employees’ salaries be set within a specific range established by the regents and medical centers, and the medical centers complied with this requirement. According to policies from the regents, the university’s Office of the President, and the human resources departments at the University of California Los Angeles and the University of California San Francisco, whose policies apply to medical center employees, an employee’s salary must be within the salary range that is assigned to the employee’s position based on the position’s duties and responsibilities. However, under certain circumstances, the university can make exceptions for paying salaries outside of this range. For example, a salary increase above the salary range maximum for a senior management group employee must have proper justification, such as documentation that the California State Auditor Report 2013-111 23 January 2014 proposed increase is necessary for the employee’s salary to remain competitive with those that other entities might offer, based on market survey data, and must be approved by the regents. The salaries for all 20 employees whose salaries we reviewed were within the appropriate salary ranges. Medical center employees can earn significant augmentations to Medical center employees can their base pay. According to university policies, employees are earn significant augmentations eligible for different types of compensation increases and cash to their base pay according to awards. For example, incentive awards are cash awards intended university policies. to motivate individuals or teams to produce results that have been predefined and communicated to the participants in advance in accordance with an incentive award plan to reward them for achieving the stated performance objectives. As of fiscal year 2011–12, senior management employees and high‑level managers, such as an executive director of ambulatory care services, can generally earn incentive awards of up to 25 percent of their base salaries. In addition, mid‑level managers, such as the budget director of the medical center, can earn bonuses of up to 15 percent of their base salaries. All 20 employees whose compensation we reviewed received incentive award bonuses in at least one year from 2009 through 2012. These employees received awards ranging from less than 1 percent to 25 percent of their base salary. Further, we found that the medical centers followed applicable policies when justifying and approving compensation increases and incentive awards for all 20 employees. Executives at UCLA and UCSF Medical Centers Generally Received Higher Total Compensation Than Did Their Counterparts at the University’s Other Medical Centers Top executives at UCLA and UCSF medical centers generally received more in total compensation than did executives in similar positions at University of California Davis Medical Center (Davis Medical Center), University of California Irvine Medical Center (UCI Medical Center), and University of California San Diego Medical Center (UCSD Medical Center).14 For example, from 2009 through 2012, the chief executive officer at UCLA Medical Center received 33 percent more in total compensation than the average for that position across all five university medical centers, while total compensation for the chief executive officer 14 For purposes of this report, total compensation includes all earnings paid to the employee, including base salary, incentive awards, and allowances. It does not include future payments, such as pensions. 24 California State Auditor Report 2013-111 January 2014 at UCSF Medical Center was 21 percent higher than the average. Table 4 compares total compensation for four top executive positions at all five university medical centers. Table 4 Average Annual Compensation for Chief Officers of University of California Medical Centers 2009 Through 2012 (Dollars in Thousands) UNIVERSITY OF CALIFORNIA CHIEF OFFICER LOS ANGELES SAN FRANCISCO DAVIS IRVINE SAN DIEGO Chief executive officer $1,185 $1,082 $822 $706 $666* Chief operating officer 605 628 584 385* 476 Chief medical officer 521 400* 417 399 439 Chief financial officer 487 487* 478 327* 318 Sources: California State Auditor’s analyses of University of California Office of the President (Office of the President) data from its Corporate Data Warehouse, Corporate Personnel System, and Decision Support System, and of annual reports on executive compensation published by the Office of the President. Note: For purposes of this report, compensation includes all earnings paid to the employee, including base salary, incentive awards, and allowances. It does not include future payments, such as pensions. * Data from the Corporate Personnel System were incomplete for these individuals for one or more years from 2009 through 2012. Therefore, we used compensation data from the Office of the President’s reports on executive compensation. Those reports provide projected instead of actual compensation data. UCSF Medical Center’s chief administrative and human resources officer and both UCLA Medical Center’s senior associate director of patient affairs, human resources, and marketing and its chief financial officer indicated that when analyzing compensation for the two medical centers’ top executives, a comparison of these executives’ compensation to that of their counterparts at similarly ranked hospitals across the nation is more appropriate than is a comparison among executive compensation amounts at the five university medical centers. In pursuing this comparison, we noted a wide range in reported compensation for executives at other prestigious American hospitals. For example, according to Becker’s Hospital Review,15 in 2010 the Cleveland Clinic—rated 15 Becker’s Hospital Review is a trade publication produced by Becker’s Healthcare that compiles hospital and health system news, best practices, and legal guidance for high‑level hospital leaders. California State Auditor Report 2013-111 25 January 2014 fourth in the 2013 U.S. News and World Report rankings— reported in its tax returns that its chief executive officer received $2.31 million in total compensation, while in 2011 Cedars‑Sinai Medical Center in Los Angeles, another top‑ranked hospital, paid its chief executive officer $2.77 million. The Hospital of the University of Pennsylvania, which was ranked 11th in 2013, paid its executive director $1.53 million in 2010. These data indicate that chief executive officers of highly ranked medical centers are highly compensated. In addition to the need to compete with other highly ranked institutions for executive staff, both medical centers’ human resources officers also cited the impact of the same geographic factors that contribute to campus‑specific pay ranges in university policy for nonexecutive staff. UCLA and UCSF Medical Centers Increased Their Proportions of Employees Who Received More Than $200,000 in Compensation Annually Highly compensated employees became more common at UCLA and UCSF medical centers from 2009 through 2012.16 As Table 5 on the following page indicates, at both UCLA and UCSF medical centers, the number of employees compensated more than $200,000 annually increased, as did their proportion among all medical center employees at these two medical centers.17 However, these highly compensated employees were greater in number at UCSF Medical Center throughout the period, primarily because of higher pay scales for nonexecutive employees at that medical center. These differences in pay rates for nonexecutive managers at each campus are elements of universitywide policy and are rooted in geographic market differences. UCSF Medical Center’s chief administrative and human resources officer provided us with figures for negotiated pay rates for such represented employees as nurses and pharmacists. These figures further demonstrate how compensation varies between the two medical centers. Senior human resources staff at both UCLA and UCSF medical centers stated that trends in local labor markets also drive these rates. 16 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. 17 In calculating the proportions for certain job classifications, we did not include employees who earned less than $10,000 in a given calendar year in our count of employees for that same calendar year. 26 California State Auditor Report 2013-111 January 2014 Table 5 Number and Percentage of Employees at University of California Los Angeles and University of California San Francisco Medical Centers Who Received Compensation in Excess of $200,000 Annually in 2009 and 2012 MEDICAL CENTER 2009 2012 Number of Employees Who Received More Than $200,000 Annually University of California Los Angeles Medical Center (UCLA Medical Center) 28 56 University of California San Francisco Medical Center (UCSF Medical Center) 77 129 Percentage of Total Employees Who Received More Than $200,000 Annually UCLA Medical Center 0.28% 0.50% UCSF Medical Center 0.95 1.50 Sources: California State Auditor’s analysis of data obtained from the University of California Office of the President’s Corporate Data Warehouse, Corporate Personnel System, and Decision Support System. Note: For purposes of this report, compensation includes all earnings paid to the employee, including base salary, incentive awards, and allowances. It does not include future payments, such as pensions. From 2009 through 2012, the job classifications of highly compensated employees also differed notably between the two medical centers, as Table 6 shows. Nurses and Nursing Services Employees was the employee classification within which the two centers had the greatest difference in number of employees earning more than $200,000: In 2012 UCSF Medical Center had 45 employees at this compensation level compared to UCLA Medical Center’s five employees at that level. Significant differences occurred in other employee classifications as well. For example, UCSF Medical Center compensated some pharmacists more than $200,000 each year, while UCLA Medical Center did not compensate any pharmacists at this level in any of the four years we reviewed. In all four years, at both medical centers, the Managers category was the largest category of employees earning more than $200,000. UCSF Medical Center’s chief financial officer and its chief administrative and human resources officer stated that negotiated rates for represented nurses and pharmacists contributed to the trend toward higher compensation for employees in those classifications.18 Our analysis of pay rates for represented nurses 18 Represented personnel are those employees who are members of a labor union, or bargaining unit. Contracts negotiated between the bargaining units and the university cover all aspects of the employee’s employment, including pay rates. California State Auditor Report 2013-111 27 January 2014 at both medical centers, provided by UCSF Medical Center’s chief administrative and human resources officer, found that the nurses at UCSF Medical Center had higher base pay rates than those at UCLA Medical Center. In addition, UCSF Medical Center nurses benefit from higher rates for shift differentials and on‑call pay than do nurses at UCLA Medical Center.19 UCSF Medical Center’s chief financial officer indicated that the primary reason for the increased earnings among nurses and pharmacy staff and the growth in the number of employees earning more than $200,000 annually in recent years was overtime pay for work related to the medical center’s implementation of its electronic health records system. In explaining pharmacists’ pay, UCSF Medical Center’s chief administrative and human resources officer stated that the medical center compensates all of its pharmacists—who are also eligible for overtime and extra compensation for being on call—at the top of the classification’s pay scale, regardless of their level of experience. He explained that this policy started several years ago because of high levels of competition from private‑sector employers for pharmacists. Table 6 Number of Employees at University of California Los Angeles and University of California San Francisco Medical Centers Who Received Annual Compensation in Excess of $200,000 2009 Through 2012 2009 2010 2011 2012 UNIVERSITY OF UNIVERSITY OF CALIFORNIA CALIFORNIA LOS ANGELES SAN FRANCISCO EMPLOYEE CLASSIFICATION (UCLA) (UCSF) UCLA UCSF UCLA UCSF UCLA UCSF Executives 7 5 7 6 7 7 8 6 Managers 18 45 24 20 31 35 35 51 Management Services Personnel 1 0 1 0 2 0 3 0 Nurses and Nursing Services Employees 1 19 3 13 9 27 5 45 Radiation Technologists 1 2 2 2 2 3 3 7 Radiation Physicists 0 0 1 0 1 0 1 0 Pharmacists 0 2 0 1 0 10 0 9 Medical Auxiliary Personnel 0 1 0 0 0 0 0 1 Clinical Professors 0 3 0 3 0 3 0 3 Computer Programmers 0 0 0 0 0 1 0 7 Other 0 0 0 0 1 0 1 0 Totals 28 77 38 45 53 86 56 129 Sources: California State Auditor’s analysis of data obtained from the University of California Office of the President’s Corporate Data Warehouse, Corporate Personnel System, and Decision Support System. Note: For purposes of this report, compensation includes all earnings paid to the employee, including base salary, incentive awards, and allowances. It does not include future payments, such as pensions. 19 Shift differential is added pay for work performed other than during regular daytime hours. 28 California State Auditor Report 2013-111 January 2014 From 2009 through 2012, UCLA Medical Center had fewer nonexecutive managers earning more than $200,000 annually than did UCSF Medical Center for three of the four years, but UCLA Medical Center exhibited more rapid growth in the number of these managers over that period. The number of employees in this classification at UCLA Medical Center who received more than $200,000 in annual compensation nearly doubled during this period. UCLA Medical Center’s senior associate director of patient affairs, human resources, and marketing stated that the increase occurred because of regular pay increases and because the maximum incentive bonus payment for these employees increased in fiscal year 2011–12 from 10 percent to 15 percent of the employee’s base salary.20 Together, these factors had the effect of increasing the number of managers receiving more than $200,000 in annual compensation. Despite this growth, the proportion of managers earning more than $200,000 annually remained lower in 2012 at UCLA Medical Center than at UCSF Medical Center. UCSF Medical Center’s chief administrative and human resources officer stated that pay ranges for managers vary by campus, and the same geographic market trends that contribute to higher pay ranges for represented staff at UCSF Medical Center extend to managers’ compensation as well. We confirmed that managers’ pay ranges vary by campus and are specified in campus‑level compensation policy. From 2009 through 2012, UCLA From 2009 through 2012, UCLA and UCSF medical centers and UCSF medical centers had had more nonexecutive managers and nursing staff who received more nonexecutive managers more than $200,000 in annual compensation than did any of and nursing staff who received the other three university medical centers. Additionally, UCSF more than $200,000 in annual and UCLA medical centers had the highest and second‑highest compensation than did any proportions of their nursing staff exceeding the $200,000 annual of the other three university threshold over this period. However, UCI Medical Center had the medical centers. greatest proportion of managers that earned more than $200,000 annually from 2009 through 2012, with more than 13 percent being compensated above that level. This proportion was more than 12 percent at UCSF and nearly 9 percent at UCLA. As previously stated, contracted pay agreements determine differences among university medical centers in nursing staff compensation, and managers’ pay is determined by campus‑specific pay scales. Although the Two Medical Centers Experienced Changes in Staffing Levels, Key Quality of Patient Care Measures Remained Stable From fiscal years 2008–09 through 2011–12, variations in staffing levels at UCLA and UCSF medical centers did not have a noticeable effect on quality of patient care measures. During these years, 20 Both universitywide and campus‑specific compensation policies govern the size of these increases. California State Auditor Report 2013-111 29 January 2014 UCSF Medical Center’s patient care staffing levels increased slightly, while UCLA Medical Center’s decreased; management staffing levels at both locations increased. The changes in staffing levels appear not to have altered key measures of the quality of patient care and of patient satisfaction, with the indicators we reviewed either improving or remaining stable. From Fiscal Years 2008–09 Through 2012–13, the Two Medical Centers Experienced Changes in Staffing Levels UCLA and UCSF medical centers use more staff per patient, on UCLA and UCSF medical centers use average, than other hospitals do, and this practice most likely results more staff per patient, on average, from the relatively high complexity of the cases that these medical than other hospitals do. centers treat. One way to gauge staffing levels is to use an industry measure called full‑time equivalents per an adjusted occupied bed, or staff per bed, which shows how many employees are working for each occupied hospital bed.21 To determine whether patient care staffing levels at the medical centers changed from fiscal years 2008–09 through 2012–13, we reviewed how many staff per bed each medical center used during those years. While the levels of staff per bed at each medical center were above the average for California hospitals in 2010, staffing levels at both centers changed from fiscal years 2008–09 through 2012–13. During this period, UCSF Medical Center overall staff per bed level increased moderately, while UCLA Medical Center’s remained relatively flat. Because the staff per bed measure includes staff members, such as clerical staff, who are not related directly to patient care, we also reviewed staff per bed data just for patient care staff, including aides, orderlies, and registered nurses. We also reviewed staffing level trends for managers and supervisors because some managers, such as nursing supervisors, are involved in patient care. According to OSHPD data, California hospitals used an average of 1.48 registered nurses, 0.38 aides and orderlies, and 0.43 managers and supervisors per occupied bed in 2012.22 As Table 7 on the following page reflects, at UCSF Medical Center the staffing levels of managers and supervisors and of patient care staff both increased from fiscal years 2008 –09 through 2012–13. The greatest percentage increase was in the staffing levels of aides and orderlies, nontechnical personnel who provide direct nursing 21 Figures for staff per bed account for both inpatient and outpatient activity. Full‑time equivalents is a measure that accounts for part‑time employees’ work by converting part‑time hours to full‑time hours. For example, if two employees work 20 hours per week, their combined work equals one 40‑hour work week or one full‑time equivalent. 22 OSHPD collects and disseminates information about California’s health care infrastructure and health care outcomes. 30 California State Auditor Report 2013-111 January 2014 care to patients; their staffing levels increased by 18 percent. In addition, the staffing levels of managers and supervisors, which includes department heads and nursing supervisors, increased during the same period by 17 percent. According to UCSF Medical Center’s chief administrative and human resources officer, increases in these categories were driven primarily by the medical center’s acquiring additional outpatient offices and establishing its Orthopaedic Institute. Further, he explained the staff‑per‑bed ratios at UCSF Medical Center appear higher than the industry standard because the medical center handles more complex cases, and the teaching component of an academic medical center can drive up the numbers. Table 7 University of California San Francisco Medical Center’s Staffing Levels Fiscal Years 2008–09 Through 2012–13 STAFF PER BED* PERCENTAGE CHANGE BETWEEN FISCAL YEAR FISCAL YEARS 2008–09 EMPLOYEE CLASSIFICATION† 2008–09 2009–10 2010–11 2011–12 2012–13 AND 2012–13 Aides and orderlies 0.66 0.72 0.73 0.77 0.78 18% Managers and supervisors 0.65 0.66 0.69 0.75 0.76 17 Registered nurses 2.16 2.18 2.24 2.35 2.27 5 Source: California State Auditor’s analysis of unaudited University of California San Francisco Medical Center data. * Full‑time equivalents per adjusted occupied bed, or staff per bed, is a common statistic in the health care industry that indicates how many staff are working per bed in use at a hospital. † We selected the classifications aides and orderlies and registered nurses because they have significant involvement with direct patient care. We also selected the managers and supervisors category because some managers and supervisors are involved in patient care. At UCLA Medical Center, as Table 8 shows, staffing levels for managers and supervisors increased by 6 percent from fiscal years 2008–09 through 2012–13, while the levels of patient care staff decreased; aides and orderlies experienced the greatest decline, with a 6 percent drop. According to UCLA Medical Center, case and risk managers added to provide patient assistance and to help lower readmission accounted for a large portion of the staffing increase in the managers and supervisors category. Also, UCLA Medical Center staff stated that the home health program ended in fiscal year 2009–10 and that the medical center reduced the number of registered nurses as a result. Further, UCLA Medical Center also stated that this staffing‑level measure does not consider the changes in the complexity of the case mix, also known as the case mix index. California State Auditor Report 2013-111 31 January 2014 Table 8 University of California Los Angeles Medical Center’s Staffing Levels Fiscal Years 2008–09 Through 2012–13 STAFF PER BED* PERCENTAGE CHANGE BETWEEN FISCAL YEAR FISCAL YEARS 2008–09 AND EMPLOYEE CLASSIFICATION† 2008–09 2009–10 2010–11 2011–12 2012–13 2012–13 Aides and orderlies 0.89 0.83 0.82 0.86 0.84 (6%) Managers and supervisors 0.52 0.53 0.52 0.53 0.55 6 Registered nurses 2.32 2.19 2.23 2.29 2.27 (2) Source: California State Auditor’s analysis of unaudited University of California Los Angeles Medical Center data. * Full‑time equivalents per adjusted occupied bed, or staff per bed, is a common statistic in the health care industry that indicates how many staff are working per bed in use at a hospital. † We selected the classifications aides and orderlies and registered nurses because they have significant involvement with direct patient care. We also selected the managers and supervisors category because some managers and supervisors are involved in patient care. Changes in Staffing Levels Apparently Did Not Affect Key Patient‑Care Quality Measures at Either Medical Center Indicators of patient satisfaction and patient‑care quality we reviewed generally remained stable or improved at UCLA and UCSF medical centers from fiscal years 2008–09 through 2011–12. To determine whether patient‑care quality changed during our audit period, we reviewed data for UCLA and UCSF medical centers compiled by the federal Centers for Medicare and Medicaid Services (CMS).23 The CMS data include information for hospitals nationwide and provide information on patient satisfaction and measures of the quality of patient care. For the period we audited, changes in staffing levels at UCLA and UCSF medical centers did not negatively affect patient satisfaction or the patient‑care quality measures we reviewed. According to CMS patient survey data, patient satisfaction improved at both medical centers from fiscal years 2008–09 through 2011–12. For example, as illustrated in Figure 5 on the following page, the percentage of UCSF Medical Center patients indicating they would definitely recommend the hospital to friends and family increased from 77 percent to 84 percent for the period we reviewed. This statistic also increased at Ronald Reagan UCLA Medical Center and Santa Monica UCLA Medical Center and Orthopaedic Hospital. 23 CMS collects, analyzes, and distributes key information on hospital performance and quality to help improve hospitals’ quality of care. From all of CMS’s quality of care measures, we selected for our analysis the two categories of measures—patient satisfaction and patient‑care quality—that generally had complete data for all four years from 2009 through 2012. 32 California State Auditor Report 2013-111 January 2014 Further, as Figure 5 shows, both UCLA and UCSF medical centers generally scored higher on patient satisfaction than the average rate for U.S. hospitals. In addition, although not shown in Figure 5, UCLA and UCSF medical centers improved in other patient satisfaction categories, such as patients always receiving help from hospital staff as soon as they wanted and staff always explaining medicines before giving them to patients. Figure 5 Percentages of Patients at University of California Los Angeles and University of California San Francisco Medical Centers Who Would Definitely Recommend the Hospitals to Others Fiscal Years 2008–09 Through 2011–12 egatnecreP 90% Ronald Reagan University of California Los Angeles (UCLA) 84 Medical Center University of California San Francisco 78 (UCSF) Medical Center Santa Monica UCLA Medical Center 72 and Orthopaedic Hospital U.S. National Average 66 60 2008–09 2009–10 2010–11 2011–12 Fiscal Years Source: Data from the Hospital Compare function on the federal Medicare Web site. Note: UCLA Medical Center includes the Ronald Reagan UCLA Medical Center and the Santa Monica UCLA Medical Center and Orthopaedic Hospital. UCLA Medical Center reports data for these two entities separately. UCLA Medical Center does not report this type of data for Resnick Neuropsychiatric Hospital, which operates under a different category of license than UCLA Medical Center’s other facilities. In contrast to the clear improvements in the patient satisfaction measures over the last several years at UCLA and UCSF medical centers, measures of the quality of patient care remained relatively stable, with only small increases and decreases in the different measures. Generally, the changes in the measures we evaluated were not significant. For UCSF Medical Center and for UCLA Medical Center’s two major facilities—Ronald Reagan UCLA Medical Center and Santa Monica UCLA Medical Center and Orthopaedic Hospital—we reviewed the data for all six patient‑care quality measures available from CMS for fiscal years from 2008–09 through 2010–11 or 2011–12, whichever was the most recent year for which CMS had data available for each measure.24 As Table 9 shows, although the rates for the measures at 24 Although CMS has data for other measures of patient‑care quality, only six measures from CMS generally had complete data for all four years of the period we reviewed. California State Auditor Report 2013-111 33 January 2014 the different facilities varied during these years, none of the measures changed by more than 2 percentage points, and all the measures were generally near or better than the national averages for the most recent fiscal year for which CMS data were available. Table 9 Changes in Measures of the Quality of Patient Care at University of California Los Angeles and University of California San Francisco Medical Centers Fiscal Years 2008–09 Through 2011–12 FISCAL YEAR PERCENTAGE POINT 2008–09 2011–12 CHANGE U.S. National Average Heart failure death rate 11.1% 11.7% 0.6% Heart attack death rate 16.6 15.2 (1.4) Pneumonia death rate 11.5 11.9 0.4 Heart failure readmission rate* 24.5 24.8 0.3 Heart attack readmission rate* 19.9 19.8 (0.1) Pneumonia readmission rate* 18.2 18.4 0.2 University of California San Francisco (UCSF) Medical Center Heart failure death rate 9.4 11.3 1.9% Heart attack death rate 15.9 15.7 (0.2) Pneumonia death rate 10.0 11.2 1.2 Heart failure readmission rate* 25.2 25.4 0.2 Heart attack readmission rate* 20.6 21.0 0.4 Pneumonia readmission rate* 17.7 16.7 (1.0) Ronald Reagan University of California Los Angeles (UCLA) Medical Center Heart failure death rate 9.3 8.2 (1.1%) Heart attack death rate 13.6 14.0 0.4 Pneumonia death rate 8.6 8.6 0 Heart failure readmission rate* 23.0 22.9 (0.1) Heart attack readmission rate* 19.4 18.9 (0.5) Pneumonia readmission rate* 19.1 19.5 0.4 Santa Monica UCLA Medical Center and Orthopaedic Hospital Heart failure death rate 9.0 8.5 (0.5%) Heart attack death rate 14.4 13.9 (0.5) Pneumonia death rate 9.5 8.6 (0.9) Heart failure readmission rate* 24.9 24.8 (0.1) Heart attack readmission rate* 20.8 19.4 (1.4) Pneumonia readmission rate* 18.1 18.6 0.5 Source: California State Auditor’s analysis of data from the Hospital Compare function on the federal Medicare Web site. Note: UCLA Medical Center includes the Ronald Reagan UCLA Medical Center and the Santa Monica UCLA Medical Center and Orthopaedic Hospital. UCLA Medical Center reports data for these two entities separately. UCLA Medical Center does not report this type of data for Resnick Neuropsychiatric Hospital, which operates under a different category of license than UCLA Medical Center’s other facilities. * Because readmission‑rate data were not available for fiscal year 2011–12, the table lists the data from fiscal year 2010–11, which was the most recent information available during our review. 34 California State Auditor Report 2013-111 January 2014 UCLA and UCSF Medical Centers Meet the Limited State Requirements Concerning Charity Care Not only have key measures of patient‑care quality at UCLA and UCSF medical centers generally remained stable over the last four years, but the two medical centers have also followed state requirements for reporting their activities concerning their provision of charity care, which is free or discounted health care provided to certain patients. State law requires that California hospitals develop and submit to OSHPD their financial assistance policies for charity care, and OSHPD requires that the hospitals report the amount of charity care they provide each year in annual financial disclosure documents. Figure 6 provides a snapshot of the full and partial charity care levels for all university medical centers and selected other hospitals. Figure 6 Percentages of Federal Poverty Levels That University of California Medical Centers and Other California Hospitals Use to Qualify Patients for Full or Partial Charity Care Hospital Eligible for full charity care All five University of California medical centers Eligible for partial charity care Cedars-Sinai Medical Center St. Mary’s Medical Center Keck Hospital of University of Southern California San Francisco General Hospital 0% 100% 200% 300% 400% 500% Family of Four Annual Income as a Percentage of the 2013 Federal Poverty Level $47,100 is 200 percent of the 2013 federal poverty level Sources: The most recent charity care policy for each of the hospitals listed and the 2013 federal poverty level guidelines listed on the Web site for the U.S. Department of Health and Human Services. From fiscal years 2008–09 through 2011–12, UCLA and UCSF medical centers reported less charity care as a percentage of operating expenses than did the other three university medical centers or other facilities that are not part of the university, as Figure 7 illustrates. This figure also shows that, with the exception of Ronald Reagan UCLA Medical Center and the most recent California State Auditor Report 2013-111 35 January 2014 two years depicted for UCSF Medical Center, the two medical centers were usually near the 2012 statewide average of approximately 2 percent on this measure for the years we reviewed. Figure 7 Amounts of Charity Care as a Percentage of Operating Expenses at University of California and Other California Medical Centers Fiscal Years 2008–09 Through 2011–12 20% Fiscal Year 2008–09 18 2009–10 2010–11 2011–12 16 14 12 10 8 6 4 2 0 Ronald Santa UCSF UC Davis UC Irvine UC Cedars-Sinai Keck San St. Mary’s Reagan Monica Medical Medical Medical San Diego Medical Hospital of Francisco Medical UCLA UCLA Center Center Center Medical Center USC General Center Medical Medical Center Hospital Center Center eraC ytirahC derevoC tahT sesnepxE gnitarepO fo egatnecreP Statewide average for California hospitals in 2012 was 2 percent Source: California State Auditor’s analysis of data from the California Office of Statewide Health Planning and Development (OSHPD). Note: The charity care amounts used in the calculations are from the financial disclosures provided to OSHPD by each of the medical centers and hospitals. Charity care is free or discounted health care provided to certain patients. The disparities in reported charity care between the university medical centers may reflect the patient populations they serve. That is, less of the patient populations served by UCLA and UCSF medical centers may be eligible for charity care than the populations served by the three other university medical centers. Certain demographic data compiled by OSHPD tend to support this possibility. As Table 10 on the following page shows, the percentages of inpatients in 2012 who lived within five miles of UCLA and UCSF medical centers and met the requirements for 36 California State Auditor Report 2013-111 January 2014 free full charity care were quite a bit lower than the percentages for local patients qualified for such care who were admitted to the other three medical centers. Thus, higher numbers of inpatients from low‑income families may be admitted to Davis Medical Center, UCI Medical Center, and UCSD Medical Center because those facilities are the closest hospitals to their residences. Additionally, according to correspondence to OSHPD from Davis Medical Center—whose charity care as a percentage of its operating expenses is well above the levels of charity care at the other medical centers, as shown in Figure 7—it is the largest single hospital provider of care to the Medicaid and safety‑net population in the Sacramento region. Table 10 Inpatients at University of California Medical Centers in 2012 Who Lived Within Five Miles of the Center That Admitted Them and Who Qualified for Full Charity Care PERCENTAGE OF INPATIENTS WITH INCOMES UNDER OR EQUAL TO 200 PERCENT MEDICAL CENTER OF THE FEDERAL POVERTY LEVEL University of California (UC) Davis Medical Center 42% UC San Diego Medical Center 40 UC Irvine Medical Center 34 Santa Monica UC Los Angeles (UCLA) Medical 26 Center and Orthopaedic Hospital Ronald Reagan UCLA Medical Center 24 UC San Francisco Medical Center 22 Source: Data from the California Office of Statewide Health Planning and Development’s Healthcare Atlas. The federal Patient Protection and Affordable Care Act (act) will provide insurance to many previously uninsured Californians, in some cases providing payments for services that may previously have been classified as charity care. According to the university, the medical centers will likely be affected by the coverage expansion provisions of the act that go into effect in 2014, creating pressure on the medical centers to care for more patients without additional financial resources. However, the effect of this legislation on the medical centers is not yet determinable. California State Auditor Report 2013-111 37 January 2014 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 that describes the financial and programmatic impact of each campus’s health system support transfers. We conducted this audit under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives specified in the scope section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Respectfully submitted, ELAINE M. HOWLE, CPA State Auditor Date: January 30, 2014 Staff: John Billington, Project Manager Casey Caldwell Kevin Henry, MBA Mark Reinardy, MPP Michelle J. Sanders Legal Counsel: Donna Neville, Chief Counsel Richard B. Weisberg, JD IT Audit Support: Michelle J. Baur, CISA, Audit Principal Lindsay M. Harris, MBA Kim Buchanan, MBA, CIA For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at (916) 445‑0255. 38 California State Auditor Report 2013-111 January 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-111 39 January 2014 40 California State Auditor Report 2013-111 January 2014 California State Auditor Report 2013-111 41 January 2014 42 California State Auditor Report 2013-111 January 2014 cc: Members of the Legislature Office of the Lieutenant Governor Little Hoover Commission Department of Finance Attorney General State Controller State Treasurer Legislative Analyst Senate Office of Research California Research Bureau Capitol Press