October 26, 1999
Volume 46
Number 9

Health System's FY 1999 Losses: More Cutbacks, Restructuring Ahead

Last week the University of Pennsylvania Health System released figures on its FY 1999 operating losses, accompanied by the outline of an "aggressive financial recovery plan" that will include the elimination of another 1700 positions by next June. The target is to "improve financial results by approximately $250 million over three years," with the workforce reduction accounting for $40 million of the cost containment in FY 2000.

In reports to the Trustees and to the press, Medicine's Dean William N. Kelley, CEO of the UPHS, cited a $166 million operating loss in FY1999, which includes some nonrecurring items such as the write-down of certain accounts receivable and the severance costs of last May's workforce reduction. Adjusted for reportable interest and dividend income, the total operating loss in FY 1999 comes to $198 million on the System's annual operating budget of $1.9 billion.

The loss was sustained despite treating record numbers of patients, he said, with inpatients up 8 percent and outpatients up 11 percent last year. And it is attributed to a combination of factors (see Dr. Kelley's statement, in this issue) producing similar losses and cutbacks at peer institutions--among them UCSF/Stanford, which lost $86 million in FY 1998 and is eliminating 2000 positions, or 15% of the workforce. Detroit Medical Center, which lost $106 million in 1998 and another $93.2 million in the first seven months of 1999, has also eliminated 2000 jobs and has closed one hospital.

Penn's total staffing reductions are projected at 2800 positions--20% of the Health System workforce--including the 1100 positions already trimmed last May. Already predicting in May that more cuts lay ahead, the System retained the Hunter Group, a national health-care consulting firm to develop additional short- and long-term recommendations designed to "both preserve medical excellence and improve financial performances," a press conference document said. "UPHS is reducing management layers, streamlining its billing and collections processes, and eliminating programs and services not directly related to its core mission."

Elsewhere Dr. Kelley said, "These cuts do not represent an across-the-board percentage reduction, but are the result of an area-by-area analysis that compared UPHS staffing levels to national benchmarks for academic medical centers." All affected employees will receive thirty days' notice, and eligible staff will receive pay and benefits-continuation based on years of service, as well outplacement assistance, the announcement added.

The financial recovery plan has three main elements:

  • The staffing reductions, being done in three phases:

Phase 1--In May 1999, UPHS announced the elimination of 1100 jobs (9% of the workforce); of these jobs, 550 were unfilled positions but 450 employees were laid off.

Phase 2--On November 1, UPHS will eliminate another 975 positions (17% of the workforce) from the Health System's corporate staff and four hospitals (HUP, Pennsylvania Hospital, Presbyterian Medical Center, and Phoenixville Hospital). In response to query on precisely where the cuts would be made, a UPHS spokesperson said no announcements will be made until the affected individuals have been informed.

Phase 3--By the end of this fiscal year, June 30, 2000, UPHS will eliminate the third set, of 725 positions, from other areas including the primary-care network, physician-practice plan, multispeciality facilities, and home-care groups.

  • Restructuring and consolidation of work processes in hospitals and physician practices to streamline flow and eliminate duplicative functions.
  • Development of a consolidated and standardized approach to the purchase of equipment, supplies and services that will maximize UPHS's high-volume purchasing power.

"These are difficult times for teaching hospitals and academic medical centers, and difficult times demand that we make difficult decisions," said University President Judith Rodin in a press statement released by University Relations. "Teaching hospitals and academic medical centers across the nation are experiencing great financial distress; the University of Pennsylvania Health System is not alone. The environment in which these institutions operate is changing dramatically, and UPHS must change, too.

"The financial recovery plan for UPHS is absolutely essential, and it has been very carefully considered," she said. "But the workforce reduction it entails is a very hard step for the institution to take--and it is taken only because there is no alternative.

"UPHS has earned one of the most enviable reputations in America, and hospital admissions and outpatient volume throughout the system are at record-high levels. We are encouraged by these facts as we make today's difficult announcements. We are committed to maintaining the Health System's national reputation for excellence," Dr. Rodin concluded, "just as we are committed to restoring its long-term financial stability. Fiscal stability and superior teaching, research and patient care are the essential components of a vibrant and viable Health System that will serve people in the tri-state area for generations to come."

Ware Professorship: Dr. Lee in Alzheimer's Research

A new endowed chair in Alzheimer's research has been created in the School of Medicine, and its first incumbent has been named.

The first holder of the John H. Ware 3d Professorship in Alzheimer's Research is Dr. Virginia M.-Y. Lee, the internationally recognized Alzheimer's disease researcher who is co-director of Penn's Center for Neurodegenerative Disease Research.

Dr. Lee, who was born in Chunking in the People's Republic of China, attended the Royal Academy of Music in London before turning to science. She took her bachelor's degree in chemistry from the University of London in 1967, and her master's in biochemistry the following year. She came to the U.S. to study at UC San Francisco, where she took her Ph.D. in biochemistry in 1973. After postgraduate work in The Netherlands at the University of Utrecht's Rudolf Magnus Institute for Pharmacology, and in Boston at the neuropathology department of the Children's Hospital and Harvard Medical School, she came to Philadelphia in 1979 to join Smith Kline Beckman Corp. as an associate senior research investigator.

She joined Penn's Department of Pathology and Laboratory Medicine in 1980, and after a year as Research Associate she became a Research Assistant Professor. The next year she also enrolled in the Wharton School, and won her MBA there in 1984. After advancing to Research Professor in 1990, she was made a tenured professor of pathology and laboratory medicine in 1993.

Dr. Lee has won numerous awards for her research, including a Weil Award, two from Metropolitan Life, the Zenith and Allied Signal Awards, and, last year, both a Potamkin Prize and Rita Hayworth Award for research in Alzheimer's Disease. She is known for her investigations of the cellular biology of neurons and the specific neuropathologies underlying Alzheimer's disease--i.e., the neurofibrillary tangles and beta-amyloid temporal-lobe dementias, Parkinson's disease, amytrophic lateral sclerosis (ALS), and other neurodegenerative diseases. She is also actively pursuing the roles played by genes and genetic mutations in the progression of these diseases. In one recent instance, the Center she co-directs with Dr. John Q. Trojanowski was able to pinpoint a new pathology in Alzheimer's, a plaque-like lesion involving a previously unidentified protein (Almanac July 15, 1997). Past methods of Alzheimer's disease pathologies--primarily silver and thioflavin staining--did not pick up this lesion, but Drs. Lee and Trojanowski created a new series of antibodies that did so.

The new professorship was endowed through a generous gift from the Ware family-supported Oxford Foundation as "a tribute to the life and career of John H. Ware 3d," a former U.S. Congressman, entrepreneur, and civic leader. Mr. Ware was also a 1930 alumnus of the Wharton School and a Trustee, whose benefactions included the creation of Ware College House in the Quad, the first living-learning house in what is now a system of 12 houses encompassing all of the undergraduate residences here.

Mr. Ware suffered from Alzheimer's disease for eight years before dying of cancer in July, 1997, at the age of 88. A family spokesman, Paul W. Ware, chairman and president of the Oxford Foundation, said Penn researchers have made "monumental strides in understanding possible causes of Alzheimer's disease and ways to confirm its diagnosis. Our commitment to the John H. Ware 3d Endowed Professorship in Alzheimer's Research will help to ensure that the University of Penn-sylvania's team continues to be at the forefront in the fight against this debilitating disease. With this gift, our family seeks to honor the incredible strength and spirit of our father and grandfather, John H. Ware 3d, and to help others who suffer from Alzheimer's disease."

Added the Medical School's Dean William N. Kelley, "Alzheimer's disease continues to have a devastating impact on millions of individuals, their families, and society. For this reason, the battle against this disease must rank as one of the highest priorities in biomedical research. The generosity of the Ware family and the Oxford Foundation invaluable in advancing Penn's contribution to this important work." Approximately 4 million Americans have Alzheimer's disease today, a spokesman of Penn Med said, and it is estimated that 14 million will have Alzheimer's by the middle of the next century unless a cure or prevention is found. One in 10 people over 65 and nearly half of those over 85 have Alzheimer's disease. A person with Alzheimer's lives an average of 8 years and as many as 20 years or more from the onset of symptoms. U.S. society spends at least $100 billion a year on Alzheimer's disease.

"With more people living longer, generally healthier lives, the need is ever greater for us to understand Alzheimer's disease and to develop effective preventions and treatments for it," said Dr. Lee. "Scientists have made enormous recent progress in illuminating the mechanisms of Alzheimer's disease and those efforts are ongoing in our laboratories and elsewhere. With the support of the Ware family and the Oxford Foundation, I have confidence that we at Penn will be able to help speed the creation of meaningful interventions to counter this terrible disease."

Almanac, Vol. 46, No. 9, October 26, 1999