Health System faces shortfall

The system's projected $78 million shortfall should not affect the quality of the service. The health services component of the University Health System is projected to lose more than $78 million in fiscal year 1998 due to new insurance rules and expected federal budget cuts, Health System Chief Financial Officer John Wynne said. Running its first deficit in a decade, the Health System is planning to cut the shortfall to only $12.5 million within two years, he said. Wynne stressed that the loss will be a "temporary situation" which should not affect the system's operations. Health services includes most of the Health System, except the Medical School. Its annual budget -- more than $1.3 billion this year -- is larger than the budget for the rest of the University combined, and for planning purposes, health services are treated separately from the rest of the school's operations. Its biggest components are the Hospital of the University of Pennsylvania, Presbyterian Hospital, Clinical Practices of the University of Pennsylvania, the Clinical Care Associates community network and Franklin Physicians Services -- a for-profit corporation that provides local doctors with billing, payroll and accounting services. While health services saw a $27 million operational surplus in 1996 and a $2.8 million surplus this year, Wynne said several factors contribute to the predicted loss in 1998. At the end of last year, the Pennsylvania General Assembly drastically changed the ground rules for the state's malpractice fund, the Medical Professional Liability Catastrophe Loss Fund, resulting in a 104.2 percent increase in malpractice insurance premiums like those paid by the University. The increase will take effect in 1998. In addition, Wynne predicted that Medicare legislation in the U.S. Congress will result in "significant reductions in payments to hospitals and physicians." The state assembly is also considering bills which may reduce its Medicaid allocations. But he stressed that health services' expected non-operating surplus of approximately $41 million -- which is earned primarily through investments -- will likely cut the actual deficit to around $37 million. Additionally, he said the system tends to examine its finances "conservatively" by overestimating losses and underestimating gains. Health services earned $53 million in non-operating revenue in 1996 and $64 million in 1997. The projected 1998 shortfall will be the system's first deficit in almost a decade, Wynne said. Health services lost approximately $10 million in 1989. "We have had gains throughout the 1990s," Wynne said. "We are still the most profitable hospital system in the state, and we have a plan to get things back to a break-even situation." He explained that health services will cut operating losses to $50 million in 1999 and $12.5 million in 2000 by increasing the number of patients who visit the University's 200 Clinical Care Associates. And as CCA expands, more doctors will send patients to HUP, leading to higher revenues for the system.