Med School faces budget shortfall

UPHS's fiscal crisis has forced the school to seek outside consulting help. Since the inception of the University of Pennsylvania Health System in 1993, Penn's Medical School has counted on about $25 million a year from the UPHS as part of its annual budget. But at the end of the current fiscal year, that source of income will dry up, University and Medical School officials said yesterday. In the past, that funding came directly from the Health System's profits, but as the financially troubled UPHS accumulated a $300 million deficit over the past two years, the funds have slowly dwindled. Medical School Senior Vice Dean Richard Tannen said yesterday he anticipates the school, which has already made cutbacks to save money, will fall short of its budget by $10 million to $14 million for fiscal year 2001. To lessen the impact on the school, Medical School officials enlisted the help of consulting firm Arthur Andersen last month to develop a Financial Stabilization Plan. The goal in creating the plan is to "develop a strategy that addresses the reality of decreased support? without compromising the school's excellence," Medical School Dean and UPHS Chief Executive Officer William Kelley said in a January 17 memo to faculty. The Andersen consultants will recommend ways the school can save money by increasing operational efficiency, as well as identify other possible sources of revenue, Tannen said. For the first three to five weeks, the consultants will look into quick solutions that might have an immediate impact, he explained. After that, they will take a more comprehensive long-term approach, beginning with the budget for the next fiscal year. There is currently no timetable as to when any long-term recommendations will be released. The consultants will work closely with a committee of department chairs and senior Medical School faculty before making their final recommendations to an executive committee of "senior administrative and financial individuals" co-chaired by Kelley and Provost Robert Barchi, Tannen explained. The final decision as to what plan will be adopted will be made by Kelley, with approval from University President Judith Rodin. Tannen and Vice Dean for Administration Mike Black have been working closely with the consultants since they arrived about two weeks ago, but both maintain that it is too early to speculate on what course of action the school will decide. "A lot of it even right now is still in the infancy stage," Black said last week. "We have been giving them a lot of financial data? so they really have been inundated." According to University Budget Director Mike Masch, the current budget for FY 2000 has not been affected by the decreased revenues from the UPHS because the school still has funds remaining from past years' Health System revenues. Black added that cutting back on programmatic expenses has helped to conserve money. But by next year, those accumulated revenues will have been exhausted. The effects of the Financial Stabilization Plan, therefore, will be felt in Fiscal Year 2001 and later. "Our focus is much less on the next month and much more on the next year," Masch said. Tannen said although the school will be able to come up with some of the funding on its own, "We'll need the University to help us out? to make up some of that gap." He would not elaborate on any specific plans for University support that might be considered, but he confirmed that the School is looking into ways to increase the amount of faculty salary that is paid with research grant money. Over the past few years, Penn has dramatically ratcheted up the amount of money it receives in research grants. "Any salary that is supported from grants relieves the direct school budget for having to cover those costs," he explained. Black added that the school is also examining ways "to consolidate some of the administrative functions within the school," which would also ease budget strain. Tannen emphasized that any budget shortfall would not affect daily operations within the school, such as student training programs. "We're not talking about danger to Med students," Tannen said. "The big risk is primarily to the research aspects of the school." He explained that if alternative sources of funding are not found to support research costs, the research projects within the school could be imperiled. "If you can't invest in your research enterprise you may lose some of you best faculty," Tannen explained. "That is the real risk." He said it will take two to three years before he is ready to "reassess" the effectiveness of the Stabilization Plan. "The major concern is a strong desire to maintain the quality of this school? and maybe make it better," he said. Tannen pointed to three criteria that will dictate what future actions may be necessary: the UPHS improving its financial health, increasing operational efficiency at the Medical School and identifying a sustainable source of income. "If we can [meet the three criteria] then we can maintain one of the superb institutions in the country," Tannen explained. "If we can't then the school will be a less highly ranked research institution."