Health System gift has some restrictions

The future of the University's Health Care System looked bleak two to three years ago. The system had accrued over $300 million in debt since 1997, and the University was seriously considering selling the struggling organization.

However, despite its once-gloomy outlook, many think that the $100 million gift the Health System received Monday is a sign that the system has made a tremendous financial turn-around.

Since 2000, the Health System has stopped bleeding money, and even saw a gain last year. However, about $30 million in debt still remains -- $30 million that will not be covered by this new gift.

The endowment for research, education and patient care came from the Philadelphia Health Care Trust and its Chairman Bernard Korman earlier this week. Korman and University President Judith Rodin announced the gift Monday.

For the next seven years, the Health System will receive a portion of the interest that is made on the $100 million dollar fund. The interest will also be shared among several other charities that the Health Care Trust currently supports. However, the amount Penn Medicine receives will increase annually through 2009, according to Craig Carnaroli, vice president for finance and University treasurer.

"It's a sliding scale up with how much funding is available to Penn Medicine," Carnaroli said. The Health Care Trust "has to fund other projects that they've been doing all along. The amounts available are limited by their existing commitments."

Then, in 2009, the full $100 million sum will be transferred to the Health System.

The sum comes in the form of a restricted endowment, meaning that the Health Care Trust has, to some extent, limited the ways in which the money can be used.

While the Health System is receiving the interest, the Health Care Trust will specify how the money should be spent. However, Penn will still have some say in these decisions.

Health System Executive Vice President and Medical School Dean Arthur "Rubenstein and [Health System CEO Robert] Martin will both have a seat on the [Health Care Trust] Board so they will have a role in deciding where funds will be allotted," Executive General Counsel Wendy White said.

When the full $100 million is transferred to Penn Medicine, the allotment of money will be left up to Penn Medicine's Board and the University Board of Trustees. However, at that point, Korman will join Penn Medicine's Board.

The only restrictions on the boards' decisions will be that the money must be used for education, research and patient care. A strategic plan is currently being worked out by the health system.

"The plan is being developed right now by a couple of internal groups and some external consultants," Carnaroli said.

Once this plan has identified the key needs of the educational, research and clinical goals of the health program, Penn Medicine hopes to utilize the endowment to further the goals of the plan.

"The [strategic planning] process will identify over the next few years the goals, programs and projects the gift will be used for," White commented.

One aspect that cannot be covered by the recent gift is the repayment of any of t8he Health System's remaining debt. Rather, the endowment specifies otherwise.

"This gift can't be used to pay down old debt," White said. "This can go towards the programs and projects important to the health system and the medical school, but not to pay back old debt."

But while the finances cannot go towards existing debts, many see the gift as recognition of the Health System's recent financial success.

The trust's gift is the third largest of its kind in Penn's history. In 1993, the Annenberg Foundation made a $120 million donation followed by a $100 million gift from the Abramson family in 1997.

However, this most recent source of funding stands out from the others with the breadth of its applicability. Typically, gifts are given to a specific department or venue, such as the Abramsons' donation that was earmarked to fund the creation of the Abramson Family Cancer Research Institute.

"There's really no comparable gift to compare it to," Carnaroli said. "This is the first one for Penn Medicine. The thing that makes this gift different is the size of it and the fact that it will support the tri-part mission [of Penn Medicine]. Sometimes [someone] will give a gift to the clinicians to support their research or... the nursing staff, but this supports the integration of all of Penn Medicine's goals."

This is, in fact, the first substantial gift that the Health System has received since the formation of Penn Medicine, the board that oversees both the clinical and hospital services of the Health System and the School of Medicine. In Nov. 2001, Penn Medicine replaced the Health System Trustee Board and the School of Medicine overseers, which had controlled the Health System and the school, respectively.

The official agreement between Penn Medicine and the Health Care Trust will be made public in the next several days.

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