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May 30, 2013

Levine outlines med school woes

rthur S. Levine

Arthur S. Levine

Medical students and patients alike may be asked to open their wallets wider as Pitt’s medical school seeks ways to shore up its budget.

In his annual state of the medical school address, Arthur S. Levine, senior vice chancellor for the Health Sciences and dean of the School of Medicine, said tuition hikes could be on the horizon as the medical school looks for ways to make up for the loss of funding due to the federal sequester.

Philanthropy is another avenue for bolstering the school’s coffers, said Levine, who noted that while the school historically has done well with foundation donations, it has lagged in obtaining individual contributions.

“We have to turn that around,” he said, telling faculty that their relationships with patients and their families offer opportunities.

Although it may be difficult to ask patients and their families for donations, Levine said, “We’re going to have to learn how to do that with tact and grace and comfort or we’re not going to be able to improve our philanthropic stance.”

Other funding sources

The school is seeking to improve partnerships with industry, Levine said, citing as one example Pitt and UPMC’s involvement in developing commercial diagnostic tests with GE Healthcare.

The school’s financial administrators have negotiated an increase in the school’s indirect cost rate from 51.5 percent to 54 percent, which Levine said is “helping somewhat.”

The school also is looking overseas for revenue.

“We have something to export,” Levine said. “We’re seen as a valuable resource by countries elsewhere,” he said, citing work with the government of Kazakhstan to design and implement a Western-style medical school.

“We are building a medical school there. We will make money for it and that money will be brought back to Pittsburgh and invested in our academic mission.”

In under a year, Levine said the partnership had generated “a little less than $2 million,” with another $6 million expected this year.

In addition, the School of Medicine has clinical care and research relationships in Italy and a partnership with Tsinghua University that, when at capacity, will bring 90 Chinese students to Pittsburgh to study.

“The government of China pays compensation for these students just as the government of Italy pays the stipends and lab expenses for our postdoctoral fellows from Italy.”

The students represent cash in kind, Levine said. “They’re a tremendous workforce that we don’t pay for. If we have to replace those two cohorts with our own graduate students and postdocs, it’s worth millions and millions of dollars.”

Design for an Italian government-funded research facility in Sicily is almost complete, Levine said, adding that Pitt’s medical  school, which also manages a hospital in Palermo, will manage the research complex.

Why the need?

Cuts in federal funding and reductions in health care reimbursements are creating a “perfect storm” when it comes to medical school budgets, Levine said.

“It is a new era in health care reimbursement and that could have an effect on the medical school,” he said.

The medical school is “joined at the hip with UPMC,” Levine reminded faculty in his May 22 presentation in Scaife Hall. “We have a dependence on UPMC for our academic mission, which is critical to our viability and momentum.”

The budget

Fiscal year 2012 figures show $2.07 billion in revenue in the University’s health science and related budgets. That includes $703.8 million in School of Medicine revenues, nearly $178 million in other health sciences revenues and nearly $1.2 billion in hospital and University of Pittsburgh Physicians (UPP) practice plan support.

Levine noted that the University revenue includes about $63 million in support of basic science and practice plan revenue includes about $93 million, primarily for clinical research.

Grant awards

Pitt ranks No. 5 in the number of National Institutes of Health (NIH) awards received, with a five-year average of 1,083 awards.

It ranks behind Harvard (2,808), Penn (1,306), Johns Hopkins (1,279) and is close to tying the University of California-San Francisco (1,098) for No. 4.

Noting that it is difficult to objectively measure the quality of teaching and patient care, the number of grants is “the only objective metric we have in a nationally competitive context judged by peer review that tells us anything about the overall quality of our institution,” said Levine. “If we rank that highly in research, we probably know how to teach and how to give adequate patient care.”

Covering research costs

“In the best of circumstances, the NIH covers about 75 percent of the true cost of research,” or about $450 million in Pitt’s case, Levine said.

The gap exists because NIH does not provide start-up packages for new faculty, bridge funding for established investigators who are between grants or funding for renovation, he explained, adding, “They support less and less lab construction and less and less equipment.”

For Pitt, that means $150 million in institutional support is needed to make up the remaining 25 percent, most of which, Levine said, comes from UPMC directly through UPP.

Between fiscal year 2010 and 2012, the School of Medicine received an average of $150.3 million annually in academic support from UPMC, he noted.

“This leverage we have from UPMC has been a key ingredient in the remarkable ascendancy we have had since 1998 in our funding from the NIH,” Levine said, calling Pitt’s rise as the sole medical school in the past 20 years to reach and remain in the top 10 in NIH funding, “the largest and the fastest increase in federal support for biomedical research of any institution in this country’s modern history.”

Federal cuts

“I think all of us are deeply concerned about the sequester,” Levine said, calling it a “real threat” that is a problem nationwide, not merely for Pitt.

Through the federal sequester, NIH has lost 5.5 percent of its appropriation. Applying that percentage to Pitt’s NIH funding, Levine said the University could lose about 50 grants and be forced to close 45,000 square feet of lab space.

However, NIH isn’t the sole source of federal grants. Factoring in other agencies’ share of the sequester, Levine estimated the total at about $26 million, or the equivalent of 58 grants. About 70 percent of that amount, or $18 million, covers compensation, salaries and fringe benefits, he said.

If that money isn’t replaced, “We’d have to lay off about 324 people” — approximately the equivalent of 18 full-time employees per $1 million lost. “This is serious stuff,” he said.

“What I don’t know, however, is how many of these grants we’re really going to lose,” he said, adding that it could range from losing none to losing all.

Pitt traditionally has outperformed in its success in securing NIH grants, typically at double the national rate. “If the NIH success rate is 30 percent, ours has been about 60 percent,“ he said.

However, in FY14, “the NIH success rate will be about 10 percent. So, even if we get 20 percent, we will have lost a great deal from the 60 percent historically,” the dean said.

NIH competing research project grants in 2013 totaled 8,283, the lowest since 1998, Levine said, adding that NIH is maintaining that low number of grants by reducing the amount of each.

About 400 of Pitt’s NIH grants will terminate in 2014. Levine offered some advice to faculty who are supported by those grants: “Institutes and centers are all over the map with respect to whether or not they’re protecting new and competing grants as opposed to continuing grants.” He advised researchers to check the appropriate institute on the NIH web site “and decide whether or not you want to go back through an institute that is not protecting its new and competing grants.”

UPMC’s finances

UPMC “has been the main leverage for our obtaining all that sponsored research money, but now UPMC is challenged by its operating income,” Levine said, noting that in the first three quarters of the current fiscal year, UPMC operating income fell to $146 million from $313 million for the same period in 2011.

“That’s a cause of concern at UPMC and it should be a cause of concern for us. Obviously, if UPMC’s operating margin slips, their ability to provide us with the leverage that they’ve been able to historically, is obviously a possible cause for concern,” Levine said.

Declining reimbursement for health care is behind the problem, he said.

“Many people think this a consequence of Obamacare, but in fact it started four years ago when General Motors declared bankruptcy and corporate America realized that the reason for that was that GM had to add $1,500 to the cost of a Chevy for health benefits,” Levine said.

“Even independent of the Affordable Care Act, reimbursement for health care is already ratcheting down and we think this will continue.

“Now nobody knows for sure what will happen in the next few years as a consequence of the national economy, the corporate focus on the erosion of their profit margins by employer-sponsored insurance and what the impact, ultimately, of the Affordable Care Act will be,” Levine said.

“Suffice it to say, at the moment we’re in a perfect storm: We’ve been caught by the sequester on the one hand and a ratcheting down of health care reimbursement on the other,” he said.

“This is not to say that UPMC has reduced its support for the medical school at this point. They have not. But they’re also not in a position to increase their support. So, they’re not in a position to compensate for the sequester. We will have to find other ways to do that.”

Dean Arthur Levine, who also is senior vice chancellor for Health Sciences, delivers the annual state of the medical school address.

Dean Arthur Levine, who also is senior vice chancellor for Health Sciences, delivers the annual state of the medical school address.

—Kimberly K. Barlow

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