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April 13, 2000


On March 30, I went to Scaife Hall to hear Jeffrey A. Romoff, president of the UPMC Health System, deliver a lecture entitled "Sustaining the Academic Enterprise: UPMC Health System Vision for 2000 and Beyond." Whether one loves Jeff (there may be some who do in addition to the senior vice chancellor/dean of the School of Medicine) or hates him (this group probably is larger) or fears him (almost certainly the largest group), his remarks are always interesting and presented in a dynamic manner. One of his endearing qualities (endearing is not a word often used in any comments about Jeff) is his frankness. For example, after mentioning a number of achievements of UPMC, one of which is its listing in the top tier of U.S. medical centers by U.S. News & World Report, he indicated his contempt for rating processes by saying, in essence, if UPMC were dropped from the top tier he would once again question the standards that U.S. News applies in its ranking process.

I have always found Jeff to be accurate in his description and correct in his appraisal of both the western Pennsylvania health industry situation and the national health scene. He is a very perceptive observer, and his understanding of both the national and local scenes, and his dynamism, have played a large measure in the success of the UPMC HS. He is far from unique in understanding the national and local situation; but no one else locally, with the same level of understanding, possesses the power he has to position a major organization in response to change. His major theme was the need for physicians to better understand the environment in which health care is delivered and to organize themselves for greater effectiveness and to accept accountability.

Several aspects of his presentation raised questions in my mind. One of his visuals showed UPMC HS with $3.6 billion in assets and approximately $1.6 billion in yearly revenue. There was no indication of liabilities. Entities with assets even in excess of $3.6 billion have gone bankrupt, simply because their liabilities exceeded their assets or, even when liabilities did not exceed assets, they lacked the cash necessary to meet current obligations. Presenting the amount of assets absent any reference to liabilities obscures UPMC HS's financial situation, not that it appears poor. The most recent UPMC HS form 990, for the tax year ending 6/30/98, showed liabilities of nearly $1 billion against assets of slightly less than $1.8 billion. I recognize that the financial situation reflected on the balance sheet of UPMC HS may have changed even more positively in the last year and a half, but omitting liabilities in any report on finances makes for an incomplete picture.

Although Jeff seemed to gloat about the operating losses of Highmark's health plans, he said nary a word about the losses sustained by the UPMC Health Plan, which have been reported to amount to close to $20 million in the past year. That is approximately $100 per covered life. If the health plan reaches its goal of 400,000 covered lives this year, will its losses reach $40 million? Consider though, that UPMC HS, which controls UPMC Health Plan, can lower or eliminate health plan losses if it so wishes, by cutting payments by the plan to controlled providers, such as UPMC Presbyterian and the School of Medicine faculty in the University of Pittsburgh Physicians, the new practice plan. When an insurer and providers are under the control of a single entity, the opportunity to move money around to give different pictures for different purposes is often exercised.

I was intrigued by his reference to the UPMC HS's contract with the University. As I understood him to say, the contract provides for UPMC HS to furnish to the University, through the senior vice chancellor for Health Sciences, $1 billion over 10 years for the benefit of the School of Medicine and other health sciences schools, if the UPMC HS can afford it. I am not very familiar with contracts that allow the obligor to decide whether it can afford to make the payments the contract calls for. Perhaps the UPMC HS-University arrangement is not a contract in the usual sense.

In his remarks Jeff demonstrated an understanding of the tensions that affect schools of medicine and universities generally, and he specifically mentioned his concern that involvement by the University with commercial interests, such as drug companies and others in the corporate world, may create difficulties and stresses that could adversely affect academic standards. I have already expressed my concern on this issue and I was gratified to learn that the key person in the entity that the University has "married" also recognizes such a problem may arise. The faculty, and the entire University Senate, should hope that his concern will be manifested in ways that support appropriate academic standards when they are challenged by opportunities offered to the University and the UPMC HS that may carry with them the seeds of conflict with such standards.

Nathan Hershey is president of the University Senate and a professor of health law in the Graduate School of Public Health.

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