UC San Diego Medical Center is part of the University of California system and one of the nation’s best academic medical centers. The health system operates UCSD Medical Center, Hillcrest; Thornton Hospital in La Jolla; Moores UCSD Cancer Center; Shiley Eye Center; and several outpatient facilities. Healthcare Finance News editor Richard Pizzi recently spoke with Lori Donaldson, the health system’s CFO, about achieving financial success in a tough economy.
What has UCSD Medical Center done to limit the impact of the recession?
A couple years ago we developed a long-term strategic plan. We have goals and objectives that are well-known across the organization, and everyone knows what their role is in achieving those goals, and employee incentives are partially based upon reaching them. We have a lot of buy-in across the organization. The finance goals touch all areas of the income statement and the balance sheet. We have objectives about optimizing reimbursement, about improving efficiency, managing our resources, controlling our costs. We have a large focus on our comprehensive capital plan. We’re in a very robust capital expansion program right now. We’re also focused on growing our philanthropic donations.
We’ve done a lot on the revenue side over the last few years. We worked with an outside firm on an extremely successful revenue cycle initiative. We reduced our denial rates, days in A/R, and increased our cash collections. Just reducing our denial rates last year gave us an additional $20 million of revenue. We did this by bringing in new systems, redesigning processes, spending a lot of time training the staff, putting accountability tools in place.
We’re also not ignoring our costs. We put initiatives in place to reduce our use of premium overtime, of nurse travelers and registry. We’ve been successful in managing our salary costs. We have a very detailed flex budget process and a lot of accountability measures in place for department managers and senior executives.
We also have a lot of supply chain initiatives ongoing. We do a lot of benchmarking on our prices with other organizations. We’re working with other UC hospitals and leveraging the buying power of the university.
What’s your payer mix in San Diego?
We’re about 25 percent Medi-Cal [i.e., California’s Medicaid program]. We’re about 20 percent Medicare. We’re a safety net hospital, so we also see a good share of the County’s uninsured population. We have extensive reporting that we have to do to support the costs that we incur to take care of that population. We have a commitment to the uninsured and underinsured population.
Is pricing important in an area like San Diego where you have many competitors?
We want to make sure that we’re market competitive. We use an outside firm to evaluate our entire chargemaster against the market. We benchmark ourselves against our peer group in the region. We go through our strategic pricing initiative on an annual basis.
Could you talk about your capital construction plans?
We have two very large projects going on right now. We have a cardiovascular center and an expansion of the Thornton Hospital, which is the smaller of our two hospitals. It’s about a $220 million project, and should be completed around December 2010, with occupancy scheduled for April 2011. We are adding 54 beds to the hospital. In addition, we received approval in March of this year to build the Jacobs Medical Center on our East Campus. That’s a $664 million project. It’s a 10-story hospital tower that will connect to the Thornton Hospital. That medical center is like three hospitals in one. There will be a hospital for advanced surgery, a women’s and infants hospital and a cancer center. We’re in the design phase for that project. Construction will begin in about one year. We’re in a robust capital expansion mode right now, but we have to closely manage all of our other capital spend and make sure we have enough set aside for our ongoing infrastructure needs.
What challenges will your finance team face over the next year?
The entire healthcare industry will have to deal with healthcare reform. We’re working on our Medi-Cal waiver renewal. The university just resumed contributions to our pension fund. That’s an added expense that will have to be offset by further opportunities for efficiency, volume growth and revenue cycle improvements. We want to make sure we generate the kind of margins that we have done historically to fund all our capital programs.
Do you have any suggestions or best practices for other CFOs?
What has really worked here is the culture of accountability. I think that is huge. All of our department managers know they are personally accountable to me to manage their budgets. They’re expected to flex their staffing based upon their volumes. You need an organization that is willing to make tough choices. You need to look at programs that may not be profitable and make decisions about whether to continue such programs.