As reported by the Journal Inquirer, January 5, 2007.

UConn Health Center Facing Another Financial Crunch 

By Keith M. Phaneuf

For the second time in six years, the University of Connecticut Health Center in Farmington is facing a financial crunch.

But while unfilled beds at the center's hospital was the primary culprit that necessitated a $16.9 million state bailout in 1999-2001, this time around UConn's biggest problem may be state government itself.

The health center, which includes UConn's medical and dental schools as well as John Dempsey Hospital, has watched the state's role in funding its operations gradually diminish.

The hospital always has been entirely self-funded, while the academic operations rely on a combination of state aid, tuition, research grants - and, more recently, transfers from hospital revenue. The facility that needed special state assistance a few years back, UConn officials say, now is keeping academic programs funded.

But university leaders also are worried the hospital revenue can't fill the increasing "academic gap," and recently notified Gov. M. Jodi Rell's administration that the center needs a dramatic increase in state aid over the next two fiscal years. The alternative, according to the university's chief financial officer, is to risk the financial health of the hospital.

"The hospital has hit a wall," UConn Vice President Lorraine M. Aronson said this week during an interview on the Farmington campus. "It can't be supporting the schools at this level any more. Our facility is tired. We have not had the financial wherewithal to do significant renovations and upgrading."

The health center's annual budget this fiscal year stands at $660 million, with about $355.1 million going for the academic programs.

Since the bailout years, UConn officials have watched the annual state block grant grow, on average, by less than one-half of 1 percent. The grant has grown from $75.3 million to $76.9 million, or 2.1 percent, since 2001.

During that same period, the hospital - which has produced surpluses since the bailout - has gradually begun to subsidize the medical and dental schools. What began with a $1.1 million transfer to support academic programs in 2002 is expected to reach almost $8.3 million this fiscal year.

Despite the hospital's recent prosperity, the medical and dental schools finished 2005-06 with a $6.9 million deficit. And while UConn officials are forecasting a barely balanced budget this fiscal year, they project academic program shortfalls of $9.5 million and $20.8 million for the next two fiscal years, respectively.

Rell's budget director, Office of Policy and Management Secretary Robert L. Genuario, said the administration is concerned about the projected gap, but the health center isn't the only segment of state government that's been asked to get by with minimal funding growth.

"We certainly are trying to control increases in spending at a level the taxpayers can afford," Genuario said, adding that UConn's main campus in Storrs, and the Connecticut State University and community-technical college systems also have faced limited growth in state assistance in recent years.

Rell's budget proposal for the next two fiscal years will be presented to the General Assembly early next month. Genuario declined to disclose details, but said he couldn't rule out the possibility that John Dempsey Hospital's revenue might continue to be needed to bolster academic programs.

The problem with that, Aronson said, is that John Dempsey may be hard pressed to continue providing enough revenue to prop up the academic program.

For one thing, she said, it is grappling with the same growing financial issues plaguing Connecticut's 30 other acute-care hospitals.

Despite a modest increase for outpatient services last July, state payments to hospitals to cover the cost of treating Medicaid and General Assistance patients traditionally are greatly underfunded both for outpatient and inpatient treatment. The Connecticut Hospital Association says this amounts to roughly $250 million per year.

Federal Medicare funds, which John Dempsey receives both for patient care and because it serves as a teaching hospital, have not grown considerably in nearly a decade.

Hospitals traditionally have withstood the impact of shrinking Medicaid and Medicare assistance by shifting some of that onto private-pay patients. But both the legislature's Program Review and Investigations Committee and the state Office of Health Care Access have reported that a lack of competition among insurance companies administering managed care systems have made it increasingly difficult for hospitals to make up the difference.

It also is relatively small, with only about 220 beds. And it's required by state law to reserve some of those beds for psychiatric patients and for prison inmates needing treatment, leaving just under 110 for general surgery and other medical procedures.

So how has the hospital produced surpluses since 2002?

Since the bailout, the hospital has operated an expanded marketing campaign on television and radio, and no longer has to worry about large numbers of empty patient beds, Aronson said. "People have discovered the quality of service here," she said, adding that, unfortunately, "We've really run out of capacity."

Aronson added that tuition for the 320-student medical school, 160-student dental school, and a biomedical sciences graduate program for 380 students is fixed by the state Department of Higher Education based on a formula that reviews tuition at comparable medical schools statewide. Given the small enrollment and existing controls on tuition, that source of revenue isn't expected to grow much.

Aronson also said UConn is trying to control costs and enhance revenue in other ways.

Annual spending on academic programs has risen from $279.6 million in 2002 to $355.1 million this fiscal year, or about 27 percent spread across five years.

The UConn Health Center had been criticized in the late 1990s for not pursuing research grants more aggressively.

But between 1999 and 2004, annual grant revenue grew from $49.7 million to $98.8 million. It has leveled off somewhat since that sharp growth, but still exceeded $90 million this past fiscal year.