UAMS Chief: Arkansas’ Research Hospital Needs A ‘Sustainable Business Model’

Jun 10, 2016

Credit uams.edu / UAMS

Talk Business and Politics reports

The University of Arkansas for Medical Sciences (UAMS) is about to embark on a critical time for revenue, Dr. Dan Rahn, the school’s chancellor, told members of a newly formed “Friends of UAMS” chapter in Fort Smith.

Rahn spoke to an audience of 100 at the kickoff event for Friends of UAMS – Fort Smith Chapter from the home of Drs. David and Teresa Hunton Thursday night (June 9). Little Rock-based UAMS is the only academic health sciences university in the state of Arkansas, and is the state’s largest public employer with more than 10,000 employees in 73 of Arkansas’ 75 counties. It was founded in 1879.

In his address, Rahn detailed problems that UAMS is facing over the next 10 years using the school’s $1.4 billion budget as an example. Rahn said 75% of UAMS’s revenue comes from patient care.

“This figure will cross-subsidize academic research to the tune of $40 million this year, in addition to covering its own expenses,” Rahn said.

This over-reliance on patient care revenue is caused in part by how the state of Arkansas directs use of its $106 million appropriation to the school. Of that figure, $85 million must be redirected for Medicaid, leaving only $21 million in “unfettered support” for UAMS as a public university, Rahn said.

“This is why we need advocacy,” he explained. “The wheels aren’t falling off. We’re not failing to deliver educationally. We’re not failing to invest in people, but because of the way things work in Arkansas, we have to manage the balance sheet of the institution, and that means accounting for net assets and depreciation. We’ve got to cover cash flow, and we’ve got to cover wealth, and right now, UAMS doesn’t have the revenue that is sufficient for us to maintain the net worth of the institution.”

CASH FLOW PROBLEM
Of the recently approved budget, Rahn said it’s showing “a decline of $35 million in net assets for next year,” making it more difficult to “renew the facilities.”

“We’ve got a real problem, trying to get state officials to think about equity of their public institution and covering net assets to maintain the bond rating. That’s just not on their screen.”

Rahn said state officials are “trying to cover cash flow right now for how we’re going to have the dollars from somewhere to do highway investing,” while UAMS has its own bond rating to worry about that “isn’t underwritten by taxpayers, but by the University of Arkansas system.”

“We have to get to the point where there is a sustainable business model for UAMS over time that is not so reliant on patient care revenue,” he continued. “It’s hard to generate revenue in excess of what is needed to run the patient care program and maintain the capital, the equipment, the investments you need to make to maintain excellence on the clinical side while also relying on it to subsidize education. That’s not going to work in the long run.”

In the next 10 years, Rahn warned, UAMS will need to find a way to “grow as an asset across all missions – patient care, research, economic development, workforce,” and the rest of its 73 programs. “Otherwise, we will have to default and rely more and more and more on tuition and clinical production, and we won’t be able to contribute to the knowledge creation side of things, which would be a loss for the people of Arkansas,” he said.

Other funding mechanisms of UAMS include philanthropy, grants, contracts and tuition (the latter of which only comprises 3% of the overall budget).

‘EVERYBODY HAS A STAKE’
Aside from the concerning budget outlook, Rahn also made the case that UAMS is more than a Little Rock asset, noting that the school graduated 21 from Sebastian County alone in the most recent class, “and it’s like that all over the state.”

UAMS is second in the nation when it comes to tracking medical school and residency graduates into in-state careers, according to Rahn.

“I believe everybody’s got a stake in this,” Rahn said, adding that “where they (graduates) decide to practice is majorly influenced by where they finish the last phase of their education.”

To highlight this point, he revealed that of the 229 residents who most recently graduated from the family medicine program, 150 are practicing in-state and 100 are active in Western Arkansas. Of these practitioners, each brings an average of $845,000 in direct economic impact “not counting the health impact from the care they provide,” Rahn said, adding that “economic impact” includes the people they employ, taxes paid, and value added back to the community.

Health impact-wise across all associated UAMS sites, there are 1 million patient visits per year, he added.

Rahn urged groups like Friends of UAMS to “serve as ambassadors” to state representatives and bring awareness to the problems the institution is facing in addition to “talking up UAMS” around the community and continuing philanthropy efforts to supplement revenue.

The Fort Smith Chapter is the eighth and latest addition to UAMS’s ongoing efforts to raise awareness. Events will be held twice per year moving forward.