Andreas Jeninga/The Hoya The Medical Center continues to be a source of concern for the entire Georgetown community. Despite this, it rose four places in this year’s U.S. News and World Report rankings.
Seven years ago, Georgetown University Hospital needed an operation.
It was rapidly losing patients and hemorrhaging money. The university was forced to shift reserve funds from other programs to support the hospital and medical school. Unable to sustain such losses, Georgetown eventually sold the clinical operations of the hospital to MedStar Health in 2000.
But the operation was not completely successful.
Even after the sale, Georgetown found its teaching and research operations at the Medical Center were losing millions annually.
Staff and students at the Main Campus have often blamed the edical Center for the university’s tight financial situation, which prompted sharp tuition increases and cost-cutting measures earlier this spring. In its downgrade of the university’s bond rating last year, Moody’s cited “poor financial performance” at the Medical Center as contributing to Georgetown’s “fiscal imbalance.”
Third in a three-part series on Georgetown University’s finances
Part Two: Challenges Persist After $1 Billion Campaign MARCH 30, 2004 Part One: Weak Financial Situation Spurs Budget Crunch FEB. 27, 2004
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But despite a decade of deficits, budget cuts and now potential layoffs, the university-run Medical Center ambitiously sees itself emerging as one of the top academic health centers in the region.
Changing Times
Most of the challenges facing the Medical Center can be traced back well over a decade. In the late 1980s and early 1990s, the HMO revolution was expected to lower health care costs because the large managed-care companies could negotiate lower prices for their consumers.
This trend, however, hurt academic medical centers like Georgetown, which traditionally had used excess revenue raised by a hospital to subsidize research and teaching.
Academic health centers like Georgetown’s had a particularly difficult time in transition, James Reuter, associate executive vice president for administration at the Medical Center, said.
Reuter said that academic health centers tend to be more expensive because they have more costs than community hospitals – they must financially support their social missions. These social missions – whether they be teaching or care for the uninsured – are highly valued in academia but not in a competitive business environment.
Concern for a Jesuit social mission strengthened the administration’s determination to keep the Medical Center. While the administration of President Tim Healy, S.J., was willing to close the dental school in the early 1980s, President Leo J. O’Donovan, S.J., considered medical teaching and research to be an important goal of Georgetown, and his administration worked to prevent a closure of the Medical Center.
Reuter stresses that Georgetown’s situation was not unique.
“In many ways, it wasn’t that much different from other academic health centers,” he said. The George Washington University, for example, sold 80 percent of its hospital to a for-profit company in 1997.
Reuter admits, however, that Georgetown faced specific challenges. The Medical Center was “behind the times for a number of reasons” because it needed to enhance its financial reporting and planning capabilities, improve its management structure and strengthen its ability to adapt to change.
According to a 2001 Washingtonian article about the Medical Center, there were times before the MedStar sale when only 40 percent of the hospital’s revenues were being collected.
Moreover, perceived arrogance from the staff damaged relations between the hospital and community physicians. Only 50 community physicians referred patients to Georgetown in 2001. Meanwhile, the George Washington University Hospital had a network of about 600.
The Medical Center drained the university’s reserve accounts, forcing Georgetown to take out a $100 million bond issue in 1999. Budgets were tight, and morale suffered.
Faculty Senate minutes from the late 1990s reveal the anxiety caused by Medical Center deficits. In addition, controversy arose over budgetary control when rumors emerged that the university was using Law Center funds to help cover the Medical Center’s debts.
MedStar Sees an Opportunity
When Georgetown announced that it was looking for a partner to take over operations at the hospital, it received offers from several interested parties. Georgetown had a series of criteria to select the best fit, according to Amy DeMaria, executive director of the Medical Center’s Office of Communications. The administration, then under the leadership of O’Donovan, wanted a company that was willing to run a Catholic hospital, had a proven track record of managing health care centers, was able to make significant capital improvements to infrastructure and, if possible, operated as a non-profit. The university found the best match in MedStar Health, a Columbia, Md.-based non-profit chain.
The sale, officially completed on July 1, 2000, after more than a year of negotiations, was generally considered a success. Georgetown’s negotiations with MedStar Health split the clinical operations of the hospital from the academic and research enterprises of the Medical Center.
According to DeMaria, MedStar saw great promise in a relationship with Georgetown. MedStar was “looking for an opportunity to expand, enhance their brand, and compete head to head with Hopkins,” Reuter said.
Even though the hospital was losing money, Reuter and DeMaria believe MedStar wanted to be associated with Georgetown’s reputation.
“It’s a real asset to be associated with Georgetown. It’s very valuable,” Reuter said. DeMaria said that Georgetown’s name created a “halo effect,” increasing the prestige of institutions affiliated with it.
But the Medical Center, which Georgetown retained, benefited as well, Reuter and De Maria assert. With more hospitals in the system, the opportunities for research expanded. “Did we sell a hospital or acquire six?” Reuter said. “Our base for clinical research is seven times as big.”
Restaging Plan
After the hospital was sold in 2000, the university and MedStar adopted a restaging plan. The plan originally focused on two aims – growth in development and growth in research. According to Reuter, fundraising would support investment in new chairs, improved facilities and new faculty, which in turn would generate additional revenue for research.
The restaging plan continued, first under the leadership of Sam Weisel, and then under the helm of interim Executive Vice President Richard Gaintner.
“We accomplished a lot in those three years [after the sale],” Reuter said. “I’m proud of a lot of what we accomplished.”
He explained that the financial reporting systems were vastly improved, so that “even though we were losing money, we knew we were losing money. We knew how much, where, and when,” he said.
But the restaging plan encountered challenges. According to Reuter, the “infrastructure that was in place [for development] was really not sufficient.”
And faculty expressed concerns throughout meetings last year that poor fundraising efforts would hamper future fundraising because people would be less likely to make repeat donations if they did not see immediate improvements.
When the restaging plan was drafted, most Medical Center administrators and staff assumed that new leadership would soon take over the Medical Center, as MedStar was hiring Weisel, who led the Medical Center at that time. Few expected that it would take three years to find a permanent replacement.
“Part of what happened was that the restaging plan never had an opportunity to be reviewed through the process that a new leader would do,” Reuter said. “We had a series of interim leaders, who were all extremely excellent. But the charge to review the organization, to refocus it, to change it – that was always left to the next guy.”
Daniel Sedmak was this “next guy.” Since assuming the office of executive vice president last year, Sedmak has attempted to evaluate the goals and strategies for the Medical Center. Sedmak argued that the Medical Center must “focus on our niche strengths” in order to grow and improve.
Cost-cutting is one part of Sedmak’s plan and strategic investment in specific programs is the other.
He outlined three specific areas, in addition to health sciences education, on which the Medical Center should focus – child health and development, cancer and the neurological sciences. Cardiovascular science and infectious diseases are secondary focuses, he said. These areas, which involve multiple departments and schools, build on particular “synergies” with edStar, Sedmak explained.
Financial Troubles Continue
Finances after the transaction, like those before the sale, have failed to meet projections. In 1998, former Senior Vice President Weisel projected to the Faculty Senate that the Medical Center would be revenue neutral by 2000. Under a restaging plan implemented by MedStar and the university in 2000, the Medical Center was supposed to break even in fiscal year 2006.
In 2001, the target date was pushed back to fiscal year 2007. The university’s Board of Directors has agreed to fund these deficits until 2007. According to DeMaria, the Medical Center expects a $24.8 million shortfall in fiscal year 2004.
In terms of development, the Medical Center “budgeted about $20 million and we are probably going to get less than $10 million,” Reuter said. Growth in the Medical Center’s research enterprises was expected to be about 12 percent, but it will probably only reach 8 percent, he said.
As a result, the Medical Center is implementing cost-cutting measures that include voluntary buyouts or potential layoffs for non-tenured staff. Unwilling to recreate the tension of 1999, the university wants to increase the level of faculty grants without redefining tenure.
“To be concrete,” DeGioia said in a spring address to faculty and staff, “we will have to reduce the numbers of non-tenured researchers and staff involved in our mission at the edical Center.”
Of the approximately 395 Medical Center faculty members employed by the university (the remaining 400 are employed by MedStar), roughly one-quarter have tenure and therefore cannot be laid-off.
Movin’ Up?
Despite continuing deficits, Georgetown’s School of edicine recently rose from 47th to 43rd place in the U.S. News and World Report’s graduate school rankings. This offers hope for future growth.
“Clearly, the school is headed in the right direction,” Sedmak said. He explained that one in five medical school applicants apply to Georgetown’s School of edicine, which has the same acceptance rate as Johns Hopkins. Sedmak stated that sponsored research awards would also improve in 2004 over last year’s record of $126 million.
“We fell out [of the rankings] once, but we are back in them because we are on the right course,” DeMaria said.
Sedmark agreed with DeMaria’s future hopes.
“Our recent rise in the rankings, and our many other recent accomplishments, are a testament to the resilience of this community and Georgetown’s potential for continued excellence,” Sedmak said.
