What could Georgetown do with $28 million? It could reduce some of the construction debt incurred by building the new performing arts center. It could build a track for Georgetown’s nationally-recognized track and field team. Or the University could lose it. Due to Georgetown University medical center’s continuing losses, $28 million will go down the drain this fiscal year. Although students can speculate about how they would like to spend millions of dollars, the task falls to University President John J. DeGioia. It is possible that DeGioia’s continuing treatment of the medical center problem will come to define his term as president.
“We have to succeed,” DeGioia said in an open meeting with the Medical Center staff on Aug. 30. “I don’t think it will come as a surprise for you that the rest of the University is paying close attention to how we wrestle with these issues.”
For most Georgetown students, the medical center is an unidentifiable cluster of buildings behind the Leavey Center. However the medical center’s financial difficulties have preoccupied Georgetown’s administration for over a decade. Between 1995 and 2004, the Medical Center lost a total of $333 million. The stakes are still high: the medical center continues to be the largest drain on University resources, forcing layoffs and a scramble to balance the budget.
Currently, the center faces three distinct challenges: debt, instability and a lack of resources. While medical center researchers received $130 million in sponsored research grants this year, losses are still projected to be $28 million, according to Dr. Stuart Bondurant, Interim Executive Vice President of the medical center.
The medical center must overcome a history of budget deficit that dates back to the late 1970s and continues today. It also faces serious stability problems; the position of Executive Vice President has been held by four different people since 2000. Administrators must also contend with a growing lack of resources: Other University projects, like the performing arts center and the new McDonough School of Business, are now using funds formerly earmarked for combating the medical center debt. Although these problems seemingly require a detailed plan to combat all three of the issues, DeGioia has remained vague about the concrete steps the University will take to balance the budget.
Predictably, other University departments are concerned, since many University resources are siphoned to the medical center. Even though students can easily ignore the buildings of the medical center, the effects of these financial problems have trickled down and ultimately impacted student life.
SEPARATE BUT EQUAL
The medical center is composed of the Lombardi Comprehensive Cancer Center, the School of Medicine, the School of Nursing and Health Studies and a research center. The Georgetown University Hospital is no longer part of the medical center. Since 2000, the Hospital has been operated by MedStar Health, an independent healthcare management organization. While often confusing, current terminology of the “medical center” refers not to the hospital, but instead to the entities operated by the University.
MedStar, a hospital management organization with total assets of $1.94 billion, is a not-for-profit healthcare organization based in Columbia, Md. that operates seven major hospitals in the Baltimore-Washington area. In all, MedStar has 22,000 employees and 4,600 affiliated physicians.
Although the hospital is operated independently from the University, it is sometimes difficult to deconstruct the exact relationship between MedStar and Georgetown.
“Funds are transferred back and forth between MedStar and the University,” Laura Cavender, director of University Media Relations, said. “The University compensates MedStar for teaching done by MedStar-employed physicians, and MedStar compensates the University for clinical services provided by University employees.”
According to Dr. Richard Goldberg, Vice President of Medical Affairs and the Chief Medical Officer at the hospital, the hospital serves as a setting for the many functions of the Medical Center. Goldberg said the hospital teaches medical students and residents and provides a facility for research and development. Additionally, the hospital is the source of funds that support the salaries of the clinical faculty of the School of Medicine.
A STAR IS BORN
The hospital and medical center separated in 2000, after negotiations that were spearheaded by DeGioia. His success significantly influenced his appointment as president.
Initially an assistant to Healy, DeGioia later served as Dean of Students and Chief Administrative Officer of the Main Campus. After almost 20 years in the administration, a 1998 reorganization abolished DeGioia’s position. O’Donovan, after losing two top aides, asked DeGioia to return less than a year later as Senior Vice President. DeGioia’s focus was combating soaring medical center budget deficits.
DeGioia’s performance not only ensured his stay at Georgetown, but also was widely praised by the Georgetown community.
Pietra Rivoli, Associate Professor of Business, and a member of the search committee that selected DeGioia, pointed to DeGioia’s involvement in negotiations with MedStar as a factor in his selection.
“I think everyone involved viewed his management of the situation as a testament in his favor,” Rivoli said. “At the time, it was a new thing for University medical centers or hospitals to be operated independently.”
In an Oct. 2001 article in Washingtonian Magazine, higher education consultant Alvin P. Sanoff wrote that “DeGioia did such a good job negotiating last year’s sale of the hospital that when O’Donovan announced plans to retire, the nearly banished administrator emerged as a top candidate to become the new president.”
HANDING IT OVER
Negotiations between Georgetown and MedStar began as a result of accumulated financial difficulties at the medical center, which at that time included the hospital. When former University President Timothy Healy, concerned with the financial turmoil at the medical center, proposed its sale in the mid-’80s, the Board of Directors balked. As the deficit worsened under the following president, Leo O’Donovan, S.J., sale became unavoidable.
“We tried to bring greater efficiency to medical center operations, to scale back some of the clinical growth, to restore the hospital to profitability and to find savings in our education and research enterprises,” DeGioia, who was integral in organizing the sale, said in this August’s open meeting. “But our losses mounted … the Board of Directors concluded that the volatility in the clinical enterprise provided too much fiscal uncertainty for the University as a whole, and so we decided to seek a partner that would assume responsibility for the clinical enterprise and support our academic and religious identity.”
The problems intensified in the early 1990s. According to Standard & Poor’s Credit Profile of Georgetown, issued in August 2004, the University’s overall financial operations turned negative beginning in 1993. Deficits increased throughout the late ‘90s, due in large part to the Medical Center, which had a record loss of $84 million in Fiscal Year 99.
As expected, the transfer of the hospital had huge immediate effects. Turning the hospital over to MedStar, “removed Georgetown University from much of the financial volatility of healthcare operations that had increasingly strained overall University operations going back to 1993,” the S & P report stated. “Prior to 2000, Georgetown’s credit quality had been affected by large losses at the medical center.”
Not only did it drastically cut losses, but the sale affected the search for a new University President. Soon after the transaction O’Donovan announced his retirement, effective July 2001. A search committee was formed to find a new president. DeGioia, who had risen in administrative positions since graduating from Georgetown as an undergraduate in 1979, was at the time serving as Senior Vice President.
HERE TO TEACH
While the medical center’s current financial losses are still staggering, they are explained partially by its role as a teaching institution. The School of Medicine shares resources with the hospital, and as teaching facility is susceptible to financial difficulties. Since teaching hospitals provide services regardless of the patients’ ability to pay, they often incur debt. Teaching hospitals comprise only six percent of national medical centers, yet they provide almost half of hospital care to the uninsured, according to the Association of American Medical Colleges. Despite their small number teaching hospitals also perform the majority of highly specialized surgeries and diagnoses, said the AAMC.
The hospital is also affected by the difficulties facing all D.C. hospitals over the past few years.
D.C. hospitals are struggling financially, according to the District of Columbia Hospital Association Financial Indicators for FY 2002. The DCHA compares data collected from 10 D.C. hospitals. Its analysis offers insight into Georgetown’s plight but doesn’t fully account for its losses.
DCHA attributes a “significant downturn in the financial health of hospitals” in D.C. to the closure of D.C. General Hospital in 2001, a lack of reimbursement for services to Medicare patients and general rising costs of hospital services.
“Financially troubled hospitals often have a higher percentage of public payers,” said the report. “In the District, both Medicare and Medicaid patients generally have longer lengths of stay, more severe acuity, frequent co-morbidities, as well as complications resulting from intermittent insurance coverage.”
Although the hospital has definitely been affected by all these factors, it has rebounded from previous debt thanks to the intervention of MedStar, according to Goldberg.
“MedStar has done a tremendous amount for the health of the hospital,” Goldberg said. “It has invested $80 million in technology and infrastructure, which before 2000 did not exist.”
In a five-year period, the hospital has experienced a $66 million turnaround. Last year, four years after it was sold to MedStar, the hospital nearly broke even.
While the hospital is financially solvent, the medical center continues to struggle. Currently the University is still recording a substantial deficit, the majority of which is a result of the medical center. Projections for FY ‘04 deficit are even higher than originally anticipated. Compared with the $84 million deficit in FY ‘99, the University has made substantial progress. Nevertheless, the $28 million deficit in FY ‘04 is a long way from breaking even.
PLANS FOR CHANGE
The effects of this deficit are not disappearing and are felt by all Georgetown University programs. In August, S&P Credit lowered Georgetown’s rating from an A- to BBB+, citing worsening financial conditions of the University as a whole, largely due to the problems of the Medical Center. This credit rating means that it would be more expensive for Georgetown to issue bonds or borrow money in the future.
“Standard & Poor’s believed that the MedStar transaction would lead to the end of operating deficits from the medical center functions retained by Georgetown,” the report said. “Although the losses are now sharply reduced from the late 1990s, they are still larger than expected.”
However, S&P finds the University stable, due to positive factors such as strong student demand, stable enrollment, substantial gains in alumni contributions like the recent $1 billion fundraising campaign. S&P expects financial performance to improve by FY ‘08 according to a University plan and claims to have already seen improvements in FY ‘04.
In his speech on Aug. 30, DeGioia acknowledged that deficits continue to exceed estimates. His solution includes immediately lowering the deficit in FY ‘05 and implementing a new organizational framework for the medical center in order to break even. Days later, DeGioia announced the dismissal of at least 65 non-tenured faculty and staff from the medical center.
Just as the University expects a financial upswing in the medical center in the coming years, MedStar emphasizes continuing improvements to the hospital.
“We think that Georgetown University Hospital is better and stronger than it was a few short years ago,” Erika Murray, manager of Corporate Communications for MedStar, said. “Georgetown’s admission have increased, and it’s a better place to work. In fact, thanks to Georgetown, MedStar is a stronger system as well.”
PULLING THE PLUG
As baseball fields become parking lots and parking lots transform into multi-million dollar building projects, Georgetown’s need for resources is continually growing. Financial stability is an essential goal of DeGioia’s presidency, so balanced budgets at the medical center and hospital are top priorities. If expansion is the key to a better university, a balanced budget is necessary for further success. Four years from now, the medical center is projected to break even, but it will require more tough decisions that will primarily fall to DeGioia. Just as his experience dealing with the transition of the medical center contributed to his appointment as president, DeGioia’s solution to the problem may come to be the defining feature of his tenure. Depending on DeGioia’s response, perhaps someday Georgetown will be able to take the medical center off life support.
