UofL Board of Trustees Addresses Governance and Faculty Practice Plan.

trustees-feb5I attended the University of Louisville Board of Trustees meeting yesterday. There was one major item on the published agenda that I wanted to follow, and one not on the agenda that I had hoped to see. Others have reported on additional business conducted by the Board yesterday. What I was most interested in was how the University and Board were going to handle the two-page draft document presented at a committee meeting in January that brought to a head increasing public concern, reinforced by some board members, that they were not being given the information needed, nor the opportunity to discuss issues central to the Board’s legislatively-mandated oversight responsibilities.

Dissidents or public heroes?
The response announced by Board Chairman Robert Hughes was that he was forming an Ad Hoc Committee on Governance on which any interested Board member was invited to participate. He hoped to come to some kind of charge or product in the next 4 to 6 months, presumably coinciding with the time left in his current term as Chairman of the Board. There was no comment from anyone in the room.

Constructive solution or not?
On first blush, it might be said that the important issues on the table are not being swept off under the rug as I feared might have been the case by lack of inclusion on the agenda. On reflection, I have concerns that this approach is not the right one. In the first place, offering committee membership to the “interested,” opens the door to skeptics like me who wonder if this tactic is merely a way to allow board members with concerns to ventilate ineffectively. Would the committee meetings or their minutes be public? Public or not, deciding to join a volunteer-only committee could be taken as an indication of having picked a side and be detrimental to intra-board relationships. No board member should feel any degree of intimidation in stepping forward to suggest that Chairman Hughes might not be correct when he asserts that everything is going well and no meddling is needed, or acknowledging that the community has a right to greater accountability from this public institution. It is the Board as a whole has this latter mandate, not a few self-selected individuals. The rest of us need a clear signal from the University that they are taking this matter seriously and that this is not a fig leaf, ad hoc, off-the-agenda, or less than mainstream fix.

Revision of Medical Faculty Practice Plan.
This was the big-ticket item on the agenda, a major initiative of Dr. David Dunn, Executive Vice President for Health Affairs. By way of background, a University Professional Practice Plan that permitted medical faculty to practice privately under the auspices of the University has been around since before 1967 with a major restatement in 1975. Under its rules, individual full-time faculty and their departments could engage in independent private medical practice or other remunerative professional activities. Even the Dean of the Medical School did not have knowledge of how much income was involved. Individual clinical departments had separate agreements with their faculty about how much practice income was contributed for general departmental academic support. Some departments were cash rich, and others poor. The Dean had limited funds with which to pursue academic equity or other institutional priorities. In my view, this approach had historical roots in the largely volunteer nature of faculty status earlier in the 20th century. It is fair to say, the ability to generate unlimited clinical income led in at least some instances to distortions of the academic mission of the institution which linger today, and which in my opinion have expanded to encompass commercial research with its own set of academic distortions.

We were unique.
By 1992, UofL’s system of permitting faculty private practice was so far from what other medical schools were doing that change was unavoidable. The simple University request of a “tax” of 2% of some gross private professional income for the Dean’s discretionary use met with outrage and opposition. I attended the UofL Board meeting at which that “Dean’s Tax” was presented. Every department chair present lined up in opposition, including one who would ultimately become a Vice President for Health Affairs and who would be a force for merger of individual practices into a single multispecialty one. The Board passed the agreement. As it happens, I was the only faculty member at the meeting who encouraged the Board to do so. I am still supportive of the concept. There were, and still are overwhelming reasons to further coordinate the multiple separate medical corporations that make up the University clinical enterprise. The new private practice corporation, University of Louisville Physicians (ULP), is a prominent manifestation of an ongoing reorganization which I will refer to again because it appears that current financial difficulties of ULP underlie the urgency with which Dr. Dunn pressed for adoption of yesterday’s proposal. A copy of the proposed plan can be downloaded here.

For all the right reasons.
The updated practice plan seeks to simplify and make the plan more fair, but clearly also to raise more income for the school. It generates more income by eliminating discretionary loopholes and exemptions and making it harder to open new ones; by including the clinical income of ancillary medical professionals such as nurses, physicians assistants, and technicians who work for ULP and the departments; by including as eligible income the many-$millions paid to physicians and their departments by hospitals for service contracts and consulting fees, and by other tweaks. Indeed, virtually all professional income of both clinical and basic science medical school faculty is eligible for the tax on gross proceeds.

Instead of a single yearly tax payment, an undefined periodic schedule of payments is desired– indeed, for ULP and Affiliated Entities as quickly as “automatically and immediate!” Over the next 5 years, the tax rate would rise from the current 2% to 4% and was estimated by Dr. Dunn to increase revenues to the Dean’s assessment from $3 or 4 Million to $7 or 8 Million. Given the expanded categories of eligible taxable revenues, this latter estimate seems obviously understated. For example, salaries and directorships from University Hospital, KentuckyOne Health, or Norton Healthcare would now become taxable and perhaps even available to the school this April. That in itself is a lot!  Systems for accountability of the use of the Dean’s Fund are outlined.

Ghost riders.
The Dean’s Tax is not the only important part of the Plan. Tacked on are several prerequisites for University faculty employment, and enhancement of the control of the Vice President for Health Affairs. For example, unless there is a written exemption, a faculty member may not practice privately outside the auspices of ULP. The University has already contractually agreed to limit the places where its faculty may practice and this clause gives UofL more control over its physicians. University Departments and their respective clinical divisions in ULP will continue to provide additional academic program support and must show that they have balanced yearly budgets. [Why is that not the case now?]

No secrets allowed.
An enforcement kicker to enforce compliance is a new condition of employment that gives the University the right to search a faculty member’s computer or electronic device. This is presumably to look for evidence of hiding eligible income, but it is a page out of the employee contract at University Hospital that some have seen as a way to intimidate employees.

Included and excluded categories of taxable income.
These are discussed in detail in the Plan document and for reason of space I refer the reader there. I want to make the case here that what is included or excluded as taxable income tells a lot about University priorities. I will offer a little more on this point elsewhere below.

Not a bad idea as a whole.
I was and am still in favor of a more uniform and fair practice plan that gives academic priorities the place they deserve and allows the University to act in a more responsible and efficient coordinated way. I was disappointed however that the agreement seems to further enshrine the distinction between private and teaching patients at the University of Lousiville medical center. Billing systems for the two initiatives have been separate in the past and I think they still are. For example, much clinical revenue flows through the UofL Research Foundation. The poor and the rich do not enter the same door for healthcare at the University of Lousiville Medical Center as they must for reasons of both social justice and sound medical education. The Board was told that the chairs of the clinical departments endorsed the new plan unanimously.

Who gets the money?
Because I have heard directly from the University President and Provost that they want more money from faculty clinical income to support the general University, I read the proposed plan with that in mind. It appeared to me that there was enough ambiguity in the language that it was not clear that all the money or full control over its use would end up in the office of the Dean of the Medical School. For example, in the definition section on page 6, the “Dean’s Assessment” comprises a given year’s tax at that year’s rate. The “Dean’s Fund” however is defined as a “pool of funds derived solely from the Dean’s Assessment” and must be used “for the benefit of the School of Medicine.” To my first reading, there was wiggle-room for a portion to be retained for general University use. I asked Dr. Dunn about this and he stated that the two were one-and-the-same fund, just a matter of legalese.

In language elsewhere: “The proceeds of the Dean’s Assessment shall constitute the Dean’s Fund.” The Dean’s Assessment “may be held at any time in accounts of the University, the Research Foundation, and other University Entities as determined by the Executive Vice President for Medical Affairs and the Dean.” [Emphasis mine.] Further below… “The Dean’s Fund shall not be used for any purpose unrelated to the School of Medicine. The Dean shall have broad discretion in applying the Dean’s fund in support of teaching, research, and necessary and appropriate activities of the School of Medicine.” Sounds pretty good on the face of it but other language in the introductory and explanatory portions of the plan indicate shared Dean/Vice President authority. We know that UofL puts a lot of legal stock in preliminary comments!

What happened yesterday?
Dr. Dunn introduced the plan as one of his important initiatives to keep up with medical trends, consolidate practices, facilitate internal referrals of patients, maintain teaching cases, and to allow a single contracting point with insurers and other outside organizations. He noted that some 70 previously independent faculty practices were now working well together under ULP. Because some departments would be bankrupted if the increase in tax rate from 2% to 4% was made immediately, the rise would be phased in over 5 years. He noted that other schools had similar taxes on clinical income, and that at the University of Kentucky the comparable tax was 8%.

Following his presentation, one Board member immediately raised a concern that item #17 of the plan limiting the ability of the Board of Trustees to further alter the plan for a full year constrained their oversight responsibility and asked why that clause was included. No one in the room including University attorneys knew. Chairman Hughes acknowledged that the Board was in the dark about the intention of the clause and suggested that further consideration and approval of the new plan be tabled until a future session.

At this point, Dr. Dunn interrupted with a “before you do that,”  and gave indication that that he wanted to move forward without delay.  He indicated that the practices and medical school were facing immediate “huge financial problems” that he and the Dean “literally cannot handle.” He stated that “once this is put in place,” the Medical School Fund will dissolve in one year anyway. This was all puzzling to me but none of this was explained further, nor was any clarification by the Board requested. I found these to be stunning announcements confirming reports to me by others that ULP and at least some clinical departments were in substantial financial straits if not in debt. Since the tax rate is not going up for a while, a need for instant implementation is not obvious to me unless it is necessary to demonstrate a significant change in business practices to outside creditors, accreditors, or partners. As a non-financial example, was a bigger stick needed to force faculty to practice exclusively in Kentucky One Health facilities like UofL promised to do? Substantial faculty practice still occurs in other facilities.  Mostly however, it sounds like a money problem. I am surprised the Board did not press Dr. Dunn further on this matter.

Questions were asked.
The Board went into recess while a futile effort was made to call other involved lawyers to find out why the offending clause was included. While waiting, some additional questions from Board members were addressed. One asked about the yield of the increased tax. Another asked how income from non-physician professionals such as midwives or nurse practitioners would be handled. A question was asked if basic science faculty would also be taxed and the answer was yes– but the amounts were small. Additional questions were asked about reporting on the use of funds, balanced budgets, tight controls, and transparency. One senior Board member present at the 1992 meeting made favorable comments about that approval.

Questions were asked to clarify that the tax would stay within the medical school and be solely under the control of its dean. Here Dr. Dunn paused a bit, answered with a quiet “yes,” but then added “for all intents and purposes.” In my opinion he talked around the issue by referring to other sources of money he had available to him. The nature of the back and forth with the questioner  added to my baseline concerns about language giving apparent dual responsibility and accountability to both the Vice President and the Dean and to the distinctions between Dean’s “Assessment” and “Fund.”  It’s hard for me to believe the University would give up altogether on its previous intention to capture more clinical revenues for general University support. Perhaps other such mechanisms have been created.  Certainly, any additional money raised within the Medical School would relieve the University of a corresponding financial responsibility, but up to now the flow has been out of the Medical School and its hospital to the University. I will dig out the actual audio segment of the Board meeting to confirm my recollection and notes.

Nobody knew.
When no explanation for the “one year” lock-in could be obtained, Dr. Dunn urged the Board to approve the plan with the “no change for a year” clause removed. The Board did so unanimously without clarification of the need for urgency.

[As an aside, I had been in the same room in 1992 and knew the reason for inclusion of the offending clause #17 but no one asked, nor was it my place to offer. I later confirmed my recollection with another senior faculty member. There were no “Stark Law” or other legal restrictions on faculty compensation involved– but wouldn’t you think the University would have wanted to be sure first? It was put in place at the request of faculty simply to reassure them that they would not have to so soon again go through a process to which they were opposed.]

It is what it is.
In any event, we now have a new faculty practice plan, the details of which will be further revealed as it is rolled out. If it really is, as claimed, designed to allow the Dean of the Medical School to use the funds as she feels in the best interest of her school and without undue pressure or interference from above, I am in general supportive of it. I would have liked to have heard questions addressed about how services to the medically indigent will be affected by changes in the practice plan. I would like to have understood why income from lectures sponsored by drug companies was excluded from the tax when income earned from service as an expert witness in legal matters trial was not. Both exercises of professional expertise take a faculty member away from their academic responsibilities at home, often for substantial amounts of time. Were the drafters of the plan afraid their faculty would revolt? Most of us faculty without procedural income can make more money speaking than practicing!  Finally, given that commercial research has been receiving the University’s highest priority, why is income derived from patents, licenses, and marketing of medical devices excluded from the Dean’s tax? The sky is apparently still the limit in the amount of faculty time involved or income recieved in the pursuit of those goals. Why do not at least some of those dollars go to the Dean’s Fund? I for one am disappointed in this visible confirmation of University of Louisville priorities but others may choose to differ. Enough for now. What is done, is done, but at least the Board need not wait a year to make further changes!

If I have made an error of fact or interpretation, please let me correct it.  Explain why I am wrong, because I want to get it right!

Peter Hasselbacher, MD
President, KHPI
Emeritus Professor of Medicine, UofL
February 6, 2015

[Addendum Feb 10:  Going over my materials, I listened to parts of an audio recording of the meeting and adjusted some of the above to reflect the actual words spoken. Specifically, Dr. Dunn did not use the word “deficit”  in reference to the immediate “huge financial problems” of the Medical School and its clinical practices.  I wrote the word in my notes as an aside to associate his comments with what I had been told by others. I apologize for the reporting error.]