Can a Medical Center Be Too Rich?

The University of Pittsburgh Medical Center announced today that it will donate up to $100 million over the next decade to fund college scholarships for Pittsburgh public school students. This is a magnificent gesture, but it left me scratching my head: I thought hospitals were supposed to absorb charity, not dole it out.

I already knew that Pitt was doing quite well, thank you. Pitt’s “excess margin” (what the real world calls profit) this year was an eye-popping $618 million on $6.8 billion in revenue. Every day, I admire a stylish half- or full-page ad in the New York Times touting Pitt’s world class programs in everything from rheumatoid arthritis to dementia. This aint cheap: the rack rates for one full-page ad in the Times start at $71K (for educational organizations) and peak at $173K (banks and mutual funds). Even if they get a volume discount (just like Tiffany does for its bauble-of-the-day on page A3), a year of Pitt ads probably runs north of $20 million. I’m guessing that this marketing blitz isn’t designed to attract grandma and her pneumonia from the SNF, or even Uncle Sal’s gall bladder. This is Cleveland Clinic, bring me your transplants and your burr holes, clear the runway for the next Lear Jet, our menus are also available in Arabic kind-of-stuff.

Pitt’s leadership has a long history of “Spend Money to Make Money” strategic thinking. According to a June JAMA article co-written by Pitt’s dean,

In 1986, [University of Pittsburgh Medical Center] invested $230 million to expand the transplantation program and to provide space for its fledgling cancer institute and other research initiatives. By 1988, more than half the world’s liver transplantations were performed in Pittsburgh [emphasis added], generating exceptional clinical revenue…. UPMC’s investment of clinical revenue in transplantation research eventuated in an exponential clinical return, fostering its rapid growth. The heightened research success enhances both the reputation of the parent university and the stature of the hospital system, enabling it to accrue sufficient market share to remain financially successful, even during periods of market instability.

Is there a problem here? Isn’t this a simple case of superb financial stewardship and enviable market share mojo? And, after all, aren’t American non-profit hospitals in trouble for not providing enough “community benefit” to justify their tax-advantaged status?

Sure. And Pitt isn’t the first healthcare organization to expand its notion of charity beyond community health fairs and caring for Medicaid patients. Some organizations – such as Kaiser Permanente – have even established charitable foundations to support their community work. But, to my knowledge, the strategic focus of these foundations has been on improving the health of the community, not on addressing other non-medical social needs.

Why does this rub me the wrong way? Maybe I’m jealous (oh, what we could do with a 9% margin!!!). Maybe I’m wondering whether the organization has fully funded the activities and technologies needed to ensure the delivery of safe, high quality care (CPOE, teamwork training, simulation, adequate nurse staffing, addressing resident fatigue…). And maybe I’m thinking that, in an economically depressed community, jaw-dropping hospital profit margins must be coming from payments by patients, companies, and governments, each of whom may begin to wonder whether they are overpaying the academic Mecca for medical care.

I know it’s time to stop when I start sounding like a Republican.

5 Responses to “Can a Medical Center Be Too Rich?”

  1. elliott gorelick December 8, 2007 at 5:03 pm #

    I think that $100 million to the community is a whole lot better than other uses:

    Perks at UC:

    Report blasts UC brass for waste, poor management

    or last year’s executive compensation scandal.  

    Also, can you really say why your hospital is not earning excess margins in the 9% range.  Your organization’s former business partners down the road in Palo Alto are so it’s not even a function of the more competitive environment in California or the regional dominance of Pitt.  The bottom line is that hospital margins (at least for academic medical centers)  have been getting healthier in the last few years and are scheduled for a cyclical decline.

  2. eeinna December 10, 2007 at 11:06 pm #

    According to the hospitals Annual Financial Statement, UCSF’s profit margin last year was 8%. Not too shabby… certainly up there with Pitt.

  3. Bob Wachter December 10, 2007 at 11:54 pm #

    Nice to see folks scrutinze UCSF’s finances so closely (and read the blog so carefully)! My understanding is that, yes, UCSF Medical Center’s margin was about 8% last year. This year it is closer to 4-5% (perhaps that cyclical decline that Elliott predicts), which is causing some belt tightening.

    But that’s not really my point. Here — and at every other large medical center that I know of — excess dollars are funneled into building new facilities (in this case, ours are focused on building new women’s, children’s and cancer hospitals at Mission Bay), improving quality and safety, implementing IT, recruiting new staff, shoring up infrastructure (including earthquake preparedness, as I described previously:

    Should We Retrofit our Buildings or our Healthcare System?

    ); in short, things related to the core mission of improving health and healthcare.  

    This is a very subtle line — you could certainly argue that providing scholarships for poor kids in Pittsburgh will contribute to the “health” of the community as much as or more than building a new surgical suite. But the donations still struck me as unusual and a bit odd — I guess I’d be more comfortable if they were supporting training poor kids in nursing or pharmacy than in undifferentiated college scholarships. But this is an unusual case (which is why I chose to comment on it), and perhaps I’m the only one who feels this way.

    One more thing about this particular case. Most large medical centers do substantial amounts of fund raising. I’m wondering how I’d feel if I’d just donated money to Pitt’s medical center and they in turn donated money for college scholarships.

    My guess is that there is more here than meets the eye. The “Pittsburgh Promises” program (the scholarship program that the medical center contributed to) was a pet project of Pittsburgh’s 27-year-old (that’s not a typo) mayor. Prior to the Medical Center’s $100M pledge, the program’s tin can had accumulated a grand total of $10,000 (again, not a typo). Interesting…

    And by the way, I have visited Pitt a couple of times and it is really a stellar place, with first rate people. That’s not the issue.

  4. eeinna December 11, 2007 at 12:53 am #

    Actually, just checked the 2007 annual financial statement (just recently posted online) and looks like UCSF once again comes in with a very healthy profit margin of 8%. In fact, UCSF’s Income Before Other Changes in Net Assets went up 16% over last year!

  5. akeras December 17, 2007 at 4:51 am #

    I am a hospitalist at the University of Pittsburgh Medical Center in the Department of CCM.

    The employees of UPMC definately do not appreciate the amount of money spent on New York Times advertisements and billboards atop tall buildings (UPMC administration will move in to the US Steel Building in the near future and the word on the street is that a large UPMC sign is going up at the top). Especially those struggling to provide for their families.

    One other problem is that in the many hospitals in the UPMC network, we have rich hospitals and poor hospitals. In one of the hospitals I visit, we have cardiac monitors from the stone ages and we do not even have a modern day ultrasound for placing central lines and PICC lines. We have to beg the administration and enter our requests onto a long list of wishes at budget time. In other hospitals, there are parque floors and gormet menus for the patients and the staff. It seems to mirror the nature of the community- a poor community with a poor hospital and an affluent community with a rich hospital. This is just my impression.

    I guess that if we would just use more checklists, we would not need all of the fancy equipment!

    All in all I love working at UPMC, the information system is amazing and there are many bright and talented people here. You mentioned simulation- we have one of the top simulation centers in the world (next to the military). It is the Peter Winter Institute for Simulation Medicine (WISER Center)

    I enjoy the blogg- thanks.

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