May 28, 2014

Rounds: A Message from the Vice Chancellor for Health Affairs

Dear Colleagues,

As the warm days of summer approach, I have never been more heartened by the commitment and strength of the people at VUMC. The financial challenges we have been experiencing for 18 months are now being regularly reported by other health systems and media nationwide. Only this past week, The Boston Globe reported that Partners HealthCare, the giant Harvard University affiliate that houses both the Massachusetts General and Brigham and Women’s Hospitals, is experiencing major financial losses. While many days have been difficult, we can all be very proud of what has been accomplished here despite similar circumstances. I am sincerely grateful for your teamwork, sacrifice and perseverance. You have propelled us forward.

Jeff Balser, M.D., Ph.D.
Jeff Balser, M.D., Ph.D.

Over the past 10 months we have been able to meet and surpass our one-year savings goal, having achieved $130 million in sustainable cost reductions, slightly more than half of the two-year $250 million goal we announced last July. And through it all, the volume of high quality clinical services delivered has set new records, patient satisfaction indicators continue to be outstanding, our quality ratings from objective outside agencies such as Truven Health Analytics, formerly known to many of you as Thompson Reuters, have been lauded nationwide, and our achievements in research and education during the past year have been truly remarkable.     

Tough Choices Remain

Despite this enormous success, we still have tough choices ahead that are being driven by the rapid decline in revenue from government and commercial insurance payers. Last spring, financial modeling by our own teams, and validated by national financial consulting groups, indicated VUMC would experience a $250 million decline in revenue over two years, with at least $100 million occurring during this fiscal year (FY 2014 ending June 30). The revenue reductions we have experienced this first year, despite record levels of clinical activity, have actually been closer to $170 million.

We now understand more clearly than ever that we did not overreact. Our expense reductions were neither too large, nor were they too soon. It is also very clear we must implement the remaining $120 million of cost reductions necessary to reach our $250 million two-year goal on schedule – in the fiscal year beginning July 1, 2014. We need to move swiftly, but strategically, pursuing further economic efficiencies in ways that are carefully considered, with the interests of our patients and our people as foremost.  As we finalize these decisions, we are focused on the following considerations:

First, VUMC has largely completed the staff reductions in the health system and related support areas planned in the fall of 2013, and our staffing levels are now comparable to peer academic medical centers.  Further health system-wide staffing reductions are not planned. As I communicated in the VUMC Reporter and in MyVUMC last December, “E2E is over!”

Second, our academic programs in research and education are highly supported by financial margins from patient care that are increasingly strained. Strategic choices for supporting programs from institutional sources, beyond grant funding from outside agencies, will be evaluated in the coming year with the goal of preserving and growing our most distinctive programs of excellence and cultivating our newest faculty as they launch their careers. At the same time, we are redoubling our efforts to identify and grow philanthropy and endowment sources to support faculty time for conducting research and educational activities.  And our revitalized technology transfer program, moving our discoveries to commercialization, will become an increasingly important source of academic program support.

Third, our compensation and benefit models must increasingly reflect the realities of a changing health care economy, reflected in the Medical Center’s financial results, while assuring we remain highly competitive locally and nationally as an employer and leader in health care, biomedical science and education.  While we will not provide an across-the-board salary increase on July 1, we are very aware of market pressure on particular job functions.  Position-specific market analyses are being conducted, and we do intend to make salary adjustments in some areas now and over the coming year. In addition, like many health care organizations, a component of compensation for employees in management and senior administrative positions, as well as a component of the financial support to our School of Medicine, will be tied to overall Medical Center financial results. Also, in the coming days you will hear from your entity leader or supervisor about restructuring of some components of the Medical Center’s benefits, including changes to some aspects of flexPTO.

Fourth, a host of initiatives to make our IT and financial systems more effective and efficient are not by any means complete, but we are making progress against aggressive timelines. We are monitoring all of these systems closely and are assured they are not only meeting industry benchmarks, but in some aspects are state-of-the-art, such as in clinical decision support. Nonetheless, we are committed to making even more progress. A key priority over the next year is to improve these systems to reduce the time our health care providers must spend on activities other than direct patient care.

The Way Forward

The Medical Center’s sustained success in delivering world-class patient care has for decades helped enable other aspects of our enterprise to flourish. Revenue generated through our hospitals and clinics from patient care services has long supported our other two core missions of education and research. While common among academic medical centers, it is no secret that the availability of these funds to support academic activity is increasingly limited, here and nationwide.

Despite these stressors, we at Vanderbilt will persevere. Our missions are sacrosanct, and the value we place on each will remain steadfast. While of tremendous benefit to society, our research mission also directly impacts and sustains our leadership in providing state-of-the-art patient care in an atmosphere of innovation. And our standards of clinical and scholarly performance are constantly challenged and improved by incoming waves of the nation’s most brilliant students and trainees. At Vanderbilt, we are committed to managing these national challenges — not by reducing our commitment to any of our core missions, but by becoming more innovative, tenacious and cost effective than ever before.

Finally, I want to reassure you that as we continue through this period of rapid change and immense financial challenges, every step we are taking is necessary. Yes, tough choices are still ahead, but in making these choices boldly and proactively, we will protect our people, our institution, our patients and our missions. We will be stronger financially as we pave the way for a bright future — a future I invite everyone to creatively engage and shape as a community.

Thank you for all that you do every day, for your care and support for one another, and for your incredible contributions that make Vanderbilt University Medical Center a destination of hope for people here and everywhere.


Jeff Balser, M.D., Ph.D.
Vice Chancellor for Health Affairs
Dean, Vanderbilt University School of Medicine