Jackson Health System cuts UM payments by $16.5 million after heated talks

By John Dorschner

After three weeks of what both sides described as “very strong” negotiations, Jackson Health System will cut its payments next year to the University of Miami medical school by $16.5 million — a 13 percent reduction.

But even that won’t balance the budget for the financially strained public hospital system. At a Jackson board meeting Thursday, hospital executives said UM has agreed to work with Jackson to find another $36 million in “value improvement initiatives” to cut Jackson’s costs for the 2012 budget year, which begins in October.

The apparent cooperation between UM and Jackson likely was the result heated discussions, Jackson board members said.

“As of Monday, I could not believe we would have an agreement,” said Joe Arriola, a member of UM’s board of trustees until May, when he resigned to join Jackson’s board. “They must have knocked the heck out of each other… There were times when I thought this would be the end of the marriage.”

Jackson and UM have been closely involved since 1952, when Jackson Memorial became the teaching hospital for the school. Jackson pays the medical school for its facultry treating uninsured Jackson patients, supervising training of the residents, heading Jackson clinical departments and other services.

Board Chairman Marcos Lapciuc said he still had “very serious concerns” about how the $36 million in initiatives would be measured and insisted they not overlap with cost-savings measures being found by MedAssets, outside consultants hired to make Jackson more efficient.

Lapciuc also wanted to be sure any new intiatives wouldn’t conflict with measures developed by Fernando Salgado, the chief transformation officer being paid $450,000 a year to make an efficient operation out of a system that lost $337 million the past two years.

Chief Executive Carlos Migoya said he is confident his team working with UM could come up with at least $36 million in savings: “We believe it will be substantially more.”

Migoya said areas for savings may include international marketing programs and finding more cost-effective ways for UM doctors to treat patients at Jackson.

The tentative annual operating agreement between UM and Jackson, yet to be formally approved by Jackson’s board, would reduce Jackson’s payment to UM from $130 million to $113.5 million.

Pascal Goldschmidt, dean of the medical school dean, told Jackson’s board that the $16.5 million cut was the maximum UM could afford. If Jackson insisted on more, “our priority would have to be shifted… to saving UM as an organization, trying to figure out how to survive,” he said.

After the meeting, when asked if a “divorce” had been mentioned during the heated discussions, Goldschmidt said, “Well, I’ve been married 22 years, and in any long marriage, there are moments when people get angry and say, ‘Well, if that’s the way you feel…’ ”

But he said UM continues to be dedicated to providing care at Jackson.

Goldschmidt added UM was stunned to learn in mid-August at a Jackson board meeting that hospital executives wanted to slash payments to the medical school by $52 million, a 48 percent reduction, according to Goldschmidt’s calculations.

But Jackson spokesman Edwin O’Dell noted that the system’s struggle for financial footing has been very public: “No one is surprised that Jackson needs to find creative ways to trim our budget while meeting our mission. And, we continue to work with our partners at UM to do both.”

UM complained the cuts were being suggested in the middle of UM’s fiscal year, which started June 1 — a change that would have been catastrophic to the medical school, Goldschmidt said.

By late August, Jackson had backed down a bit, proposing $18 million cuts in cash payments and $34 million in efficiencies. After three weeks on intense negotiations, the parties agreed to $16.5 million cash reduction, with the remainder in efficiencies.

Jackson’s negotiations were led by Chief Strategy Officer Donn Szaro, who told the board that payments to UM were being cut by $9 million for programs recruiting UM physicians, by $3 million for UM providing clinical administrative services, by $2 million for care for the uninsured and $1.3 million for “indirect support.” In the past Jackson has paid up to $4 million to support the UM dean’s office.

Szaro said Jackson needs major reductions from UM because of the “great financial strife” Jackson has been experiencing.

That strife continues. On Thursday, Chief Financial Officer Mark Knight reported Jackson lost $2.6 million in August and ended the month with 11 days of cash on hand – far below the 160 days that healthy hospitals average.

Jackson has lost $79 million so far this fiscal year, which ends Sept. 30. Knight projected the loss for the year will be about $85 million, compared with a $93 million deficit last year.