Finances strain the marriage between Jackson and the University of Miami

Posted on Sat, Nov. 12, 2011

Finances strain the marriage between Jackson and the University of Miami

By John Dorschner

When Overtown resident Myrtle Holmes started going to Jackson Memorial clinic with severe back problems and no insurance, she sometimes had to wait five hours to see a pain specialist. She couldn’t afford to pay, so she became a charity case, the kind that costs the public hospital system $550 million a year.

In May, Holmes, 56, qualified for Medicare because she was disabled. On her next visit to the clinic, she told her pain doctor about her new Medicare coverage. The doctor, a University of Miami faculty member working at the public hospital as part of a decades-long arrangement, then told her something that surprised her: She could now start seeing him in his UM office, rather than the Jackson clinic.

So she did. Both offices are on the Jackson Memorial campus, a few doors down but a world apart. At the UM offices, she says she waits a mere 20 minutes to see the doctor. The reason she was able to shift her care from the public system to the private? Medicare pays UM for her care.

It’s that last point that has created mounting tensions between two of South Florida’s largest institutions — Jackson Health System and the University of Miami medical school. For 59 years, they’ve been loyal partners working together to provide vital healthcare services to the poor and uninsured in Miami-Dade County. Recently, though, the relationship has become strained as Jackson’s leaders, struggling to reduce enormous losses, have tried to cut their payments to UM. And UM has launched new, potentially competing ventures of its own.

Miami-Dade taxpayers pay $330 million a year to treat Myrtle Holmes and thousands of other uninsured people who seek treatment in the county-owned Jackson system. As part of the system that has evolved over the years, Jackson also pays UM when its doctors treat the uninsured at Jackson.

But then a case like Holmes’ comes along: She gets insurance and her care is shifted to UM, which then receives the Medicare reimbursement money. UM calls that patient choice. Jackson counters that its paying patients shouldn’t be siphoned off to UM facilities.


Tensions are so high that it’s not clear whether this nearly six-decade relationship can survive.

“The University of Miami considers itself a regional institution,” says William Donelan, the medical school’s chief operating officer. He says UM wants Jackson to succeed, but he emphasizes that the two are “separate and distinct.”

Marcos Lapciuc, chairman of Jackson’s board, puts it this way: “The ability [for UM doctors] to practice medicine at Jackson is not a right. It can be taken away politically or economically.”

The fight between these titans has Miami-Dade leaders worried. “The relationship between these two institutions is vitally important for this community,” says Merrett Stierheim, a former county manager and well-known civic leader. “This is bedrock.”

And at the heart of the problem, he says, is UM’s 2007 purchase of Cedars Medical Center, directly across the street from Jackson Memorial, a move that many healthcare leaders say put UM and its new hospital (renamed University of Miami Hospital) in competition with Jackson.

This summer, the dispute erupted publicly. Jackson moved to slash by more than 40 percent the $130 million it pays the university annually for doctors and services. UM responded by aggressively expanding its services outside the Jackson campus, including a major move into Broward County.

Like many troubled marriages, the main issue is money. In healthcare, that means paying patients.

“I’m not saying people put on ski masks and take patients across the street” to the UM Hospital, says Lapciuc, but with UM doctors working at both hospitals, he suspects that it’s easy for shifts to occur. If a UM doctor is caught shifting a paying patient out of Jackson, Lapciuc says “there must be some kind of financial penalty.”

Fifty-one percent of Jackson patients are uninsured or have low-paying Medicaid, making those who pay full price all the more sought after. UM’s Donelan, who serves as the medical school’s chief spokesman, says UM is not trying to steal patients. He calls the Overtown woman’s experience an example of patient freedom. “Now she has purchasing power and can make choices,” he said.

He says Jackson should focus on fixing its own problems, such as long patient waits. Healthcare reform is only going to exacerbate the problem, he warned, because more patients who are currently uninsured will be eligible for insurance — and will be able to choose where they want to go.


Carlos Migoya, Jackson’s chief executive, says his team has plans to reduce wait times and fix other problems with the clinics, but he’s upset that the Overtown woman was shifted to a UM facility. “That shouldn’t happen,” he says because Jackson he has an agreement with UM that patients who come to a Jackson facility should not be lured away.

UM’s Donelan acknowledges there’s such an agreement, but patients still have a right to choose. He says many Jackson leaders wrongly believe UM doctors have a responsibility to fill Jackson beds. Jackson gets tax dollars to pay the uninsured, he reasons. If paying patients want to be treated by a UM specialist, “our first priority will be to admit those patients to UMH.”

That point was emphasized in an April memo from William O’Neill, UM’s executive dean of clinical affairs, to the clinical leaders at the medical school. He wrote that the “number one directive for our medical enterprise next year is to improve [profit] margins at UMH.’’

The memo suggested several ways to do that, including: “The dean [Pascal Goldschmidt] stated this morning that [a] shift of only 5 surgeries a week to our facility will provide enough volume to meet our surgical volumes.” The memo was sent anonymously to The Herald. When a reporter showed it to Donelan, he said it was written when UM leaders were concerned that the medical school would lose money in fiscal 2011, which ended May 31. The school ended up eking out what Donelan called a “razor thin” surplus of $6 million on revenue of $1.67 billion.

O’Neill declined to comment on the memo. Several South Florida healthcare experts said they believe the “shift” mentioned in the memo is a reference to moving surgeries — and paying patients — from Jackson Memorial to UMH.

Donelan, of UM, called that interpretation “probably true” but added that Jackson leaders shouldn’t try to pin blame for the system’s $432 million loss in the past three years on any such shift of patients.

Jackson’s Migoya acknowledges that, for patients seeking a UM doctor, it’s fair for that doctor to choose what facility the patient goes to. “That happens with any doctor for any hospital. It’s a 100 percent prerogative of the doctor.”

But he acknowledges that the Cedars purchase has given UM doctors a new place to send patients — and Jackson has to adjust to that. One move he’s making: hiring more community doctors not affiliated with UM. Historically, 98 percent of doctors at Jackson have come from UM. Changing that could be challenging, though, because the panel that decides which that grants doctors can the right to practice at Jackson is dominated by UM faculty.


The relationship between Jackson and UM has always been complex. Not only do UM doctors provide the bulk of care at Jackson Memorial, but virtually all clinical departments at Jackson are headed by UM doctors. UM doctors also supervise the 1,000-plus residents, who are medical doctors paid by Jackson as they learn specialties.

But some county leaders have begun to question the relationship. In a March meeting with UM’s Donelan and Goldschmidt, Joe Martinez, chairman of the Miami-Dade County Commission, said he found the union more than a little odd. When Donelan tried to couch it in less judgmental terms — he called it merely “long-standing” — Martinez insisted: “All 60-year relationships have to be weird.”

When asked whether UM’s recent moves into Broward County might be a prelude to a parting of the ways, Donelan, the UM medical school COO, didn’t answer directly: “Marriages change over the decades. And not every changed marriage ends up in divorce.”

Key parts of the relationship have been conducted under the radar for years, including the annual operating agreement, a quiet deal reached by the heads of Jackson and UM for a lump sum. It was so hush-hush that even Jackson’s board didn’t know how the figures were calculated.

Usually, board members accepted the deal without fuss, but in 2002, Jackson’s board chairman, Michael Kosnitzky, filed two public records requests and enlisted the help of the county attorney’s office to get the numbers that Jackson executives were considering. For his troubles, the pro-UM board ousted Kosnitzky.

Another defining moment in the relationship came in 2006, when UM President Donna Shalala brought Goldschmidt from Duke to be UM’s new medical school dean and lead an effort to create what Shalala said would be a “great university medical center.” Goldschmidt earns $1.12 million in total compensation, according to tax records, just a fraction under Shalala’s $1.16 million.

On Dec. 1, 2007, UM again moved to raise its profile by spending $275 million for the 560-bed Cedars Medical Center, across the street from the 1,498-bed Jackson Memorial Hospital. UM set aside another $38 million for repairs and upgrades. The price stunned several local hospital experts because, the year before, Jackson had purchased 382-bed Parkway Regional Medical Center in North Miami-Dade for $35 million.

Joshua Nemzoff, a specialist in buying and selling hospitals, said he had considered bidding on Cedars for a client, but stopped when he heard the UM bid: “They paid three times what I thought that hospital was worth.” UM took out loans of $325 million to finance the purchase — debt the medical school is struggling to pay off.

At the time, Goldschmidt reaffirmed UM’s “steadfast commitment” to Jackson, but Marvin O’Quinn, then Jackson’s chief executive, said he was “concerned” that UM might become a competitor.


Some notable UM-led programs remain at Jackson Memorial: Ryder Trauma Center, the Burn Unit, transplant, pediatrics and obstetrics. But cardiology, a major revenue driver, is available at both facilities and, in some other specialties, UM doctors have flexibility about where they admit patients.

Nemzoff and others are concerned that UM’s expensive purchase has intensified the university’s push for more patients — at the expense of Jackson. “They’re competitors —not only competitors, but Jackson is basically paying UM to help UM operate its own system,” Nemzoff said.

For UM, the relationship with Jackson has meant a steady flow of cash. A Jackson analysis shows that in 2011, the system paid UM $20 million for treating the uninsured at Jackson and another $30.6 million for supervising the residency program. Jackson also paid $10.1 million for UM doctors to oversee Jackson clinical departments, $11.7 million for physician recruiting, $21.4 million for running the transplant program and $4.6 million for the dean’s office.

UM does pay Jackson a little bit, as well: $19.9 million a year for leasing land, renting offices and other costs.

Stephen Dresnick, a Miami physician and hospital consultant, says UM is making even more money through its relationship with Jackson by “double-dipping,” getting paid by Jackson for supervising residents and again by insurers for the residents’ treatment of the patients.

UM’s Donelan says that the practice of getting paid for supervising residents and billing is accepted by Medicare and is “standard in major teaching centers.”

Contrast that with Jackson’s clear-cut arrangement with Florida International University’s new medical school: Jackson pays $3.6 million for the salaries of some FIU faculty working at Jackson North. In return, Jackson gets all the money insurers pay for the FIU doctors’ work. With this system, Jackson expects to have a net loss of $500,000 on the FIU program this year and break even next year.

Donelan, the UM medical school COO, says that UM has a much larger operation than FIU’s young medical school and a similar arrangement would be too complicated because UM doctors work at both Jackson and UM. Donelan says there are now some discussions about Jackson paying salaries of some UM doctors and then billing insurers for their work.

And UM gets paid another way, too, through an obscurely named state program called Upper Payment Limit, or UPL, which is designed to supplement the pay of medical school physicians who treat a lot of patients on Medicaid, the state-federal program for the poor that generally pays rates far below those of private insurance.


UM’s usually confidential financial reports, obtained by The Herald and confirmed by Donelan, show that UM received $47.1 million from UPL during its 2011 fiscal year, a bit higher than usual because of some one-time payments.

Nemzoff, the Philadelphia hospital consultant, characterizes these payments as another way of UM bringing in more money through its relationship with Jackson to fund its rival hospital. Donelan says they’re simply a standard way of the state helping medical schools.

Migoya at Jackson agrees such payments are standard, but he has commissioned an outside firm to make sure that Jackson is paying fair rates.

Meanwhile, UM seeks to minimize the Medicaid patients it treats at UMH. The O’Neill memo on revenue building says the goal for UMH is to keep “the current ratio of unfunded/Medicaid patients,” which was 12 percent last year. “We have to be intelligent about the cases we admit to UMH. As we have previously discussed, currently Medicaid is an excellent insurer for JMH,” the O’Neill memo said.

Donelan notes that Jackson gets its own version of financial help from the state for treating large numbers of poor patients — money from the “lower income pool” that UMH does not receive.

Many of these issues are now getting hammered out in two formal contracts between Jackson and UM. One is a major revision to the basic affiliation agreement, last done in 2004. In the new agreement, approved Nov. 3 by the County Commission, UM faculty will no longer be allowed to serve as department heads at both Jackson Memorial and UM Hospital. Migoya says that should reduce the problem of divided loyalties. Jackson may also pick non-UM doctors to head its clinical departments, giving the public system more control over how doctors spend money.

Proving tougher is the annual operating agreement, specifying how much Jackson pays and what services it gets. That should have been in place by Oct. 1 but is still being negotiated.

Migoya, who became Jackson’s chief executive on May 1 with UM’s strong support, has pushed hard for reducing the amount Jackson pays UM and giving Jackson more power to control the purse strings.

In August, Jackson executives proposed a $52 million cut in its 2012 payments to UM. Goldschmidt, the UM medical school dean, said the 48 percent cut, down from $130 million, would be “extremely difficult.”

Especially for the medical school, according to UM’s financial documents. The records, confirmed by UM’s Donelan, show that the school lost $17.9 million in the first three months of fiscal 2012.

Jackson retreated. The two sides now have agreed that Jackson will pay UM $16.5 million less — including major cuts to such items as physician recruiting — and agreed to find another $36.5 million in efficiencies, such as reducing patient length of stay.

One significant way Jackson’s Lapciuc wants to cut more costs is to ask UM to pass on its savings from newly reduced malpractice insurance costs. Last year, the university asked the Legislature to grant its doctors sovereign immunity for their work at Jackson, so they wouldn’t be subject to huge malpractice claims for the work.

The Legislature granted the request, with the strong backing of Jackson and county leaders. Lapciuc wants to know how much UM is saving, so the savings can be passed along to Jackson.

“It’s none of their business,” Donelan snapped during a Herald interview. He called the idea of passing on the savings “an extraordinarily odd notion.”

Increasingly, UM is looking beyond Jackson for ways to make money. Its current budget seeks a surplus of $25 million, which Donelan says is needed to boost the depleted cash reserves of the entire university and to supply money for hospital improvements. UM’s Aug. 31 financial report stated that doctors need to bring in more patients “to improve results.”

That includes expansion, starting northward, where UM is now providing pediatric specialists for Broward General Medical Center in Fort Lauderdale — a move that signals UM is taking on other competitors, such as the Joe DiMaggio Children’s Hospital in Hollywood. That also means that UM’s pediatric specialists, once exclusive to Jackson Memorial, will now see patients elsewhere.

Donelan says UM also has plans to establish office space for its specialists in South Broward County and is developing a medical center on its Coral Gables campus, where its specialists can see South Miami-Dade residents.

Some longtime Jackson-UM observers find the pediatric move to Broward General particularly interesting. Kosnitzky, the former chairman of Jackson’s board, says the move is “implicitly a ‘brushback pitch’” to put Miami-Dade officials on notice that UM can go elsewhere if the payments from Jackson keep getting cut.

Kosnitzky says the UM push into Fort Lauderdale “is bad for Miami-Dade … from a pure economic growth standpoint.”


Where do the forays into new territory, squabbles over money and competition for paying patients leave the Jackson-UM relationship? In the long run, some healthcare experts believe the best solution is a closer marriage, not a divorce, with the financial operations of the two entities combined.

Nemzoff, the Philadelphia hospital consultant, believes Jackson should attempt to strong-arm UM into merging its hospital into the Jackson system.

Others believe Miami should look to Baltimore where, in 1984, Johns Hopkins University took over nearly a bankrupt public facility, Bayview Medical Center, and converted it into a prosperous hospital. The Miami-Dade Hospital Governance Task Force — 20 community leaders who earlier this year looked at how Jackson should be governed — included in a draft report the suggestion that at some point UM might take over Jackson, but UM President Donna Shalala insisted the clause be dropped.

Still, in a recent interview, Donelan did not completely rule out a future merger: “UM is not in a position to take operational control of Jackson as long as it is organized as a department of the county.”

Donelan insists that UM remains a strong supporter of Jackson, calling it “a unique and essential hospital.”

“Our intention is not to compete with Jackson. Nothing would make me happier than for it to get its act together and have stability, so we discuss what things we can grow together. But as long as they’re in the financial straits they are in, there is no room for that discussion. … The last thing UM needs is a moribund Jackson sharing a campus with UM.”

Jackson’s Migoya also affirmed the bond between the two institutions: “We need the University of Miami doctors… Without them, we’re just a county hospital.’’

But, he adds, he wants Jackson to diversify its services so it’s not so reliant on the university. “That’s just good strategy.”

© 2011 Miami Herald Media Company. All Rights Reserved.

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