publication date: Dec. 9, 2016

DePinho Accepts Responsibility As MD Anderson’s Losses Grow

By Paul Goldberg

Operating losses at MD Anderson Cancer Center ballooned again in October—swelling to $60.9 million on top of September’s $41.5 million.

Losses for the first two months of fiscal year 2017 add up to $102.4 million, and the institution’s executives are scrambling to cut costs, boost revenues, and shore up faculty morale.

“Who is accountable for the financial performance? I take full responsibility for the challenges,” MD Anderson President Ronald DePinho said Nov. 15, addressing a faculty forum convened to discuss the institution’s finances.

The task of finding the solution to this problem lies squarely on the shoulders of everyone at MD Anderson, DePinho said.

“I also have learned that in this room, our collective wisdom, capability our knowledge, our efforts are the solution, and all of us coming together is going to be important, so the solution really lies with all of us, so our responsibilities are adjoined in that regard,” DePinho said.

The forum was open to MD Anderson faculty only, and a recording is posted on an internal website.

MD Anderson executives are urging faculty members to add clinical days and make efforts to convince out-of-town patients to remain at the Houston-based cancer center for the duration of their treatments. Also discussed are frugality measures, including eliminating overtime, instituting a hiring freeze, curbing catering, and turning holiday parties into potluck events.

MD Anderson officials often repeat that the center’s long-term financial outlook is strong.

“Like other major health care institutions locally and nationwide, we are facing decreasing clinical reimbursement from government and insurance companies, a shrinking pool of potential patients as insurance providers restrict coverage, and record rates of automatic denials by insurance companies contributing to bad debt,” MD Anderson’s four top executives wrote in a recent email.

Other large freestanding cancer centers aren’t reporting operating losses:

Memorial Sloan Kettering Cancer Center, an institution similar in size and stature to MD Anderson, reported $164 million in operating income through the first nine months this year, a 14.6% increase from the same period last year. Growth in the volume of outpatient visits and overall surgical visits resulted in an 8.9% growth in operating revenue to $2.9 billion. Operating expenses grew 8.6% to $2.8 billion.

Fred Hutchinson Cancer Research Center reported total revenues of $126.4 million and operating expenses of $117.1 million, giving it a $9.3 million operating surplus for the first quarter, which ended Sept. 30, 2016. For the fiscal year ended June 30, Fred Hutchinson reported total revenues of $615.5 million and expenses of $484.6 million, creating a $130.9 million surplus.

DePinho has triggered several controversies over his five years at MD Anderson, but past controversies—such as famously appearing on a Wall Street television show and touting the stock of a company he cofounded and in which he held stock—occurred when MD Anderson was in the black.

“MD Anderson has reserves and non-operating revenues that give us the opportunity to adjust our operating revenue and expense structure without making overly drastic changes,” Dan Fontaine, MD Anderson executive vice president for administration said to The Cancer Letter. “We are implementing action plans now to ensure we can address short-term losses and maintain our focus on our mission.”

Fontaine said that, these two months notwithstanding, the institution is projecting a positive operating margin in fiscal 2017.

chart1

Source:

“Our Finances: October 2016,” an overview document sent to MD Anderson executives, department chairs, administrators and clinical and research faculty.

 

Stamped “CONFIDENTIAL” and “For Management Use Only,” MD Anderson’s financial report for October indicates that gross operating revenues—$307.9 million—were $70.2 million below budget. Expenses—$368.8 million—were $15.9 million lower than the budgeted level.

Total operating revenues for September and October were at $630.8 million—$109.7 million below budget.

Average daily census was budgeted at 629 beds in October. The actual census was 8.8 percent lower—574 beds.

If high census alerts are an indication, even with these lower than projected occupancy levels, the hospital slips into overcrowding. For example, on Nov. 16, the morning after DePinho addressed the faculty, MD Anderson issued a census alert, declaring that it was more than 90 percent full.

Clinicians were urged to:

Please prepare patients being admitted for extended wait times

Please prepare for possible delays in the OR

Please prepare for the possible need to reschedule patients

Please assess patients in the MICU for readiness to transfer to primary units.

The October financial report is posted here.

MD Anderson lost $267.1 million on its operations during the fiscal year 2016, which ended Aug. 31.

In September, the first month of the current fiscal year, the institute’s officials projected that unless costs are slashed and revenues boosted, losses would reach $400 million to $450 million (The Cancer Letter,
Dec. 2).

“We have taken significant efforts to proactively and transparently communicate with our faculty and staff regarding our finances,” Stephen Hahn, Division Head, Radiation Oncology, said in a letter to the editor published in The Cancer Letter last week. “Through a series of meetings, forums and communications, we are openly facing our concerns as a community and empowering all faculty and staff to be part of the solution in reducing expenses and increasing revenues. Due to our early and swift actions, we continue to project a positive margin for Fiscal Year 2017.”

 

“Nothing is off the table”

At the Nov. 15 faculty forum, DePinho said all programs, including his signature Moon Shots program, could end up getting trimmed.

This is noteworthy, because MD Anderson recently filed a suit as well as opposition motions with the Patent and Trademark Office, alleging that the entrepreneur Patrick Soon-Shiong has infringed MD Anderson’s Moon Shots trademark (The Cancer Letter, Nov. 18).

“Nothing is off the table, and I am committed to reviewing and reprioritizing all our operational investments and looking for expense reductions in programs including the Moon Shots,” DePinho said at the faculty meeting. “It’s important that we have to address the short term needs, but at other times in the history of the institution—even in 2008 and 2009—we continue make really important strategic investments that will continue to allow the institution to maintain its preeminent status, and we are going to continue to do so.”

Responding to questions from The Cancer Letter, Fontaine confirmed that the Moon Shots aren’t immune from trims.

“We are reviewing and reprioritizing our operational investments and looking for expense reductions in all programs, including the Moon Shots Program,” Fontaine said.

Fontaine acknowledged that plans for staff reductions are being considered.

“We are working collaboratively to increase revenues and decrease expenses to avoid the difficult decision of reducing our dedicated workforce. Personnel costs continue to be our largest expense,” Fontaine said. “While every measure is being taken to avoid reducing positions, we must have plans in place in case that option becomes necessary.

“It is an action none of us wants, but it has to be considered to preserve the long-term financial health of the institution. All personnel decisions will be guided by compassion and thoughtfulness.”

In September, a group of MD Anderson officials attributed the institution’s sagging financials to four factors (The Cancer Letter, Nov. 4):

Epic system (tools, reports, technology fixes);

Providers – Capacity (Mondays & Fridays; weekends for select services; services at right location);

Demand (wait times, rate of incoming calls/requests to set up appointments);

Insurance coverage.

At other institutions, moving to Epic and other electronic medical record systems enabled physicians to capture more charges, but, with each encounter requiring capturing data, doctors report seeing fewer patients.

At the faculty forum Nov. 15, DePinho characterized the institution’s problems as short-term.

“We are all concerned about the financial situation, but I am very confident we will be able to get our finances back on track,” he said. “A couple of key points that I want to emphasize:

“No. 1: The situation requires serious attention, but it is not out of control, our long term balance sheet is strong.

“No. 2: In order to remain on solid footing, we have to take actions now, and we are doing just that. We budgeted for a loss for the first few months, but the numbers are larger than anticipated.

“No. 3: Everybody is part of the solution. That is why I was very grateful of having this forum and many other interactions across the institution and it’s been really heartening to see everybody work together toward common goals.”

 

A $52 Million Contract with PricewaterhouseCoopers

At the Nov. 15 faculty forum there appeared to be no discussion of cutting the Institute for Applied Cancer Science, an in-house hybrid of an academic cancer center and a drug company, one of DePinho’s signature programs.

In a recent editorial in ASCO Post, DePinho wrote that IACS employs about 100 “industry-seasoned professionals,” who “interact with MD Anderson’s critical mass of 1,700 accomplished faculty, which is supported by an approximately $800 million annual research budget focused on cancer.”

Actual expenditures on IACS and the manner in which they are offset by industry royalties and contracts aren’t publicly known.

At the faculty forum, DePinho was asked about MD Anderson’s plan to spend up to $52 million over three years to build a hardware and software system that would integrate longitudinal, patient-level clinical and research data.

The system would be financed through hospital revenues and built by PricewaterhouseCoopers Services LLC. The proposal was approved by the UT System Board of Regents at its meeting Nov. 9-10.

A faculty member asked DePinho to pinpoint the long-term initiative to which the project is tied. “With the financial downturn and the possibility of reduction in workforce, FTEs, these funds will undoubtedly come from clinical revenue, how are you going to address this with the employees of our institution?” the faculty member asked.

DePinho’s comments appear to signal that there would be some leeway on the project and that the need to balance the institution’s long-term investments would need to be balanced against its shortfalls.

“That’s an approval [of the $52 million contract], but not a commitment, and in the contract we have the right to terminate, so we can move forward with that or not, depending on what the financial situation is, and that’s, quite frankly, true for everything,” DePinho said.

“The reality is, with respect to our data infrastructure for research, there are 50 different research databases throughout our departments, and its incredibly expensive to maintain.

“This is an attempt to integrate, so everyone in this room here could take advantage of the data that’s being generated across the entire institution, which would be a game changer, so we are actually the leading institution in the nation right now that are integrating clinical and research data, thanks to the efforts of a lot of folks on the faculty, and so the idea is to create that infrastructure that allows us to do things efficiently, which all institutions are trying to move towards. We just happen to be in the leadership role.

“Having said that, we have to look at all the investments we are making, even though that might be a cost-saving in the longer term, we’ve got to be very careful in what investments we make.”

Responding to questions from The Cancer Letter, Fontaine confirmed that the $52 million may or may not change hands.

“MD Anderson received approval from the Board of Regents to enter into a contract for services to assist in the building of such a system,” Fontaine said. “That contract does not obligate MD Anderson to expend the funds and may be terminated on short notice at any time. Currently, all programs involving capital investment, including this one, are being reviewed for appropriate adjustments to assist in returning the institution to consistent monthly operating margins.”

October Key Drivers
Gross Patient Revenue
Red

Status

Our total gross patient revenue was 11.1% under budget for October. Many factors are contributing to this decline but clinical activit y is a priority. Read the latest update on plans to increase clinical activity.
Personnel Expense
Green

Status

Caution: Thanks to your efforts, we’ve made progress in reducing this expense. But, it still remains our largest expense and we’re still spending more than we’re making. We must rethink the way we work and staff to our current workload.
Managing Overtime
Yellow

Status

Thanks to your efforts, we saw a decline in overtime costs. More information will be shared by email and on the Our Finances blog on steps to take to further reduce these expenses.
Purchased Services
Red

Status

 We exceeded the budget by 5.3%. We must do everything necessary to eliminate or signficantly reduce costs so that we stay under budget.  

chart2

Source:

“Our Finances: October 2016,” an overview document sent to MD Anderson executives, department chairs, administrators and clinical and research faculty.

 

A Global Problem?

In an email to the faculty and staff, MD Anderson’s top executive—DePinho, Fontaine, Executive Vice President and Physician-in-Chief Tom Buchholz, and Provost and Executive Vice President Ethan Dmitrovsky—described their institution’s problem as analogous to those affecting other cancer centers:

The long-term financials of the institution are strong, yet our current revenue and expense numbers require urgent action to maintain our mission.

Like other major health care institutions locally and nationwide, we are facing decreasing clinical reimbursement from government and insurance companies, a shrinking pool of potential patients as insurance providers restrict coverage, and record rates of automatic denials by insurance companies contributing to bad debt.

We have many long-term solutions for this evolving health care revolution. In the near term, leaders across the institution have been implementing robust changes to control or eliminate expenses, increase productivity and better use our people in critical positions or shared services. 

We must be as efficient as possible while improving quality and patient satisfaction, and continuing to invest in our mission. Many of you have been involved in these efforts, and we thank you for your contributions. The financials from October, however, show we must do more as teams and individuals.

Now is the time for our core values to guide our hard work and decisions. Personnel costs continue to be our largest expense. While every measure is being taken to avoid reducing positions, we must have plans in place in case that option becomes necessary. It is an action none of us wants, but it has to be considered to preserve the health of the institution. We can assure you that any personnel decisions will be guided by compassion and thoughtfulness.

We’re more committed than ever to frequent communication. We’re posting questions and answers, along with other communications, on the MD Anderson – Our Finances site. [The site cannot be accessed outside MD Anderson]. Expect to see updates often.

We are the most impactful cancer center in the world. We thank you for your commitment to doing everything you can to help us navigate the opportunities and challenges of an evolving health care system. Our patients are counting on us to cure their disease and to push the frontiers of knowledge for future generations. Together, we can continue fulfilling our shared mission to end cancer.

In another email, dated Nov. 12, Buchholz set forth the new guidelines for increasing clinical activity:

As you are aware, we have been acutely monitoring our financial performance since last March. Our Shared Governance Committee, ECOT and administrative leadership team is committed fully to reducing expenses across our entire organization and rectifying any identified loss in revenue capture. We will share details on these efforts soon.

While there are many factors that contributed to this situation, our revenue shortfall is directly tied to the decrease in our upstream clinical activity and downstream volumes. In July, we requested that each faculty member increase activity. We were able to realize some gains in the month of August, but the activity for September and October left a sobering shortfall in operating revenue.

At the end of last week, I chaired a meeting with Clinical Department Chairs and Center Medical Directors to discuss immediate actions, because our current path is unsustainable. The methodology we have used to increase clinical activity has not worked thus far. We agreed we need a new strategy to increase our activity numbers and afford patients access to our outstanding clinical care. 

Starting in the month of November, all clinical care faculty should add one day in clinic per month to see new patients. The implementation of this must be done in coordination with the CMD and CAD of the center. Currently, we have a large percentage of blocked clinic days due to faculty travel or PTO. These days will now be used to schedule new patients for faculty who are present. We also will use times, such as Fridays, when many clinics historically have lighter schedules.

To fill these slots, we will reduce and, in some cases, eliminate medical acceptance criteria. We will commit to see local patients within 48 hours and consultations from our colleagues within 48 hours

During our meeting, we recognized that some services already have open templates and no demand to fill current capacity. In these cases, if the Chair and CMD confirm with their access team that there is no delay in accepting any new patient, then the templates will not be changed. If increasing template availability will result in any increase in activity, then we all commit to make the necessary changes. For those areas with low demand, we encourage the providers to work closely with Physician Relations to build referral relationships in the community.

In addition to increasing new patients, it is critical that we provide all patients the opportunity to receive their imaging, laboratory studies, chemotherapy and radiation within our institution. We have seen a significant decrease in the utilization of these services and this has had a major impact on our financial performance.

At all times, the patient and their family must be our primary focus. Quality and safety can never be compromised. We must continue to strive toward high reliability and patient-centered, value driven care.

We recognize that we are potentially less efficient than in the past. Many of you asked for additional training so you can document patient care in the EHR with ease. A resource that helped me—and one that I hope will help you, too—is OneConnect’s personalization training (Register now – search for “OneConnect and Dragon Personalization” to find dates and times). Departments also are able to schedule a OneConnect Tips & Tricks session at a provider meeting. Please invest your time in participating in these opportunities.

To achieve a rapid acceleration in activity, we ask that you communicate openly and respectfully across teams. We are MD Anderson, and we must demonstrate our core value of caring with patients and with each other. We share this situation and have the opportunity to share solutions, too.

Thank you for all you do to end cancer.

Separately, Buchholz urged MD Anderson physicians to convince their patients to stay at MD Anderson for the duration of their care instead of going home after initial treatment:

“Can’t I just get treatment at home? They built a new cancer center in our city that has state-of-the art equipment.”

I’ve heard this hundreds of times during my career as a radiation oncologist at MD Anderson. I am sympathetic to those who ask the question. After all, radiation treatments for breast cancer typically take 4-6 weeks of daily outpatient treatments. To be displaced from your home, support system and family for that long is tough. In addition, the expenses to stay in Houston for that long are also quite burdensome.

Despite these difficulties, the majority of patients with whom I engage in this conversation elect to stay, because I tell them what makes MD Anderson special. It’s not just experienced and thoughtful decision-making by outstanding subspecialty-trained oncologists, or even our state-of-the-art equipment (although that certainly helps). Rather, it’s the implementation and execution of what we do that leads to superior outcomes.

I may have mentioned before that I know Phil Mickelson. He told me exactly what I need to do to hit a drive 300+ yards down the middle of the fairway. He’s also let me test the high-tech driver he uses. Despite having the same knowledge and technology, my drives still mostly end up in the woods and barely reach 200 yards. See—implementation and execution are the key!

This year, we’ve seen a lower percentage of new patients stay for diagnostic studies and chemotherapy treatment. Patients may assume that if they are on a specific systemic therapy protocol, they can get the same quality of care at home. As they are considering this, we should inform them of the specific expertise here in our institution that may increase their chances for a positive outcome. For example, we perform over 11 million lab studies each year, almost exclusively in cancer patients. We perform over 500,000 diagnostic imaging studies for these same patients! Our technical staff and faculty in Pathology and Laboratory Medicine and in Diagnostic Imaging are the world’s leaders in what they do. No wonder we so commonly change the diagnosis and/or stage of disease during review of outside studies. As an insider in the oncology industry, I know how important it is for patients to have this expertise on their side!

When it comes to treatment, our therapeutic delivery expertise isn’t limited to radiation and surgery. Our chemotherapy nurses, advanced practice providers, clinical oncology pharmacists and technical support are industry-leading experts in systemic treatment delivery. We prepare medication on-site and have multiple safety checks in place to ensure the right patient receives the right treatment and has the right information to manage the side effects of these dangerous substances. While it might be impractical to fly in and out for every chemotherapy cycle, it’s worthwhile to receive initial cycles here and return for restaging and additional treatments, when indicated.

I guess what they say in real estate is true in cancer care, too—LOCATION MATTERS! I want to encourage you to learn more about our excellent services by reaching out to some of the people who know just how special we are:

 

Path/Lab:

Stan Hamilton, M.D.; Liz Wagar, M.D.; Victor Prieto, M.D., Ph.D; Jeff Medeiros M.D.; Ignacio Wastuba, M.D.

 

Diagnostic Imaging:

Marshall Hicks M.D.; Joey Steele, M.D.

 

Chemotherapy delivery and support services:

Patrick Hwu, M.D. (Cancer Medicine); Joel Lajeunesse (Pharmacy); Carol Porter DNP (Nursing); Brenda Brown (Ambulatory Treatment Center)

Then share what you learn with our patients, so they too can be insiders in the oncology world and make informed decisions about their care.

Copyright (c) 2017 The Cancer Letter Inc.