VCU Health System board authorizes management to proceed with consultant recommendations

By Pamela DiSalvo Lepley

RICHMOND, Va. – The Virginia Commonwealth University Health System Board of Directors today authorized VCUHS management to proceed with recommendations for operational and fiscal improvements made by a consultant after an exhaustive 14-week study of the VCU Health System.

The directive came after The Hunter Group’s findings were presented to the VCUHS Board of Directors.

“The final report of The Hunter Group represents a balanced document outlining hundreds of recommendations ranging from relatively broad organizational structure modifications and business culture changes to very specific suggestions about our billing practices and areas to reduce expenses,” said Dr. Eugene P. Trani, VCU president and president and chair of the health system board of directors.

The Hunter Group’s recommendations are based on achieving a three to six percent operating margin, identified by the consultant as necessary to maintain commitments to medical education, research, high-quality patient care and access for indigent patients.  Because the state does not subsidize funding for capital needs, the health system must obtain capital funds from its margin.

The Hunter Group’s work focused on the health system’s revenue cycle performance and operating efficiency.  The analysis was supplemented with an extensive interview process with input from more than 200 individuals including VCUHS employees, VCUHS board members, VCU School of Medicine physician faculty, health system management, government officials, insurers and health system competitors.  The most important recommendations fall into two categories:

• Adoption of a modified organizational structure that streamlines decision-making, emphasizes clear responsibilities and stresses accountability for performance.  Specific recommendations include the establishment of clear reporting lines from executives of the MCV Hospitals and MCV Physicians to one top executive, the CEO of the VCU Health System.  Also recommended was the consolidation of all clinics into a unified operating and management structure.

• Achievement of a $130 million cumulative financial improvement target by the end of fiscal year 2005 through a combination of revenue enhancements, expense reductions and productivity and efficiency gains. 

The Hunter Group report identifies $49.5 million in revenue enhancements, primarily through improvements to accounting procedures that better capture charges for services rendered, monitor contract compliance and reduce accounts receivable.

The report targets $52.5 million in expense reductions, including $39.8 million in labor cost reductions through clinic consolidation, overhead alignment and other personnel interventions and $12.7 million in non-personnel cost reductions such as clinical resource management and supplies.

A total of $28 million in productivity gains would be achieved through improving clinical service efficiency and implementing new funds flow accounting procedures to closely monitor productivity and operations improvements.

In a letter to VCUHS employees, Dr. Trani and Dr. Hermes A. Kontos, VCU Health System chief executive officer and VCU vice president for health sciences, noted that labor expense reduction “does not necessarily mean exclusively position cuts or lay-offs, but rather includes all other potential labor savings including greatly reducing, or preferably eliminating overtime and reliance on expensive contract-agency help.”

The letter continues, “We anticipated that their [The Hunter Group] report would present tough recommendations…we are confident that we will successfully implement most of The Hunter Group’s recommendations and achieve the goals we have set for the health system.”

The Hunter Group, a nationally recognized consultant for academic health centers, was hired in May 2002 by the VCU Health System to conduct the analysis.  Some of the consultant’s past clients include the Henry Ford Health System in Detroit and Temple University Hospital in Philadelphia.