Overreach at the University of Miami?
UM had to restructure its huge investment in health care and life sciences but makes no apologies for its ambitions.
In pursuit of a world-class reputation under President Donna Shalala, the University of Miami in the last decade joined other Florida universities — and indeed, the state itself — in betting big on the life sciences.
Among other moves, it paid big bucks to recruit stars, including such seven- figure recruits as famed cardiologist Pascal Goldschmidt, chairman of the Duke University Medical Center medicine department, who came in 2006 to head UM’s Leonard M. Miller School of Medicine and create a UHealth system. It brought in a high-profile Duke team to create a human genomics institute that would employ 296 — an institute launched with an $80-million state grant and a pledge of $100 million of its own. It bought 560-bed Cedars Medical Hospital in 2007, renaming it University of Miami Hospital. It partnered with a commercial developer to build the University of Miami Life Science& Technology Park, the first 252,000-sq.-ft. phase of which opened in 2011.
UM’s overall budget ballooned with the buildup, more than doubling to $2.4 billion from when Shalala arrived in Coral Gables 12 years ago this month. Financially, UM resembles a medical enterprise with an undergraduate college attached. Patient-care revenue makes up just over half the university’s revenue. Medical employees make up 60% of UM’s workforce.
The investment looked to pay off. The UM med school moved into the top 50 in U.S. News & World Report’s rankings. Its Bascom Palmer Eye Institute has been best in its category for nine straight years, and UM’s Miller School became the top National Institutes of Health-funded med school in Florida. The undergraduate institution rose too. UM passed the University of Florida in U.S. News’ much-watched ratings in 2010 and, for the last three years, has been the only Florida institution in the magazine’s top 50 national universities. It was 67th when Shalala arrived.
But problems appeared. As early as 2011, some began to question whether UM had overreached. The Chronicle of Higher Education that year ran an article titled, “Fast-Growing Strategy Has Its Costs at U. of Miami.” UM trustee and auto dealership mogul Norman Braman penned a letter that year warning of UM’s financial risk. “They didn’t act on it,” says Braman, who quit in protest in February 2012. “Everything I said has transpired.”
The new, larger UM med enterprise Shalala built tottered as state and federal research money, and health care revenue didn’t grow to support it. UM appeared to have overpaid for Cedars. Insurers tightened reimbursements. Jackson Memorial Hospital, the public hospital for which UM provides doctors, had its own financial troubles, leading to lower revenue for UM.
By January 2012, the med enterprise was $28 million in the red. The Miami Herald later reported: “According to internal documents, the school suffered from bloated staffing, a faulty billing system and prices that sometimes ran much higher than at other south Florida hospitals.”
In March 2012, UM made Jack Lord, a pathologist and former Humana executive, COO at the med enterprise to right the fiscal ship. UM laid off 182 temporary workers and two months later announced it would save $40 million annually by axing 800 — 8% of the medical enterprises’ workforce — in administration, appointment scheduling and unfunded research staff. The layoffs were one of the largest in Florida in the recession’s aftermath. (UM is one of Miami-Dade’s top private employers with more than 13,000 employees.)
UM says 19 departments handled their own clinical scheduling; a single call center could handle the job. No doctors, faculty or nurses lost jobs, and UM was adamant there would be no effect on students or patients.
Financially, the restructuring moved the medical enterprise to the black, but Goldschmidt and Lord drew the ire of the med school faculty. A substantial, but never disclosed, number of the school’s 1,200 faculty signed a no-confidence petition against Goldschmidt and Lord. Goldschmidt, Shalala says, has her confidence. Lord appears to have been sacrificed, one of several high-ranking shifts at the medical enterprise. He was replaced as COO but remains on the pathology faculty.
Moody’s, in November, gave UM’s bonds a stable outlook, though it cited challenges including health care exposure, weakened operating performance in the medical enterprise, thin liquidity and a $394-million unfunded pension liability. (UM closed its defined benefit pension plan in 2007 to newcomers and moved to defined contribution.)