Press Room

Medical centers team up to reduce costs

The University of California announced today (March 20) that its five medical centers will collaborate as a system to save in the range of $100 million to $150 million a year.

The “Leveraging Scale for Value” project, presented to UC Regents during their meeting at UCSF Mission Bay Conference Center, initially will focus on three areas: supply chain, revenue cycle and clinical laboratories. The effort, developed in consultation with UC leadership, is aligned with UC President Janet Napolitano’s push to identify cost savings and operational efficiencies.

“We are leveraging the UC system’s collective strength to become more efficient,” said Dr. John Stobo, UC senior vice president for health sciences and services. “By collaborating more, we can ensure the financial well-being of our clinical enterprise, allowing us to continue improving the health of Californians.”

UC’s $7.5 billion clinical enterprise, with essentially no support from state general funds, provides approximately $500 million in support of UC’s medical and other health professional schools. But to continue such educational support, fulfill its public service mission and maintain quality in a competitive health care market, UC’s clinical enterprise must lower its costs.

Without changes, UC medical center expenses are projected to exceed revenues in 2017. Challenges include declining reimbursements for clinical services from commercial insurers and government sources such as Medicare and Medi-Cal. By coordinating more as a system, UC Health can take advantage of its medical centers’ size to operate more efficiently and reduce expenses, as other successful health systems have done.

UC has developed the Leveraging Scale for Value project over the past year, considering 10 areas for achieving operating efficiencies and quality improvement, and selecting three to focus on first.

The decision to embark on the project came after a series of meetings that included selected regents, President Napolitano, chancellors, CEOs of the five UC medical centers, deans of the UC schools of medicine, medical center CFOs and COOs, clinical laboratory directors, and CEOs of health systems at the University of Michigan, Vanderbilt University and BJC HealthCare in St. Louis.

The university also engaged with other successful health systems such as the University of Pittsburgh, Johns Hopkins and University HealthSystem Consortium. These discussions confirmed the financial challenges facing UC Health’s clinical enterprise, as well as UC Health’s need to leverage its impact as a large system to achieve significant cost reductions.

The medical centers at UC Davis, UC Irvine, UCLA, UC San Diego and UC San Francisco already work together on systemwide contracts with commercial insurers and on some group purchasing. The Leveraging Scale for Value project will increase supply-chain coordination, identifying five areas for systemwide procurement.

By improving revenue cycle management, such as billing and collection processes, UC medical centers are expected to create operational savings and potentially improve revenue. And by sending more lab tests to UC medical centers instead of external labs, the university is expected to save additional money.

A shared services management council made up of the medical center CEOs, medical school deans, two chancellors, three external expert advisers and Stobo is looking at how to manage the project in an effective, efficient and accountable manner.

“The ‘scale’ project does not replace what each medical center must do on its own to contain costs,” Stobo said. “The systemwide efforts focus on what individual medical centers are unable to do on their own. Both local and systemwide efforts are needed to get us where we need to be.”