AHR: After the health system lost a lot of money in 1999, there was a very intense discussion about what would be the best structure of the health system in relation to the university, including whether it should be separated as a non-profit organization. Around the winter 2001 it was decided that it would be best to not proceed with doing that at this time. When I was interested in the job, which started about July 2001, I endorsed the plan that the trustees had put in place some time in March 2001, which was to wait and see what the final structure should be, now that things were a whole lot better. Dr. Rodin, Dr. Martin, the faculty, the search committee and myself, we all decided that a better way to go at this time was actually to put the medical school and health system together more firmly in one organization under a subsidiary board of the university, called the Penn Medicine Board. This oversees both the School of Medicine and the whole health system, which is still an integral part of the university. The first meeting of the executive committee of this Penn Medicine Board took place in October and the full board meeting took place in April, so everything’s underway and we are looking at more integration of the School of Medicine and the Health System rather than separating it off at this time, although that remains an important option to be evaluated. I’m the Dean of the School of Medicine, so I oversee the research and teaching, and Robert Martin and myself look after the health system as partners. He is the CEO of the University of Pennsylvania Health System and I’m Executive Vice President. We share responsibility for overseeing all aspects of it: patient care, physician responsibilities, students’ experience in the health system and, of course, the budget issues.

AHR: After the discussion about actually separating off the patient care part of the health system from the academic part, I think the analysis showed it would be extremely difficult to do that, at least in the short term. If one separated the two, one would have to find a place for the practice plan between these two organizations. All the clinical chairs and physicians practice in terms of patient care, many of them do research and of course everyone teaches. It turned out to be very difficult to make these dividing lines. Not impossible, but difficult. With that, the idea grew that maybe we would get synergies in terms of performance and financial savings by looking at how these two parts of the academic medical center might work closer together rather than be separated. That was the philosophy. In January we began a major strategic planning initiative involving the trustees, the faculty, students and staff to look at how we should be positioned best in the future. All possible organizations are on the table. We have not decided one way or the other. The Penn Medicine board and the organization we have now is functioning efficiently and a lot people are very satisfied, but we really need to analyze it in much more detail.

AHR: One could go forward and maintain this integrated organization of the School of Medicine and the Health System and actually enhance the integration in all kinds of ways. We’re looking, not only at academic and patient care excellence, but also financial responsibilities. One of the questions is, if we really do enhance the integration to a greater extent, can we save money, enhance some of the faculty performance and maintain our excellence in other areas? If the analysis shows that this is less than optimal or there are serious problems going forward, let’s say in terms of management of the health system or the finances of the whole integrated organization, then we would look at the possibility of separating off the health system as a separate independent corporation. We are looking at what those financial, patient care and faculty implications are. Then there are models in between, where it isn’t quite as separate or the practice plan is in one organization versus the other. Everything is on the table and we’re analyzing it from those points of view: academic success, patient care, safety and competitiveness, and financial viability.

AHR: That’s correct, and that was decided pretty much in February 2001. There were options of joint venturing with a for-profit organization or selling parts of it and the faculty really were very opposed to that. I’m going forward on the assumption that that would be an option that we would only come to if all these other options didn’t work. The reason the faculty felt so strongly, which I support by the way, is that it’s very hard to separate the various missions of an academic medical center. The missions include education across many fronts—medical students, Ph.D. students, M.D.-Ph.D. students, masters students—much of it takes place in the clinical setting in the health system. Then there’s research, some of which takes place in basic science laboratories, but a lot of it takes place around patients, so we have a clinical research center and we do clinical trials. The same faculty who are seeing patients usually teach and do research. So, if one could put all that together in a simplistic overarching organization, it does make the allocation of resources and the performance requirements and the synergies between research, education and patient care just a lot more simple. That’s what the faculty traditionally have always wanted. It’s the way academic medical centers have always functioned. And until recently, with the Balanced Budget Act of 1997, it has functioned rather well.

The biggest issue that forced the university at the beginning of 2001 to look at alternatives was really a financial imperative more than, I would say, most other issues. The faculty felt it wasn’t a strong enough imperative. I agree with that, but I don’t think one should put it off the table. Going forward for the next ten years, one should analyze it again. The advantage would be pretty much the infusion of new capital from a for-profit partner. Some people would say they could run the hospital better, but I’m not convinced about that. The people running our four hospitals now are doing an excellent job and I don’t think we would look for them to come and improve that, but certainly many of them have a lot of money and are doing very well. The disadvantage is that they would complicate the organizational mission and funds flow and faculty loyalty in major ways. It’s doable, but you pay a very big price for it. You do bring in another important partner or player who has a very focused mission, which is to satisfy shareholders, and research and education usually get short-shrifted in that kind of set-up. I wouldn’t say always, but they’re at risk if one doesn’t have a very enlightened relationship.

AHR: We’re about half way along. We started in January and we hope to have to have a pretty robust plan by the end of year. There are options, but they have not been reviewed by the trustees. Many of them haven’t been debated by the faculty. We agreed that we really wouldn’t adopt anything unless it had a lot of support from the faculty and, of course, the trustees. We’re developing the background material, outline and options so that over the next six months we’ll have a very rigorous debate.

AHR: The credit for that goes to Robert Martin, the senior administrators and the key people on the board who helped engineer it. It’s one of the great turnarounds in American academic health systems. In fiscal year 1998 the health system experienced a $98 million dollar operating loss. In 1999 it lost $198 million. In 2000 the loss was reduced to $30 million and in 2001 it made a $25 million operating profit. This year we anticipate making about $25 million to $30 million on operations. So, that’s given us all the breathing space we need to deliberate and evaluate options and debate these things without pressure from anyone to do it.

AHR: We have about 180 physicians in CCA. We own their practices but they are functioning in private practice with a variety of organizational plans and incentives. There was a stage soon after many of the practices were bought that the practices tended to lose money. That’s no longer the case and I would say most of these practices are doing quite well, some of them very well. The CCA physicians have a significant educational mission as well—many of our students go out and learn about private practice together with our CCA physicians. Physicians who are not part of CCA, but who practice at Pennsylvania Hospital and Phoenixville Hospital are not part of the full-time faculty. Most of them are outstanding physicians and they are keenly important in terms of admissions and many of them do teaching as well. Although they’re in private practice, they’re interested in students and house staff and many of them contribute some to the teaching mission.

AHR: This is a real challenge for us and we’re debating it as part of the strategic plan. Truthfully, we expect everyone to teach because part of the reason to have an appointment at the University of Pennsylvania, whether you’re an academic historian or physician, is that we believe you should teach in some capacity. We make that a very high priority and it’s inculcated into all parts of the organization. It’s very hard to get promoted if you don’t have a good teaching record. Having said that, the pressures on the finances of all academic medical centers, ours included, are such that the faculty are extremely stressed. We do wish them to see more patients and at a very high level of satisfaction and safety, all of which requires a lot of care and thought and time. At the same time we have these teaching obligations for them, which we view as equally important. We have begun to think about how to organize ourselves to respond to this very difficult thing. There are all kinds of models being thought about but how we’ll come out in six months, I’m really not sure.

AHR: One can think about a smaller number of faculty who spend more time teaching and other faculty who do less time teaching and become more efficient in patient care. We can think of a significant fund-raising endowment, the interest of which would go to support time of teaching faculty. That hasn’t been done in the past but it’s starting to be done in a variety of academic medical centers. We’re trying to think of a variety of settings where the time commitment could be more carefully allocated, where the teaching would be at the same high level but it would be more efficient. So, we’re looking at these models of how to deploy the faculty to respond to these two imperatives, but do it with a new model because the old model doesn’t work that well anymore. There’s just less money in the system, so there’s less time and there’s more pressure to see patients.