HD53 - Flexibility in Personnel and Purchasing Practices for Teaching Hospitals
Executive Summary: Authority and Study Objectives Adopted by the 1990 Session of the General Assembly, HJR 212 and SJR 127 established a joint subcommittee to study flexibility in personnel and purchasing practices for the Commonwealth's teaching hospitals. The Committee was directed to consider whether teaching hospitals should be authorized to develop more flexible personnel and purchasing practices and to determine a method of developing such practices and any appropriate oversight mechanisms. The study focused on recent changes in the overall health care environment and the effects of these changes on the unique missions of teaching hospitals, as well as recent legislative action and current statutory and administrative requirements governing teaching hospital business practices. Flexibility in Personnel and Purchasing Practices for the Commonwealth's Teaching Hospitals Background The academic medical center is generally characterized as an institution which includes a medical school, one or more teaching hospitals, and at least one additional professional program, such as a school of nursing or dentistry. These institutions, committed to a three-part mission of education, research, and patient care, play a critical and unique role in the modern health care system. Academic medical centers educate most of the nation's physicians and health care professionals, conduct the bulk of health-related research, and provide a major portion of indigent care. The Commonwealth is home for two of these institutions: the Medical College of Virginia Hospitals of Virginia Commonwealth University and the University of Virginia Medical Center. The Changing Health Care Environment Hospitals today face a number of challenges in the health care environment due to increased competition, changing reimbursement practices, decreased revenues, and heightened consumer expectations. Technological advances which have reduced the need for inpatient services and an increasing elderly population may create future hospitals which deliver medical services only to the seriously ill. While these challenges and pressures have affected the entire health care system, academic medical centers arguably have been especially vulnerable to these changes. One of the most dramatic changes in the health care environment is evidenced in the rising costs of medical care. Intense price competition between hospitals has profoundly affected the delivery of medical services in an industry that traditionally paid little attention to the cost of its products. Hospitals must now compete with large corporate providers, who are often able to offer more attractive prices. In the Commonwealth, the two teaching hospitals compete not only with private hospitals, but also with a number of nearby academic medical centers in North Carolina, Maryland, and the District of Columbia. Changing reimbursement practices and the development of cost-containment measures have also affected health care delivery. The creation of the prospective payment system has challenged hospitals to become more efficient and has resulted in abbreviated hospital stays, declining hospital admissions, and fewer office visits. Teaching hospitals, traditionally subsidizing their education and research efforts through patient revenues, are now forced to look for other sources of revenue. The growing number of elderly and indigent patients has altered the patient mix at most hospitals, but has especially affected the academic medical center. The complex technology available at teaching hospitals often attracts severely and chronically ill patients, while the patient care mission of the academic medical center may encourage services to the indigent. The MCV and UVa hospitals provide 42 percent of the Commonwealth's uncompensated care, which is not fully reimbursed. Although general fund appropriations provide for medical care and education activities associated with patients, including the indigent, it is likely that hospital costs for indigent patients exceed these appropriations. Developing Competitive Strategies In responding to these changes and pressures, hospitals have emphasized efficiency and expanding their market base and services. To strengthen their ability to react to market forces, a number of hospitals have pursued corporate reorganizations, joint ventures, purchasing alliances, and diversification efforts. Developing competitive strategies for teaching hospitals, however, requires consideration of their unique three-part mission as well as the state laws, regulations, and policies governing business, personnel, and purchasing practices. Increasing internal efficiency and purchasing power raises concerns regarding procurement policies, university autonomy, and flexibility in decision-making procedures, while offering competitive compensation packages involves consideration of state personnel and benefits programs. Statutory Constraints and Recent Legislative Initiatives The need for increased flexibility in the development of competitive strategies has been a continuing concern for the Commonwealth and its two teaching hospitals. Teaching hospital representatives have contended that financial challenges necessitate the ability to respond to market forces in the same manner as private hospitals. Recognizing the special burdens the education and research missions place on the MCV and UVa hospitals, the Governor's Task Force on Indigent Health Care recommended increased autonomy and flexibility for these teaching hospitals in 1988. A degree of flexibility in personnel practices was granted by the 1989 and 1990 Appropriations Acts, and legislation considered by the 1990 General Assembly proposed specific changes in the Virginia Public Procurement Act, the Virginia Personnel Act, and the Virginia Retirement System (VRS). Although the legislation was carried over, the issues raised by these bills served as the basis for the Committee's study. Although current law allows the teaching hospitals to participate in cooperative procurement arrangements, these arrangements are restricted to purchases exceeding $150,000. Significant annual and long-term savings might be realized if this minimum contract price requirement were removed. While proposed legislation would have eliminated this contract minimum and certain other purchasing requirements, the potential impact of these changes on other state agencies remains unclear. Although participation in group purchasing arrangements has resulted in cost savings, a broad exemption for the teaching hospitals might adversely affect other state agencies that rely on state volume contracts to obtain more favorable prices. Despite efforts by the Division of Purchases and Supply (DPS) to accommodate the teaching hospitals' unique purchasing needs, the hospitals have consistently maintained that state purchasing procedures remain unnecessarily time-consuming and overly restrictive, resulting in added expense. Authorizing any additional flexibility for these two institutions, such as removal of the $150,000 minimum purchase requirement or an exemption from DPS procedures, however, necessitates careful consideration of the Commonwealth's interest in fairness and frugality in public procurement as well as potential impact on other state agency contracts. Also proposed were changes to VRS and the Personnel Act to allow the institutions to develop comprehensive personnel plans and alternative retirement systems. Nearly half of the 7,000 individuals employed by the MCV and UVa teaching hospitals are classified as health care professionals and are currently exempt from the Personnel Act pursuant to the 1990 Appropriations Act. Intended to facilitate recruitment and retention of qualified personnel, this exemption also creates additional employment incentives by permitting the development of career ladders through job redesign, restructuring, and enhancement. Although a seemingly successful practice, this exemption raises concerns regarding the propriety of establishing different pay scales and classifications for hospital positions having counterparts in the university and in other state agencies. Amendments proposed by 1990 legislation would have extended this exemption to all teaching hospital employees and would also have removed access to the state grievance procedure. Precedent for the development of alternative retirement plans for certain employees already exists in the Code, as colleges and universities may develop plans for persons engaged in teaching, administration, or research. The creation of an alternative plan and the reallocation and creative application of funds previously committed to supporting VRS could result in significant savings--perhaps as much as four million dollars per year for each teaching hospital. While participation by hospital employees in an alternative plan might not adversely affect VRS or its funding, extending this option to other agencies might prove to be problematic. Conclusions and Recommendations Determining the need to increase flexibility in the Commonwealth's personnel and purchasing practices to accommodate the unique missions of its two teaching hospitals required careful review of a number of issues. Consideration of the academic medical centers' commitment to education, research, and patient care and their unique position as public institutions in a fiercely competitive health care environment must be balanced with the need to ensure fairness, impartiality, and frugality in business practices. In developing its recommendations, the Committee examined specific or perceived burdens--and benefits--that compliance with state personnel and purchasing requirements may impose on the MCV and UVa hospitals and coordinated the input and expertise of various state agencies and the two teaching hospitals. Of primary concern to the Committee was the development of recommendations that would not only result in cost savings to the hospitals but also ensure the continued delivery of quality patient care at these academic medical centers. The Committee therefore makes the following recommendations: Recommendation 1: The Division of Purchases and Supply and the Commonwealth's two teaching hospitals examine the efficacy and potential impact on other state agencies of providing an exemption from DPS purchasing procedures for the teaching hospitals. Recommendation 2: That § 11-40 of the Code of Virginia be amended to provide the teaching hospitals an exemption from the $150,000 threshold amount for cooperative procurement arrangements. Recommendation 3: That health care providers, as determined by the Department of Personnel and Training, employed by the teaching hospitals be exempt from the provisions of the Personnel Act, except those provisions establishing a grievance procedure for state employees. Recommendation 4: That the health care providers employed by the Commonwealth's teaching hospitals be permitted to participate in alternative retirement plans approved by the board of visitors of the respective institutions, that the contribution rate for any alternative plan be established by statute, and that the hospitals report to the Committees on House Appropriations and Senate Finance prior the implementation of any alternative plan. |
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