UC regents meet to discuss audits, medical system finances

Claire Liu/Staff

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SAN FRANCISCO — The UC Board of Regents assembled Tuesday at UCSF to approve the university’s external audit plan and review the financial status and governance challenges of the university’s health system.

In the first day of a three-day meeting, the Committee on Compliance and Audit approved an external audit’s scope and fees and heard from officials presenting on regulatory compliance in the university’s international affairs. The CEOs of each of the university’s five medical centers discussed challenges associated with the university’s governance model with the Committee on Health Services, which also reviewed the long-term financial status of the university’s health centers.

The compliance and audit committee approved the scope of KPMG’s audit plan for the fiscal year ending June 30, at a cost of more than $3.1 million. KPMG is an accounting and auditing firm appointed by the board as an external auditor in September 2013. The current fiscal year is the second of its five-year contract.

In addition to conducting a comprehensive audit of the university’s finances, KPMG is to audit the university’s medical centers and retirement system and investigate campus compliance with NCAA procedures.

John Stobo, the executive vice president of UC Health, reviewed the status of the health system over the past seven fiscal years with the board. He called attention to the financial success of the university’s medical centers, which operate with on average a 6 percent margin — half of which translates to programmatic support for the university’s medical schools, according to Stobo.

“Over the past seven years, revenue from medical centers has become a larger portion of the overall UC revenue,” Stobo said at the meeting. “I see that continuing over the next seven years.”

The board also discussed downward pressure on insurance compensation created by the Affordable Care Act. For a $1 expense, commercial insurance pays $1.40, Medicare pays $0.90 and Medi-Cal pays $0.60, so maintaining a mix of commercially insured payers — which can financially support the system — is important to sustaining the university’s public mission, Stobo said.

The CEOs of the university’s medical centers summarized the transactions at each institution over the last three fiscal years. They discussed challenges to the health system posed by the system’s governance model, which they said constrains the ability of health centers to respond to a fast-moving market.

Claiming that the medical institutions are at risk of losing talent because they aren’t able to make compensation decisions efficiently enough, the CEOs discussed reducing the board’s oversight of executive-compensation packages. They also discussed a proposal for a separate advisory board that might be able to meet more frequently.

David Feinberg, the CEO of UCLA’s hospitals who recently announced he will be leaving his position, said at the meeting that he will be leaving the university in part because of the impediments placed on the health center by the current governance system.

The CEOs and the committee agreed to reexamine the governance structure of the medical centers at a later meeting.

Alex Hill, the committee’s student observer, spoke to the board about the urgency of increasing mental health funding.

“Crises will not pause for the start of the 2015-16 academic year or a new budget,” he said at the meeting. “This discussion has been taking place for over 10 years, and it is time to act.”

UC President Janet Napolitano said she would be willing to discuss, in the next week, increasing mental health staffing.

At the meeting, Sheryl Vacca — the senior vice president and chief compliance and audit officer — and other UC officials also spoke about the compliance risks and current practices associated with international activities, which include research, student exchanges and initiatives abroad.

“We’re seeing federal agencies hold academic institutions accountable in a way they did not a decade ago,” said Elizabeth Boyd, executive director of ethics and compliance at the UC Office of the President, at the meeting. “Perhaps most frighteningly, individual faculty members are receiving criminal penalties for their activities.”

The university must comply with a web of regulatory agencies and policies related to its international activities, including export-control legislation and the Foreign Corrupt Practices Act. It must also take care to avoid relations with parties sanctioned by the United States, Boyd said.

The board will meet Wednesday and Thursday to discuss the status of the joint committee exploring the cost structure of the university, among other topics.

Sahil Chinoy is the lead higher education reporter. Contact him at [email protected] and follow him on Twitter @sahilchinoy_dc.