The state should explore selling the John Dempsey Hospital, linking it in partnership with a private acute care network, and other options to keep the University of Connecticut Health Center afloat financially, according to a new report released Friday by Gov. Ned Lamont.
The analysis by Cain Brothers, an investment banking firm specializing in health care, also concluded the Farmington-based home to UConn’s medical and dental schools and John Dempsey Hospital is too small to compete in the current market while struggling with fringe benefit and wage costs — which are driven largely by state government and not by Connecticut’s flagship university.
But consultants also wrote that while it is one of the nation’s smallest academic medical centers, “it is a critical source of the state’s future health care professionals and is an essential provider of healthcare and dental services,” particularly to low-income patients in the greater Hartford area.
“UConn Health’s Patient Care Enterprise is subscale, unprofitable and unable to financially support the academic mission nor fund recruiting or research for the medical school,” authors of the report wrote, noting the center long has been funded through a combination of patient revenues and support from the state.
Lamont, who ordered the analysis and has been pressing legislators in recent years to live within increasingly tight state budget constraints, said, “UConn Health is one of the most highly regarded academic medical centers in the country and has experienced significant growth in the last few years. But to take that next step — to be No. 1 — we need to work collectively to expand the scale of the medical center’s clinical operations through strategic initiatives that reinforce its financial sustainability and enable it to achieve greater fiscal independence over the long term.”
The governor, who commissioned the $504,000 study, added this sets the stage for ongoing talks between his administration, the university and others about the health center’s future.
“For an organization approaching a transformative phase, it is always valuable to have a third-party assessment as part of its planning efforts,” said Dr. Andrew Agwunobi, CEO of the health center. “We are still reviewing the report but agree with the key theme: UConn Health’s achievements in quality of care, medical and dental education, research, and growth for the people of Connecticut are impressive, but the next phase of excellence requires UConn Health’s clinical enterprise to broaden its scale and explore strategic initiatives to seek greater financial independence.”
Rep. Cristin McCarthy Vahey, D-Fairfield, co-chair of the Public Health Committee, said the report offered “bold suggestions” that policymakers will have to consider.
“Whatever it is we do, I think it’s going to take a whole lot of conversation between stakeholders, because this is almost a sea change,” she said. “The report lays out that some significant changes are likely to be necessary in order to provide for long-term sustainability. [But] we also have to preserve the access to care.
“This has been an ongoing issue, and it’s something we need to face in a way that allows for sustainability.”
Struggling to survive as state aid dwindles
The health center has generated cash flow losses averaging $140 million per year between 2020 and 2023, the consultants wrote.
The operating revenue from the hospital, associated medical clinics and the center’s pharmacy services — which generated $962 million in 2023 — are about 20% of the size of the average revenue generated by select public university academic health systems, the report states.
UConn’s medical school ranked middle-of-the-pack nationally, consultants wrote, adding that U.S. News and World Report placed it 53rd and Blue Ridge Institute for Medical Research put UConn in 70th place.
“University medical school research rankings show positive correlation to the size of the affiliated patient care enterprise,” authors of the report noted. “This suggests a larger, profitable patient care enterprise will be needed for UConn’s medical school to advance up the rankings. Solving the conundrum of a lack of scale and profitability will be required.”
UConn Health has strong quality, safety and patient experience scores relative to key competitors, the consultants pointed out. Leapfrog Hospital Safety Guide gave the health system an A rating in 2022 and 2023 and Healthgrades rated the patient experience at 79%.
But UConn’s small size gives it no leverage in the marketplace as it negotiates for IT services, supplies and other essentials.
“The current economic engine [is] not large enough to support the research and teaching missions without significant state support,” consultants wrote.
State support for the health center, and for higher education in general, has been shrinking since the early 1990s when measured as a share of the budget. In 2014, state funding covered 27% of the health center’s annual budget. Ten years later it represents just 13.3%.
UConn has tried to counter that trend, boosting revenues from John Dempsey Hospital by more than 150%, about $572 million, over the past decade. This revenue now accounts for about 60% of the health center’s annual budget.
Looking to the private sector
Several of the solutions consultants offered involved teaming up with the private sector.
UConn could divest itself of John Dempsey Hospital and its other patient care operations, merge it with an existing hospital network and share in the revenues.
It also could form a public-private partnership, turning control of its care operations to a private interest but retaining ownership of its buildings and facilities.
Other options include leasing space within John Dempsey Hospital to a private care provider or teaming up with another enterprise to jointly purchase supplies and services.
If the state didn’t want to turn to the private sector, it could also create an independent, nonprofit entity to run the hospital.
But consultants wrote that the two choices that offer a strong financial option involve either selling the hospital and other patient care operations or forming a public-private partnership.
And all these options involve one big political complication for Lamont and his fellow Democrats in the legislature’s majority. Many of the health center’s employees are unionized and could be shifted out of the State Employees Bargaining Agent Coalition to achieve future salary and benefit savings, consultants wrote.
Labor, however, remains a strong part of the Connecticut Democrats’ base, and the suggestion drew quick opposition from one union leader.
“UConn Health must remain a public hospital for the public good,” said Bill Garrity, a registered nurse at John Dempsey Hospital and president of University Health Professionals, AFT Local 3837. “Their executives have a history of terminating vital services, regardless of the impact on the community. We cannot hand the same corporation keys to UConn Health. Taxpayer investments should not be used to boost private profits at the expensive patient care and over my dead body would I allow my members, who provide vital services at an affordable rate, to lose the critical benefits they rely on so that they can show up to work each day.”
Patient access
The Cain Brothers’ report also recognizes that the health center and John Dempsey Hospital in particular play a key role in treating low-income patients in the greater Hartford area.
About 26% of its gross charges were tied to Medicaid and uninsured patients in 2022. By comparison, the Yale New Haven Hospital network’s ratio was 20%, Hartford HealthCare was 24% and Trinity Health of New England was 27%.
But because the UConn Health system is much smaller than these networks, the actual number of patients discharged was 2,561 two years ago, while the other hospital systems ranged from 9,415 to 28,271. Still, UConn loses about $104 million annually serving poor patients because Medicaid reimburses only a portion of treatment costs.
Cain Brothers’ consultants added that because of the many specialty areas taught at UConn, the health center plays a disproportionately larger role assisting low-income patients with dental, dermatological, musculoskeletal and rheumatology issues.
“My biggest concern, if we privatized UConn Health, would be: what would happen to those uninsured and underinsured folks? What would happen to some of the programs that UConn Health runs that serve folks and communities?” said Rosana Ferraro, program lead for health justice policy and advocacy at the Universal Health Care Foundation of Connecticut. “UConn Health has a partnership with some of the migrant workers. Those folks are not getting health care in any other way. What happens to that program? Who is going to fill that gap?
“There are no other public hospitals in the state. We know our federally qualified health centers are overburdened by uninsured and underinsured folks as it is, and they’re still taking people because their main mission is to serve folks and provide health care. Who fills the gap that would be left?”
Legacy of pension debt
Fringe benefits costs have long been one of the largest problems straining health center finances, but it’s an issue the system inherited, not one it created.
Connecticut entered 2024 with nearly $21 billion in unfunded obligations to its pension system for all state employees, a massive problem created by more than seven decades of inadequate savings between 1939 and 2010.
The state now saves annually for the future pension benefits of present-day workers, and budgets to replace billions of dollars in potential investment earnings past generations forfeited by not properly contributing to the pension program.
A portion of that legacy debt traditionally is assigned to each individual state agency’s budget. The Cain Brothers’ analysis found UConn Health fringe benefit costs — including current benefits and legacy debt — equaled 74% of salary expenses in 2022, nearly triple the 25% average for Connecticut hospitals.
Lamont and the General Assembly revised that pension budgeting system in 2023, however, and no longer assign most legacy costs to higher education units like the UConn Health Center. Fringe benefit costs, absent that historic debt element, now represent 35% of wages at the health center.
But while pension costs remain above those of private hospitals, that also is a matter largely outside of UConn’s control.
The state negotiates pensions collectively with all employee unions, and pension benefits largely reflect salary levels.
More important, pay increases for unionized staff at the health center often mirror those negotiated by the governor and approved by the legislature for the rest of state government.
Most state employees, under deals crafted by Lamont and unions, will have received 4.5% wage annual hikes for four consecutive years by 2024-25. That includes a yearly 2.5% general wage hike and a step increase that adds roughly two more percentage points.
These raises added $87 million in costs to the health center over the past three years and are projected to boost wage expenses another $26 million next fiscal year, according to the university.
Had UConn tried to negotiate a lesser raise than 4.5%, unions could have filed for arbitration and pointed to the governor’s deal as evidence that Connecticut could afford to pay the amount Lamont endorsed.
The state has scaled back pension benefits twice over the past 15 years through union concessions packages negotiated in 2011 and 2017.
Still, the health center has offered hiring bonuses and other incentives in recent years to counter staffing shortages.
This story was originally published by the Connecticut Mirror.
