The Health Enterprise at NYU

In his memo to the University community on Tuesday, John Sexton alluded to additional communications on some of the academic and operational areas that are priorities for NYU. Today I will outline for you some of our progress in the area of health.

The senior vice president for health position was created by President Sexton to vest in a single office the responsibilities for working with deans, faculty, trustees, and other University leaders on long-term academic, financial, and operational strategies for the wide range of health activities at NYU. These include the NYU School of Medicine and College of Dentistry, as well as the programs in Nursing and the Health Professions in the Steinhardt School of Education and the Health Policy and Management Program in the Wagner School, among others. The office is also the University's principal liaison with the NYU Hospitals Center and the Mt. Sinai/NYU Health Organization, and the Mt. Sinai School of Medicine. The office will address issues that include significant academic and financial dimensions, that relate closely to the core missions of the University and the responsibilities of the Executive Vice President and Provost, and that define what New York University will become in the future.

Principally because of the inclusion of substantial and essential clinical activities, the health component of the University is distinguishable from the rest of the University. But that distinctiveness should not lead to separateness and disconnectedness, and an important role for the office of the senior vice president for health will be to enhance the appropriate linkages between the health enterprise and the entire University.

The challenges surrounding the NYU School of Medicine and its affiliated hospitals that confronted John Sexton as President-Designate, beginning in May 2001, the decisions that were made over the past 15 months in response to those challenges, and the accomplishments since then provide a vivid illustration of the health issues at NYU. Going forward, I expect to communicate with the University community on many different health issues. It is useful to present this specific history and chronology in the first communication as an example of what this office will be addressing; it includes the importance of academic excellence, a successful application of the enterprise model, and the need for transparency and accountability.

In May 2001, President-Designate Sexton and President L. Jay Oliva agreed that during the presidential transition the President-Designate would focus on the longer-term issues while the President would operate the University. Both the President and President-Designate knew that the issues surrounding the Medical School and its affiliated hospitals comprised a critical long-term issue and the President-Designate decided that these issues would be among the first that he needed to address.

Before chronicling that process, some history is worth reviewing. Sincetheir construction in the 1960s, the New York University hospital facilities, also more recently known as the Tisch Hospital and the Rusk Institute of Rehabilitation Medicine, were part of the University. During the 1990s, the many risks associated with the hospitals increased as the environment of third party reimbursement changed dramatically, government policies were in flux, and competitor hospitals were forming partnerships and networks. Because of a concern that these risks could have threatened the continuation of the academic progress of the University, the University Trustees began assessing whether an appropriate partner could be found for the University's hospital enterprise.

After an extensive search and analysis and after some false starts, on January 1, 1998, NYU hospital facilities were initially spun off as a separate, non-profit organization, and subsequently were joined with Mt. Sinai Hospital to form Mt. Sinai-NYU Health, an umbrella organization that joined the two hospitals. Throughout this process, the NYU School of Medicine continued as a part of the University and in 1998, with the approval of the New York State Board of Regents, the Mt. Sinai School of Medicine, itself a separate non-profit organization, changed its academic affiliation from CUNY to NYU. Unlike the NYU School of Medicine, the Mt. Sinai School of Medicine would have no fiscal links with New York University, only academic ones. The expectations for the overall reorganization included administrative and clinical synergies for the hospitals and academic benefits for the University and the two medical schools.

A significant result of the transaction was the refunding (and reissuing) of the long-term debt of the Mt. Sinai and NYU hospitals which, along with new debt, was issued in the form such that both hospitals are liable for their own debt and the debt of the partner. It should be noted that Mt. Sinai Hospital has a heavier debt load than NYU Hospital, and that NYU Hospital has an older physical plant in greater need of refurbishment.

An additional result of the separation of the NYU School of Medicine and the NYU Hospital was the separation of their finances. As part of the transaction, for five years the NYU Hospital pledged to provide from $21 to $30 million annually to the NYU School of Medicine in the form of services and funding, but even with this hospital support, in 1998 the NYU School of Medicine had a substantial deficit, roughly equal in size to the annual hospital support.

In 1998, Dr. Bob Glickman was named Dean of the NYU School of Medicine. During the next several years, Dean Glickman worked with School of Medicine faculty to develop a plan for the School's academic, fiscal, and physical restoration. The key elements of the plan included a significant number of new and replacement faculty recruitments of high academic quality, the balancing of the School of Medicine's operating budget, space renovations, and the construction of a new translational research building. Funding for this plan would be generated through efficiencies in the operation of the School of Medicine, new clinical activities, philanthropy and borrowing. By May 2001 when John Sexton was named President-Designate, the elements of the plan were developed, though the plan itself, running over ten years, was not yet approved by the University administration and the University Trustees.

Complicating the development of the School of Medicine's plan over this period was the uneasy relationship between NYU Hospital and Mt. Sinai Hospital. Although some administrative efficiencies had been achieved, leadership changes at Mt. Sinai along with tremendous pressures on hospital finances and the recognition that a key, enduring relationship was that of the hospitals with their respective medical schools, led to changes in the governance and management of Mt. Sinai-NYU Health. It is important to note that throughout this period, the NYU Hospital continued to deliver outstanding care in an academic medical setting and maintained a small, positive operating surplus, after its support to the NYU School of Medicine.

Around the time that John Sexton was named as President-Designate, the trustees of Mt. Sinai-NYU Health decided that the dominant relationship guiding the future of the two major academic hospitals was their respective relationships to their school of medicine. Thus, the trustees began to formulate a "campus-centric" governance and management structure, recreating some of the characteristics of the pre-merger medical centers at NYU and Mt. Sinai. Although NYU Hospital would continue to be a stand- alone, non-profit organization with its own board, it would be managed in a highly collaborative fashion with Dr. Bob Glickman as the CEO of NYU Hospital and Dean of the School of Medicine. Ms. Terry Bischoff would continue as President of NYU Hospital, reporting to Bob Glickman.

Thus, in the spring of 2001, the situation facing the incoming University President, John Sexton, was a School of Medicine that was developing a ten- year plan to improve its academic quality, finances, and infrastructure, and an affiliated hospital that was coming through somewhat turbulent organizational changes that were still unresolved. With a combined budget in the NYU Medical School and NYU Hospital that is roughly equivalent in size to the budget of the rest of the University, both the University Trustees and the President-Designate concluded that unless the future of the University's health enterprise was positive and more predictable, it would be difficult if not impossible to continue the University's upward academic trajectory.

Beginning in May 2001, President-Designate Sexton developed and led a process that, over the past 15 months, has put both the University and the School of Medicine, along with NYU Hospital, on a trajectory to achieve the highest levels of research, clinical care and teaching excellence, within a framework of sound financial and operational management, with emerging linkages with the rest of the University, and with accountability and transparency that will enable the rest of the University to maintain its academic momentum. Beginning immediately upon his appointment, the President-Designate immersed himself in the issues to the point where he concluded that NYU will be a greater University with a Medical School than without one, but that the plans and aspirations of the Medical School needed to mesh with and not inhibit the plans for the rest of the University. How to accomplish that was the assignment for last summer.

From June through September, 2001, President-Designate Sexton asked Dean Bob Glickman to work with me, then the Vice President for Academic and Health Affairs, and Jack Lew, who had joined the Presidential Transition Team as the Executive Vice President-Designate, to simultaneously educate him on the complexities of the medical center and to develop a ten-year plan for the School of Medicine. President-Designate Sexton envisioned an outcome that incorporated Dean Glickman's plans for the academic, fiscal, and physical restoration of the School of Medicine, that was consistent with the performance, needs and aspirations of NYU Hospital, that would be financed by achievable and sustainable sources of revenue, and that would enable the entire University to continue to flourish. With key leadership from Ken Langone, the University Trustees, who had been focused on the opportunities and risks of the medical enterprise for several years, were looking for a plan that met their academic goals and fiduciary concerns and supported the President-Designate's vision of the entire University moving to its next level of academic excellence.

The development of the School of Medicine's ten-year plan over the summer of 2001 was a collaboration between the School of Medicine and the University. Among those working with Bob Glickman were the senior leaders at the School of Medicine: Andy Brotman, Dick Crater, John Deeley, Annette Johnson, and Rich Levin; and Terry Bischoff at the NYU Hospital. At the Square, Jack Lew and I worked with Richard Bing, Bob Goldfeld, Harry Read, Andy Schaffer, and Harvey Stedman.

The two groups formed a team that focused on the objective of developing a plan that involved unprecedented levels of information flow back and forth between the School and the University. The ten-year plan was built around a model of the School of Medicine's operations and finances and included detailed components on faculty recruitment, research activities and support, and clinical operations; the plan projected revenues and expenses such that the School of Medicine's deficit was to be eliminated by 2001-2, and was to be self-sustaining in future years. Revenue sources from clinical operations, research, tuition, royalties and licenses, borrowing, and philanthropy were detailed year by year. The School of Medicine implemented a series of initiatives that tightened up the operating budget that included increased contributions from clinical operations, improved financial management, and faculty salary increases substantially below the levels in the rest of the University. Spending was presented in a similar, detailed fashion, creating an operational plan for the School of Medicine's strategic vision for improvement. Because the process led to a thick white notebook of assumptions, spreadsheets, tables, and charts, that was constantly being updated, the process became known as the "white book" process.

By the end of July 2001, the plan and the white book were ready for presentation to the President-Designate. August was spent reviewing the plan, unpacking its assumptions, and modifying the model. The result was a plan that the President-Designate supported enthusiastically and was ready to present to the Board of Trustees for approval. The plan, which was derived from Dean Glickman's vision, included 77 faculty recruitments spread over ten years; the construction of a translational research building of about 110,000 net square feet; over a dozen operating budget initiatives that improved management and accountability and closed the School's budget gap by 2001-2; and linkages to the plans of NYU Hospital that placed its five-year plan along side of the School's ten-year plan, and provided a detailed accounting of the sources of revenue and items of expense for each of the ten years of the plan.

In September 2001, President-Designate Sexton presented the plan to the Financial Affairs Committee of the Board of Trustees, who endorsed it enthusiastically, and then to the full NYU Board of Trustees in early October 2001. The presentations to the board took place in marathon meetings so that board members who desired to delve into the details of the plan had the opportunity to do so. In addition, the plan was reviewed by all of the deans at NYU, emphasizing the interconnectedness of the enterprise. Simultaneously with this process, the revised governance and management arrangements of the hospitals were being debated and negotiated.

What marks this effort as important for the University was the development of a collaborative, rigorous planning process that incorporated accountability and transparency. Information sharing and analysis enabled the University Trustees and University and School leadership to assess alternative proposals, measure risk, offer suggested improvements, and reach a point where decisions were made that moved both the School of Medicine and the University forward. This process that developed was as important as the details of the plan. Going forward, plans will inevitably undergo change; yet now there was a rigorous process in place to assess changes and to determine a course of action.

After the plan's approval in October, the process of review and accountability has continued over the past 11 months. Many important milestones were achieved in the past year: outstanding faculty recruitment continued on pace with the plan with top level clinicians and researchers joining the Medical School; the Medical School's Cancer Center received a five-year renewal from the National Institutes of Health and cancer clinical care will move into new space to be developed by NYU Hospital; the final planning and fund raising for the translational research building was completed and given the go-ahead this summer by the NYU Board of Trustees; the ten-year plan was updated and reviewed by the Trustees one year after its initial consideration and re-approved; the break-even performancepredicted for 2001-2 for the School of Medicine has been achieved; and the School of Medicine reached an agreement with Siemen's to be a showcase for their state-of-the-art imaging equipment.

Simultaneously, the changes in hospital governance and management have been approved, and now NYU and Mt. Sinai are represented equally on the Mt. Sinai-NYU Board. In addition, alternatives to the joint debt of the institutions are being developed which, if successful, will probably lead to the full unwinding of the Mt. Sinai-NYU partnership at the hospital level. All of this occurred in a year that was affected by September 11th along with all of the other changes in the health care world.

None of this would have been possible without the outstanding leadership of Dean Bob Glickman at the Medical School and Hospital. He has retained and recruited first-rate faculty and administrators and forged a new level of collaboration at the Medical Center between the School of Medicine and NYU Hospital, and between the Medical Center and the University. The NYU Trustees now have a decisional process that enables them to assess opportunities and risk both academically and fiscally, and, equally importantly, they now feel that they have access to the kind and quantity of information that will enable them to make informed decisions in the years ahead.

The future of both the University and the School of Medicine is bright, and each feeds off the other. We now have the opportunity for joint programming and synergistic recruitment, shared equipment and facilities, and students moving back and forth from Washington Square to the Medical Center on 34th Street.

In the months ahead I will be sharing with you additional information on the health enterprise at NYU. I am confident that the excellence and collaboration inherent in this history will be repeated and the entire University will be the beneficiary. I look forward to working with you as we move our University to places we have never been.