UNC Health Care board approves FY 2014 budget

Digital health record system costs expected to drive operating shortfall
May. 20, 2013 @ 09:50 PM

Driven by spending on a new electronic record system, UNC Health Care system officials are budgeting for an operating loss of $18 million in fiscal year 2014, but they still plan to post a positive bottom line.

The system’s Board of Directors voted to approve the system’s budget on Monday for the upcoming fiscal year that begins July 1. System officials expect to see net operating revenue of $2.492 billion and total operating expenses of $2.51 billion, for a net operating loss of $18 million in the fiscal year.

However, system officials are planning to post a net income of $22 million after using on investment income and money from other sources, said Karen McCall, UNC Health Care’s vice president for public affairs and marketing.

The system is planning to draw $10 million from its enterprise fund, which McCall said is for transferring money between different entities in the system, and $30 million in non-operating gains.

McCall said that’s for the system including UNC Hospitals, Chatham Hospital, Rex Healthcare in Raleigh, the UNC Physician Network and UNC Faculty Physicians.

John Lewis, UNC Health Care’s chief financial officer, said Monday in a presentation to the board that the expected operating loss is driven by expenditures associated with the implementation of the system’s new electronic record system, Epic@UNC.

System officials want to implement Epic@UNC to have one clinical and financial digital record-keeping system. The system is partnering with Epic, a software provider for mid-and-large-sized medical groups, hospitals and health care organizations, on the project.

According to the website news.unchealthcare.org/epic/why, UNC Hospitals has had its own electronic medical records, while Rex Healthcare in Raleigh, which is part of the system, had a different system and Chatham Hospital, which is also a part of the system, worked with a separate information technology provider.

The budget includes $69 million in fiscal year 2014 operating funds for the project. The system is also planning to use capital funds for the project. There were also fiscal year 2013 funds used for the project, and the system also expects to use some fiscal year 2015 funds for the project.

Operating expenses for Epic@UNC are expected to kick in heavily in the third quarter of fiscal year 2014, Lewis said. Operating expenses and productivity are expected to be affected in the fourth quarter as staff adapt to working with the new system.

Due to the project, Lewis said, the system did not budget to meet the operating margin of between 3 and 4 percent in fiscal year 2014 that’s targeted to fund the system’s capital plan. McCall said the system has hit that target in at least the past five fiscal years.

“This year, in order to fund Epic(@UNC), there’s a constrained period of time when we’re seeing the our operating income is going to be substantially constrained,” Lewis said to the board Monday. “We planned for it in the capital planning process so it’s not as though this is a surprise to us, and now it’s in the budget that we’re asking you to approve.”

In addition to planning for Epic@UNC, Lewis said, other issues that system officials dealt with in the budget process were the result of “a lot of unknowns in the environment.”

“Other things are not clearly known, and obviously the (N.C.) Senate released its draft of the budget – their consideration,” he said. “There’s still a long way in the process, so we don’t know how all of these things are going to affect us,” he said.

Bill Roper, CEO of UNC Health Care and the dean of the UNC School of Medicine, said this is the hardest budget that he’s put before the board in the 10 years he’s been in his current role.

“We’ve done well in the last number of years, and done so well, in fact, year-over-year, that I think you and your predecessors as board members have grown accustomed to the notion that we’ll propose something and we’ll blow through it, and we’ll do even better,” he said. “We’ve been accused in prior years of sandbagging … I would suggest that that’s not what is before you.

Roper said he believes it will take “heroic efforts” by thousands at UNC Health Care to make the budget.

“I’m not whining, that’s not gloom and doom, that’s just the reality that we face in today’s health care environment,” he said. “This is going to be a challenging time for everybody involved in health care these days.”