[P&S Annual Report ] The Financial Picture

P&S Annual Report
The Financial Picture

An appreciation of P&S finances in 1995-96 requires looking into the background of a picture that took seven years to develop. When the Liaison Committee on Medical Education accreditation review ended in 1996, the picture revealed a College of Physicians and Surgeons that is sharper, brighter, and more clearly defined in 1996 than it was during the LCME review seven years earlier. In 1989, P&S was spending excess income from its endowment, had an aging physical plant sorely in need of investment, and, for a number of reasons, had limited resources with which to reinvent itself. Today, the balance sheet is strong. This strengthening has positioned the school to meet very serious ongoing challenges--and even thrive--as the health care environment evolves.

P&S is one of the nation's most research-intensive and best-funded medical schools, ranking fourth among medical schools in total federal grants and contracts in 1994-95. In 1995-96, P&S received $149 million from all sources to support research, research training, and other sponsored activities. Close to half of all full-time faculty at P&S are principal investigators of a research grant (about 90 percent of basic science faculty and about 35 percent of clinical faculty).

Between 1989 and 1996, P&S took major steps to stabilize its finances, recruit new faculty, and provide significant capital improvements to its campus. The school's central unrestricted budget was very small in 1988-89 (amounting to only $24 million). Very little discretionary revenue was available to the dean to administer the campus, recruit new faculty, support clinical academic initiatives, finance new capital improvements, and undertake important new programs. The lack of a stable financial base was happening just as the school was facing a large turnover in its department leadership, a need to retain and recruit faculty, and significant demand for more space and upgrades to its aging physical plant. At the same time, new financial challenges presented themselves: The University's fringe-benefit rate rose from 27 percent to 33.5 percent, the state eliminated most aid to the medical school, and the University's indirect cost rate dropped significantly.

The combination of these circumstances and events presented the school with formidable challenges. But since 1989, these problems have been addressed and the school has developed a long-term plan to bring its finances into structural balance and make the necessary investments to sustain and enhance its academic excellence. Spending of excess endowment income ended in 1994-95. A new financial decentralization arrangement was negotiated with the central University that has enabled P&S to retain most of its revenues and manage many of its own administrative services. A larger share of patent income has been redirected to the Health Sciences and has grown significantly. A clinical assessment on gross practice receipts was implemented to support the school's academic programs in clinical departments. Establishment of a model clinical trials process has produced new revenues.

In fund raising, the number of fully endowed chairs has risen from 43 in 1989 to 70 today. The goal is 100 endowed professorships by the year 2003, in time for the next LCME accreditation review. The overall endowment grew substantially, from roughly $261 million in 1989 to $550 million. The endowment goal for 2003 is $1 billion. A 21st Century campaign was launched to identify new sources of funding to help the dean sustain and enhance P&S academic programs into the next century. The target is $21 million.

Measures are being taken to meet the challenges of the new health care environment. The advent of managed care is being met through a school-based physicians group, the Columbia Presbyterian Physician Network, supported in part with funds from the school and the university. The network has been successful in organizing the school's physicians to compete for managed care contracts. Over the past few years, P&S implemented a new shared billing system to promote improved collections and greater efficiencies in practice billing. The school is taking other steps to prepare for the future, including the development of an expanded primary care base, greater unification of the practice plans, improved management and possible expansion of ambulatory care facilities, and development of a managed care information system.

Although the picture is good, optimism should be tempered. Sources of revenues already have shifted as managed care begins to penetrate the New York market and government reimbursement for Medicare and Medicaid declines. Continued threats to indirect cost recovery and the general uncertainties in the federal budget could adversely impact the research program. P&S will continue to respond through fund-raising efforts, collaborations with private industry, and improvements in the clinical practice infrastructure to increase income.

Sources of Operating Funds 1995-96
Total=$528.6 Million

$ in Millions

More than half of the school's budget comes from clinical practice income and affiliation revenue. The third of P&S revenues that come from clinical practice income is used primarily to support the salaries and expenses of the private practice operations of the clinical departments. The funds also are used to help defray the costs of teaching and research by clinical faculty. Revenue from the affiliated hospitals (more than half from the affiliation with Harlem Hospital Center) supports the training of residents and the provision of clinical care. Almost another third of the school's revenues are from sponsored awards (primarily federal grants and contracts), including direct support and indirect cost recovery to cover overhead expenses of research. The remainder of the budget comes from tuition, state aid, endowment income, gifts, patent income, and miscellaneous revenues.

Uses of Operating Funds 1995-96
Total=$528.6 Million

$ in Millions In parallel with revenues, more than half of the operating budget is used to support private practice and affiliation activity of the clinical faculty; a portion of the clinical practice expenses underwrites clinical department education and research endeavors. About a third of the budget is made up of academic expenses that support the teaching and research activities of departments, centers, and institutes. The remainder of the budget supports financial aid and central operating expenses. These expenses include facilities management, library operations, personnel services, fund raising, and other administrative services that support educational and research activities; the annual obligations for repayment of debt on capital projects; and central services provided by Columbia University, e.g., comptroller, security, purchasing, and student services.

Sponsored Award Spending
[$ in Millions]

The $149 million in sponsored awards for 1995-96 includes direct and indirect costs of sponsored research. The research activity at Harlem Hospital and other affiliates is not included in these figures.

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