1. Stanford Medicine: A Financial Management Perspective Stanford Staff Leadership & Development Program Tina Darmohray Osman Akhtar May 6, 2009

2. Page 2 Financial Management Perspective Agenda  Framework: Organization Chart And Funds Flow  Data: Stanford Medicine Resources and External Benchmarks  School of Medicine (SoM) Financial Idiosyncrasies  Health Care Trends  Future State and Implications

3. Page 3 Framework: Organization Chart

4. Page 4 Framework: Funds Flow (A Formula School) Formula Schools –School of Medicine –Graduate School of Business –Hoover Institute Non-Formula Schools –Humanities & Sciences –Law –Engineering –Earth Sciences –Education Responsible for financial self-sufficiency Tax on all revenues to pay for university services –Police, fire, grounds –Central administration –President/Provost FY 2008 tax rates –Tuition Graduate Tuition-11.04% Undergraduate Tuition- 21.83% –Research 6.24% –Designated 4.32% –Gifts 9.05% University allocation for undergraduate teaching

5. Page 5 Data: Sources of SoM Revenue FY 2001 – FY 2006

6. Page 6 Data: Our SoM Resources vs. Benchmarks

7. Page 7 Data: Hospital Finances Highlights from the 2008 Annual Report: LPCH and SHC operating surplus of $147M down 8% from 2007 As of 8.31.08, net assets of $2.2B vs. $2.0B in 2007 SHC Patient revenues increased by 8%, other income increased by 5%, and expenses increased by 11% SHC financial position reflects continued investments in facilities and infrastructure. LPCH generated $42M from operations an increase of $21M from 2007, while volume remained flat due to better payor mix, rate increases, and revenue cycle enhancements. LPCH financial position reflects volume limited by capacity with plans on increasing beds and satellite operations.

8. Page 8 SoM Financial Idiosyncrasies Fungibility Perceived ownership of funds Faculty: how are they promoted, setting policy and the tenure decision Cost control incentives or spend it all incentives? Pressure to cover your salary Market competition for clinical faculty What is the legacy of a Dean or Chair or etc? The cost of accepting a gift Etc., Etc., and Etc.

9. And Health Care Spending Rises: What we can expect without other significant accelerators By 2016, national health expenditures will more than double to $4.1T Source: CMS, Booz Allen Total Expenditures ($ in billions) ACTUAL PROJECTED 2016 Spend: Private: $1.7B Public: $2.0B Out of Pocket: $0.4B 2016 Spend: Private: $1.7B Public: $2.0B Out of Pocket: $0.4B 9

10. 10©2008 Aetna Physician supply growth has been solely in specialty medicine Generalists Specialists Total Source: American Medical Association, Association of American Medical Colleges, Council on Graduate Medical Education

11. 11©2008 Aetna 1995 1990 No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30% 2005 Source: Behavioral Risk Factor Surveillance system, CDC. Obesity trends among U.S. adults

12. Overall quality ranking 1 11 21 31 41 51 3,000 4,000 5,000 6,000 7,000 8,000 Annual Medicare spending per beneficiary (dollars) Baicker and Chandra, “Medicare Spending, The Physician Workforce, And Beneficiaries’ Quality of Care,” Health Affairs Web Exclusive, April 7, 2004  NH  HI  VT  ME  UT  IA  ND  WI  LA  TX  CA  NU  OR  MN  MT  CO  CT  VA  WA  SD  MA  RI  NE  DE  ID  NC  WY  NY  MD  MI  MO  PA  IN  AZ  KS  SC  AK  WV  NV  NM OHOH  TN  KY  AL  OK  IL  GA  AR  MS  FL No relation between spending and quality: The Dartmouth atlas

13. 13 Future State and Implications Clinical ● Squeeze on Margins ● Cost vs. Quality ● Consumer Savvy: more “skin in the game” ● Less invasive and lower inpatient days ● www.hospitalcompare.hhs.gov Education ● Shortage of Primary Care Physicians ● Gear Up to Teach Primary Care Physicians ● How to Incent ● How to manage chronic disease Research ● Increase Demand for Cost Effectiveness Studies ● Translating research to clinical treatment ● Chronic disease require interdisciplinary approach (engineering, medicine, ethics and etc.