Dean's Newsletter

Archive of previous newsletters

Year-end report: Challenges and Opportunities

January 06, 2006

Last week, in my year-end report, I presented data and commentary on where we currently stand in the areas of education and research. This week, at the beginning of a new year, I will address the question "Where are we going?" by discussing the challenges we face in executing our academic mission, as well as the opportunities that lie before us. In the coming weeks, we will continue the New Year's theme of taking stock. Next week's installment will feature "New Year's Resolutions" from the Senior Associate Deans, followed by two subsequent newsletters on our remaining missions--clinical practice and community health.

 

Challenges

A constant NIH budget does not imply equilibrium in research costs and revenues at U,S. medical schools. Quite the contrary: after a decade of substantial year-over-year increases, the screeching halt to growth creates the potential for whiplash. This is because the major academic health centers in the U.S. have already baked into their financial projections a certain amount of growth in research expenses--especially for faculty, facilities and infrastructure. As research expenses rise, however, without an accompanying increase in revenues, institutional research deficits will quickly climb.

On the revenue side, an essentially constant NIH budget implies that fewer dollars will flow to academic health centers to support traditional investigator-initiated research projects. This is because many large "carve-outs" within the NIH budget have accumulated in recent years to support contract-type work that has been directed by Congress or by the NIH leadership. Thus, there is less money available for the R01s, Center grants, Program Project grants, and training grants that have been the mainstay of this and other academic health centers. Consequently, the pay line for R01 grants has been tightened in most on the NIH Institutes to the frightening range of the 10th-13th percentile, which slashes by almost one-half the number of such grants funded. Similar reductions have been seen in the other traditional grant mechanisms.

Reduction in NIH cost recovery rate

As if it weren't enough that the flattened NIH budget puts the level of SMD's research funding in jeopardy, we may now also face a reduction in our ability to recover overhead expenses associated with research. (See the July 14, 2004 and July 21, 2004 newsletters for a discussion of indirect costs.) Our current contract with DHHS runs through June 30, 2006. Our current indirect cost recovery rate (ICR) is 56%. For every 1% reduction in ICR, SMD loses about $750,000. Needless to say, we are doing everything we can to make sure that our ICR rate will not decrease.

On March 31, 2006, we will submit data to DHHS that will guide our negotiation of a new ICR rate. Preparation of these data is a complex task and involves virtually everyone doing research at SMD, in the sense that every square foot of research space is inventoried, and the sponsored research in that space is identified. Other data pertaining to equipment, building depreciation, operation and maintenance data, utilities, administrative and regulatory overhead (e.g., RSRB, ORPA, etc.) have also been thoroughly assessed. In recent years, we have built new buildings, renovated old ones, purchased costly equipment, etc. All of this increases the numerator, which is good for the IRC calculation. But we have, of course, also increased the amount of funded research, which increases the denominator. Hopefully, when the data play out in March, they will support an ICR rate of at least 56%.

Meeting commitments to faculty and Chairs

Have you ever wondered, "How do we pay for all of these new research faculty and new buildings?" Traditional sources of funding for research within medical schools include endowment, philanthropy, and a "Dean's tax." In our case, endowment growth has been modest (more on this later), as has philanthropy, and there is no Dean's tax other than the 1% assessment placed on faculty practice collections for the research strategic plan. Over the past several years, we have met increasing expenses of our research program from: targeted philanthropy, maximal use of the School's borrowing capacity, transfers from the operating margins of the hospital system, and governmental earmarks. Of course, the 1% assessment on faculty practice collections also goes a long way!

Our ability to proceed successfully is largely derived from the School being a component of an integrated academic health center. As we move forward in funding the renovations, equipment purchases, faculty recruitments, and other commitments made to faculty and Chairs, recognizing that some of these may have to be phased across time, we will be successful if we take an integrated view of the Medical Center in applying available resources to the research mission.

Increasing cost of recruitment and retention

Paradoxically, as the NIH budget tightens, individuals who are well established, funded investigators are becoming more prized and often function like "free agents" in professional sports. Thus, at a time of precipitous decline in the probability that a new grant or a competing renewal will be funded, those individuals who have been successful in this environment are being recruited away to other institutions. In parallel, scientists whom we are trying to recruit are increasing their price tags. Both of these phenomena add to the overall cost of conducting research at URSMD.

Space capacity

Despite the substantial expansion of research space summarized in last week's newsletter, and the 85,000 sq ft of additional space about to come online for the Cardiovascular Research Institute, we are virtually out of space for both basic and clinical research. Over the next several years, however, several new research facilities will become available. This process, along with maximizing research density, should accommodate projected growth.

The key dominoes will fall in the following manner: in the Fall of 2006, the CVRI should be open and cardiovascular research scientists who are currently in MRBX will move to the CVRI. The Department of Microbiology and Immunology will move into vacated space in MRBX, in accordance with a plan that was developed in 2004. Remaining available space in Kornberg and MRBX will be filled with funded investigators in accordance with agreements that have been reached with a number of Chairs and Center Directors. Then, the Cancer Center is scheduled to open in January, 2008. This will include one floor for basic research and an additional floor for clinical research. Beyond this, there are additional dominoes that are emerging as important recommendations of the strategic planning process, but which have not yet been approved through the University. As often occurs in space planning, other opportunities may arise and some of these dominoes may not fall exactly according to plan. Creating the borrowing capacity needed to finance these various projects is a challenge in and of itself. That said, there is an institutional commitment to meeting our space needs for research in high quality, new or renovated facilities.

Endowment Growth

At the core of a medical school's capability to fund its academic mission is its endowment. At the University of Rochester School of Medicine, we are fortunate to be the beneficiaries of George Eastman's extraordinary gift in building and endowing the School more than 80 years ago. Indeed, the cost of medical education is largely covered by the portion of endowment restricted to education and tuition. Endowment also plays a critical role in the core support for research, however. To place the importance of endowment in perspective, let me outline the other components of the medical school's budget, which are much less flexible.

Most of the revenues flowing into SMD are of the "pass through" variety. Professional collections from the practices of our clinical faculty flow into departments through URMFG and flow back out to the faculty. Assessments are made for general University and Medical Center overhead—these are related to payroll, information systems, security, utilities, and other overhead, as well as for PR, marketing, library, central administration, and other such costs. Additional assessments are made for the business office of URMFG. As noted, there is no "Dean's tax," save for the much-appreciated 1% of collections used to support the research strategic plan. The direct costs of doing research similarly pass through departments and principal investigators to fund salaries, supplies, etc. The indirect cost recovery from research grants, discussed above, falls short of the actual overhead in running the research enterprise by about 15%-20%. Tuition dollars should, of course, be used for education.

What remains, therefore, to cover the medical school's costs for research? These include the 15-20% shortfall in research overhead, the core budgets to run 31 departments and centers, space for academic offices and conference rooms, regulatory mandates, unexpected increases in utilities, emergency maintenance, etc. Most of these expenses must be paid from endowment. Moreover, much of the endowment is "restricted" in the sense that it represents endowed chairs and other funds that are restricted for use for specific purposes. Of the $530 million of endowment principal in SMD, from which we draw 5.5% or about $29 million, only about $7 million is unrestricted.

A key challenge, therefore, is to grow the endowment, especially unrestricted endowment. There are two important sources of growth: endowment investment return, and new gifts. In recent years, our endowment investment performance has outstripped most of our peers, yet we lag in total endowment growth because of a lower level of philanthropic giving. It is in this latter source of growth that we must meet the challenge to fund future research.

Scholarship aid

The mean indebtedness among students graduating from SMD is now $130,000. Talk about a challenge! As highlighted in the September 29, 2005 newsletter, this presents a tremendous burden on our students, and may even influence their choice of specialty.

Diversity

We have a reasonably diverse student body, but are less diverse in our residents and fellows, and have a long way to go in reaching an appropriate level of diversity among faculty. Among medical students, 14% are members of minority groups underrepresented in medicine (African-American, Hispanic or Native American). Corresponding figures for residents and faculty are 11% and 3%. Improving diversity among our full-time faculty is a key challenge for the future.

Competency across the education spectrum: In 1999, the ACGME established six core competencies that have since served as the basis for evaluating residency programs. These competencies are: patient care, medical knowledge, interpersonal and communication skills, professionalism, systems-based knowledge, and practice-based learning and improvement. A challenge for SMD, as articulated by Diane Hartmann, MD, Associate Dean for GME, is to ensure that all of our medical education programs—medical students, residents and fellows--promote competency in each of these areas among their students, and to measure our effectiveness in doing so.

Opportunities

Response to the contracting NIH budget

While the flattening of the overall NIH budget creates the potential for serious financial reversals, there is also opportunity. How should we respond? The answer does not lie in ceasing to recruit faculty or in allowing our most productive faculty to be recruited away. Rather, it is precisely at times like this that an institution such as ours, which has invested in a much-strengthened research platform, has the opportunity to leverage its momentum when other academic health centers are either not in a financial position to maintain their investment in research, or are too frightened to do so. Thus, we will follow through on commitments that have been made to our Chairs and Center Directors for the recruitment of outstanding faculty with consistent records of funded research, and we will recruit new faculty in accordance with our Strategic Plan. Moreover, we will work to retain key faculty who are being recruited away. In recognition of a reduced percentile pay line, the simple yet compelling conclusion is that more grants must be written; more important, Departments and Centers most fortify the internal review process by which they ensure that each grant is at its most competitive level when submitted. As you will see, there is good evidence these processes are in place.

Positioning on the NIH Roadmap and biodefense funding

We must pursue grant support in areas that have been given greater federal budget allocations. These include biodefense and NIH Roadmap earmarks for re-engineering clinical and translational research. We are, indeed, active in both of these areas and have obtained substantial new grant support as a result. In the case of biodefense, we have already taken great advantage of funding opportunities. Since July, major biodefense grants amounting to $45 million in total funding over the next five years have been awarded to three Principal Investigators: Paul Okunieff, MD, Inaki Sanz, MD, and Hulin Wu, PhD. These grants place us in a superb position to take advantage of future biodefense grants. Regarding the Roadmap, NIH is attempting to re-engineer the infrastructure that supports clinical and translational research such that a new discipline of "clinical and translational science (CTS)" will emerge. Our 50:50 funding distribution between basic and clinical research, and our many successes in novel translational discoveries that are now being brought to clinical testing and the marketplace, will place us in a competitive position for the many CTS grants that will become available. A related component of the NIH Roadmap involves an emphasis on interdisciplinary research. Our strong cross-Department/Center research programs, as well as cross-campus programs (e.g., biomedical engineering, visual science, Center for Future Health), also positions us well for Roadmap funding.

Moving up the NIH ranking ladder

There is no question that our peers are also trying to position themselves in the sweet spot of NIH funding and are making strategic investments towards this end. Some will succeed and some will not; on average, they will grow at the rate of the overall NIH budget. I am pleased to report that, for the first six months of this fiscal year, our growth in NIH funding is running almost 3 percentage points ahead of the growth in the overall NIH budget. If we can maintain this performance, there is no question that the plateaued curve of our NIH ranking will begin to turn up. In fact, it can be calculated that if we can maintain a rate of growth in NIH funding that is 2.1 percent above the trend line over the next 10 years, our ranking will increase from 30 to 20.

Technology transfer

Part of the investment we have made in research includes the opportunity for our scientists to express their entrepreneurship by way of technology transfer, which represents the bridge between our scientific discoveries, industry partners and the public good. Everyone benefits from successful technology transfer: creation of such a bridge benefits the public good by creating new and useful products that promote health and by promoting economic development; industry potentially reaps the profits associated with commercialization of the technology; and URMC and its scientists benefit from a funding stream provided by licensing fees and/or royalty payments. The exciting example described in the February 4, 2004 newsletter, in which all of the above will apply, was the HPV vaccine to prevent cervical cancer that evolved from the groundbreaking work of Drs. Rose, Reichman and Bonnet. Another, more recent, example, discovered by Tom Guttuso, M.D., (former resident and fellow in Neurology), is the licensing of gabapentin as a method for treating hot flashes. Last year, we created the Office of Corporate Alliance to serve as the interface between our pipeline of scientific findings and potential application in the marketplace. I predict that, with the infrastructure we have created, the frequency with which this pipeline will produce successful industry partnerships will increase over time.

Scholarship aid for medical students

We are gaining momentum in our scholarship campaign and there is opportunity for further leaps ahead. Towards a goal of $10 million for medical student scholarships, announced a little over a year ago, we are more than half the way there. In addition, in association with a recent $1 million cash gift towards medical student scholarships, a novel mechanism will be announced by which the principal of this gift becomes the nidus of an endowed scholarship fund of successive medical school classes. The details of this visionary gift, which provides the opportunity and impetus across time to defray tuition substantially, will be forthcoming.

The "Competent Institution"

We have the opportunity to be the national leader in implementing the educational competencies across all medical education programs. In my judgment, this concept, termed "The Competent Institution" by Dr. Hartmann, is quite compelling. While the term "competent," taken at face value, may not be stirring, imagine a medical student, resident, fellow, or practicing physician who is truly competent (at his or her level) in all matters pertaining to patient care, medical knowledge, interpersonal and communication skills, professionalism, systems-based knowledge, and practice-based learning and improvement. Do you know many individuals who fit this description? Do you know any? Now imagine that through our educational programs we have as our goal that all of our medical students, and all of our residents, fellows and practicing physicians in all specialties, achieve full competence in each of the six competencies. Is it more stirring now?

I hope you had a wonderful New Year, and that you are energized to meet our challenges and take full advantage of our opportunities.

Meliora,

David S. Guzick, MD, PhD
Dean, School of Medicine and Dentistry