At the beginning of this month, a quiet transition intended to help rein in costs at the financially strapped Medical Center of the Medical University of South Carolina took place.
Nearly a year after the South Carolina Legislature approved a deal to free the 572-bed state-operated medical center from some state controls, the hospital began operating under a newly created public authority July 1.
The transition, however, which is expected to save $10 million annually beginning next year, comes with an upfront cost. The Charleston hospital is now fiscally separated from the medical university, and so one of the authority's first acts was to ask the state's Budget and Control Board for permission to take out a $35 million loan.
"We're basically starting a $400 million-plus corporation and we have a need for working capital," says Stuart Smith, the new authority's executive director. "We'd been using the university's capital, if you will. Under this new entity we don't have the luxury of using the university's cash flow."
That's part of the price MUSC paid for its increased flexibility from state constraints on procurement and human resources. The hospital now faces debt service costs, compared with its previous practice of dipping into the university's funds, for which it paid no interest, Smith says.
The change adds a new dose of accountability to the two organizations, addressing one of the concerns legislators had when the authority was being debated (June 14, 1999, p. 28). The medical center may still request to borrow money from the university; but because the two are separate, it would have to pay interest and get state approval.
Creation of the public authority was a way to keep the medical center competitive yet independent in a consolidated market. Several years ago, MUSC tried to lease its hospital to HCA-The Healthcare Co., then Columbia/HCA Healthcare Corp. That effort failed following legal challenges, and the current scenario prohibits such a lease arrangement.
The medical center's 3,500 employees will no longer be state employees, although they will get the same retirement and insurance benefits they had as state employees. The change will allow the medical center to reduce the amount of time employees get for vacation, sick leave and holidays, making it on par with others in the market.
Smith said he is optimistic the new governance structure will enable the medical center to cope with its budget problems, which resulted in a $39 million budget shortfall for the year ended June 30, 1999, and are projected to lead to a $15 million shortfall this year.
"We think this will give us flexibility to react more quickly to our environment," Smith says.