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The University of ToledoCollege of Medicine

Recommendation for a Primary Affiliation Agreement

May 11, 2015

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Perspective:• Community leaders thoughtfully created the College of

Medicine and supported our community hospitals expecting to:– Advance patient care– Train the next generation of healthcare professionals for our

region– Create meaningful knowledge through biomedical research.

• We have the responsibility to deliver to our community on these expectations.

• Question: How do we take our community’s resources and aggregate them to best achieve these expectations?

An Academic Affiliation

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What we will discuss:

• Background• Context: challenges and opportunities

in academic healthcare• Process: how we evaluated options• Recommendation• Conclusion

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In academic medicine a critical, intertwined relationship exists between a college of medicine, a hospital, anda physician group practice.

Each part relies on thethe other to achieveits mission.

How Academic Medicine Works

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The Tripartite Mission of Academic Medical Centers

• Academic Medical Centers (AMC) have three simultaneous core missions:

1. Research

2. Education

3. Patient Care

• Balancing these missions is critical for AMC success.

• A hospital provides these things related to the academic mission:

1. Clinical learning opportunities for students and residents

2. Material for research

3. Cash flow to support the academic mission

These two are often referred to as the “academic mission.”

The Missions and Hospital Role

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Wall Street Journal, April, 2015

“Smaller, mid-market academic medical centers are among the most distressed types of hospitals nationwide.”

“[I]n recent years revenue from medical services has served as a lifeline for some schools that have struggled.”

“[T]he marriages between universities and their cash-cow clinical operations are starting to fray as changes stemming from the 2010 health-care law threaten to make university hospitals less profitable.”

“[Moody’s] has mentioned school’s growing reliance on hospital operations, and the potential for shrinking margins in those businesses, as both credit strengths and challenges.”

“The best way to stay healthy is to be preventative.”-- Geoff Chatas, CFO, SVP of Business and Finance at Ohio State University

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Distribution of UT Health Science Learners

UTMC ProMedica Mercy Other

≈ 45% ≈ 30% ≈ 10% ≈ 15%

• We have a large medical school class and a small hospital (next slide).

• The teaching and patient care missions may conflict when UT students (teaching mission) are placed at sites that compete with UTMC for business (patient care mission.)• This creates mission vulnerability for UT.

Context: Where our learners are educated.

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CoM Class Size70th Percentile Research

25th Percentile

Hospital2nd PercentileFaculty Size

15th Percentile

Imbalance in UT’s Academic Medical Missions

Source: AAMC and COTH

Context

Our clinical mission provides resources for our academic mission.

Our clinical mission is grossly undersized relative to the academic mission.

This is unsustainable.

And it cannot be resolvedthrough organic growth.

UT needs to partner with a larger health system.

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Physical Condition of UT’s College of Medicine

• The College of Medicine occupies 455,000 square feet of space in 12 buildings.

• Some of the college’s facilities, that date back to the 1970s, are in need of capital improvements.

• Other newer areas (IISC) are state-of-the-art.• The projected capital needs to remain

competitive are in excess of $150M over the next decade.

Context

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The Healthcare Marketplace is Quickly Changing

• Healthcare’s business model is shifting to value-based population health management from fee-for-service.– This shifts insurance risk onto providers, which requires significant

investment in IT systems and greater balance sheet strength to absorb that risk.

• Healthcare systems in a population management environment have strong incentives to keep patients within their systems, reducing referrals and use of AMCs for many services.

• IT plays a large part in care delivery via electronic medical records and data analytics. This technology is expensive, and not readily financed with tax-exempt bond debt.

• New actors in the healthcare marketplace (e.g. Wal-Mart) are creating a retail aspect to the distribution channel for care delivery.

• These changes require significant investment and scale by providers in order to remain viable.

Context

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• Maintaining UT’s ability to achieve our academic mission is of utmost importance. We must remain guided by our academic mission… Our learners’ needs are the overarching issue.

• UT cannot adequately run UTMC at its current low capital level. Doing so will accelerate a downward spiral that will drive away patients, physicians, and staff.

• Additionally, the College of Medicine needs significant capital over the next decade, but has no planned, sustainable funding source.

• UT seeks an alliance with a partner to commit capital to the College of Medicine as well as ongoing funding for our academic mission.

• The consequences of not doing this will be an inability to achieve our academic mission.

A Practical Reality

Context: Challenges to Academic Missions

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Opportunity:

We believe that a strong and durable primary affiliation with a health system partner will allow us to:

1. Expand training opportunities for healthcare professionals.

2. Increase regional biomedical research.

3. Improve community health.

Context

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• Support, placement, and funding to meet the learning needs of students, residents and fellows of the UT Health Sciences Colleges

• Long-term, durable agreement • Annual academic support payments to the College of

Medicine• Capital commitment to rebuild the College of Medicine• Meaningful control of the academic mission delivered in

a partner’s health enterprise

What UT Seeks from a Partner

Context

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• An Electronic Medical Record to allow for free flow of patient care information for metropolitan Toledo citizens

• Subject to legal review, the alignment and integration, in some form, of the healthcare enterprise’s employed physician group with the University of Toledo Physicians (UTP) that would strengthen the community’s ability to achieve academic and clinical excellence

• UTP ambulatory care / medical office building with multi-specialty clinical space and faculty offices

Context

What UT Seeks from a Partner, Continued

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Process steps to date• Initial kick-off meeting with UT leadership, external

advisors, and lawyers in December 2013 – 18 months of work so far

• Phase 1: Environmental scan combined with internal analysis to determine our situation and begin to frame options

• Phase 2: Outreach to several possible partners across the State of Ohio and upper Midwest

• We have engaged in meetings, negotiations, and due diligence with possible partners for the last 6 months

• Three meetings with Ohio Attorney General’s office

Process

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Process

1. Clinical sites for substantially all of our learners

2. Shared governance of missions delivered in the partner’s facilities

3. Ability to reach an agreement

4. Economic support to advance missions.– Money matters however the other elements

matter more.

Criteria for Evaluating Proposals

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Recommendation:

UT management recommends that we pursue a primary academic

affiliation agreement with ProMedica

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– 50-year affiliation with the College of Medicine– Durable agreement with few “outs” on either side– UT continues to own and independently operate UTMC– UT Physicians remain a separate legal entity and

interface with ProMedica in a clinically integrated network• Joint payer contracting is excluded from this agreement

– Subject to regulatory approval, ProMedica gets right of first refusal on certain transactions involving UTMC in future years

Recommendation

Key elements that we have agreed to thus far with ProMedica include:

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– Residency slots aggregated into ProMedica facilities, but the UT CoM maintains ownership of the residency programs from an accreditation perspective

– ProMedica will accommodate substantially all UT health science campus learners at ProMedica sites in NW Ohio (note, this maintains and grows the current arrangement where 70 UT residents already train at ProMedica)

– Affiliation would be governed by an Academic Affiliation Operations Council, chaired by the Dean of UT CoM. And because ProMedica is locally owned, this creates synergy with UT that benefits the community.

– UT and ProMedica will collaborate in the selection of clinical service chiefs at ProMedica, clinical department chairs at UT, and residency program directors.

– UT will have non-voting representation on the Toledo Hospital board, and ProMedica will have non-voting representation on the UT Academic Affairs committee

Recommendation

Key elements that we have agreed to thus far with ProMedica: continued

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Key elements that we have agreed to thus far with ProMedica: continued

– ProMedica will provide $250M in capital to rebuild CoM, in a location to be mutually agreed upon at a later date

– ProMedica will provide at least $50M per year in academic support payments

– ProMedica will provide access to an electronic medical record– ProMedica will provide access to clinic and office space

Recommendation

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From the Antitrust Section of the AG’s office

Dated May 6, 2015

No significant competitive concerns with the proposal 

Final definitive agreements will need to be carefully structured and reviewed for competitive issues

Letter from Ohio’s Attorney General

Recommendation

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What we are asking you to do today

• Approve a non-binding letter of intent (LOI) between the University of Toledo and ProMedica. • The LOI provides for 90-days of exclusive negotiations

between UT and ProMedica. • This time period can be extended by mutual agreement.

• Permit UT management to negotiate definitive agreements with ProMedica, adding additional details to the broad terms already agreed upon by UT and ProMedica (outlined previously)

• UT will not be obligated under this agreement unless and until definitive agreements are consummated. The full board must approve those agreements in order to consummate them.

Action Item:

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Conclusion: It’s About the Mission

• This partnership is guided by our shared interests:• Train the next generation of Healthcare Professionals• Create knowledge through biomedical research• Provide high-quality patient care

• The proposed partnership with ProMedica builds on the foundation created by the leaders who preceded us, and creates a stronger community.

• This partnership, we believe, will create for the next generation of patients, healthcare professionals and scientists, a legacy we will all be proud of.