Opening the Books

By Gilbert Omenn

Academic health centers are complex ecosystems. They typically have a medical school at the core and one or more major teaching hospitals, often complemented by a Veterans Administration medical center and community hospitals and clinics. Other health professions schools are also often affiliated or included. The centers’ missions of education, research, technology innovation, and clinical care are often viewed as trade-offs, but should be viewed, I believe, as synergies.

The University of California, San Francisco (UCSF), the subject of Follow the Money: Funding Research in a Large Academic Health Center, has become one of the nation’s leading academic health centers. Its medical, nursing, dental, and pharmacy schools are among the most highly ranked and highest-funded research-oriented institutions in each category. UCSF is unique among campuses of the University of California system in being limited to these schools; all of the other components of a comprehensive research university (including the School of Public Health) are across San Francisco Bay at the venerable University of California, Berkeley, campus. Berkeley has none of the UCSF schools, although the university system does have additional medical schools at the Los Angeles, San Diego, Irvine, Davis, and Riverside campuses.

Two UCSF veterans, Henry Bourne, a professor emeritus of cell and molecular pharmacology, and Eric Vermilion, a retired vice chancellor of finance, collaborated on this book. Bourne previously authored Paths to Innovation: Discovering Recombinant DNA, Oncogenes, and Prions, In One Medical School, Over One Decade, published in 2011, which celebrates the UCSF’s faculty and its academic environment. The current book explores the university’s financial structures, investigating the sources of revenue, nature of expenditures, and especially funds transfers between units. This analysis is a tried-and-true approach to understanding the priorities, decision-making processes, resources, and financial risks of an institution. Hence Follow the Money is an appropriate title for this book.

Longitudinal analyses are commonly performed over a few years or even over decades, as in this case. Always, the choice of the base year and the recognition of major external stressors are critical. This book is focused primarily on funding for biomedical research, including research training for PhDs and MDs, with minimal attention to the many reimbursement issues affecting the now-vast clinical enterprise. The metrics of success for an academic health center such as UCSF involve long-term vision, investments, and scientific and health impacts.

The authors clearly state their concerns in the introduction, as they refer to “the extreme fragility of academic biomedical research,” “sharp cuts in state government support,” and stagnant federal research funding. The book’s overall tone is quite pessimistic, despite the status, strengths, and resilience of UCSF. The authors long for the time several decades ago when the state paid the faculty salaries and the construction costs of a much, much smaller institution. They also claim that medical schools at private universities and other state universities may have more secure funding from endowments or appropriations, which is dubious.

The authors have three aims. First, they present a primer for people, especially those working within UCSF or sister institutions, who want to learn how and where research dollars flow in such complex enterprises and may be bewildered by the hybrid of academic research and education tied to a huge clinical enterprise. Second, they examine how the internal distribution of resources guides and constrains investigators’ goals and training of young scientists in basic science units and clinical departments. Third, they assess the prospects for UCSF’s research enterprise and recommend financial strategies to enhance those prospects. Their analysis benefitted from the openness of UCSF leaders and the transparency of public financial reports by the University of California. They expect, as do I, that the analysis is relevant to dozens of other large academic biomedical institutions.

The authors present the history of this remarkable institution in broad sketches, punctuated by major events, including the 1991 California recession, the 1999 dot.com bust, the 2008 mortgage-based economic collapse, and periodic stresses in health care funding from the state and from the federal government through the National Institutes of Health (NIH). UCSF’s circumstances as of fiscal year 2014 are the fulcrum for the book: in that year, the university had 23,000 employees, 2,000 faculty members, and 5,600 students and trainees. It brought in revenues of $4.45 billion, including $992 million in federal, state, and private grants and in contracts for research. (This research funding accounted for 22% of the $4 billion total and 48% of the $2.1 billion “campus,” or nonclinical, revenues.) Since 1984, the teaching hospitals have grown in monetary value from $135 million to $2.4 billion (5.9 times, inflation-adjusted), while the campus grew 2.1-fold. State appropriations, while continuing, did not keep pace, of course; they declined sharply as a percentage of the total and when adjusted for inflation.

Bourne and Vermillion address the critical matter of indirect cost recovery, also known as overhead. These include expenses associated with operating and maintaining facilities, the salaries of administrative personnel, and costs outside those directly related to research. Overhead for federal grants was capped at 26% of direct costs for administration plus 31% (after audit) for facilities and services, including debt service and depreciation, for a total of 57% in 2014. These rates are much less than the actual research support expenditures, and nonfederal grants cover even less; overall, indirect cost recovery at UCSF is 41%. At comprehensive research universities, unlike UCSF, there is often a struggle between researchers funded primarily by NIH (which pays indirect cost recovery on top of approved budgets) and those funded by the National Science Foundation, Department of Defense, and Department of Energy (which include indirect costs in their total grant awards, to be shared by faculty and the institution).

Following the money into UCSF’s basic science departments, organized research units, and clinical departments, Bourne and Vermillion find that clinical departments have much higher research revenue per square foot (a common metric for efficient use of space across different kinds of research), higher grant income per faculty member, and higher salaries. They imply that the standards for promotion of faculty may be lower for those with high grant support. Meanwhile, the NIH cap on 100% salary rate at $185,000 means the institution must cover the shortfall from precious other sources for highly paid faculty.

The authors are particularly anxious about the future for the basic science departments. Surprisingly, they exclude the 14 basic science laboratories funded by the Howard Hughes Medical Institute (plus four more in the clinical departments). These well-funded labs do exacerbate the have/have-less dichotomy, but they represent an enormous strength at UCSF. The authors’ description of the recent move from the earthquake-vulnerable, densely populated Mt. Parnassus campus to the relatively new site at Mission Bay sounds smooth. In fact, the move was quite traumatic at the time, with most basic science faculty initially declining to follow the inspirational lead of Vice Chancellor Keith Yamamoto and the Department of Cell and Molecular Pharmacology. In contrast to the authors’ concerns about research funding, the organized research units, starting with the Cardiovascular Research Institute, are powerhouse entities in the translational research space and are magnets for philanthropy.

Bourne and Vermillion note that basic science faculty no longer do much teaching of medical students, as they focus on their research and research trainees. This is a national phenomenon, as medical schools rely on physician-scientists in response to student demand for clinical relevance in teaching the basic science courses, and it reflects the overall decline of lectures in the learning environment.

The many laments about stagnant or declining NIH buying power since 2004 represent a real stress for medical schools. But these complaints ignore the rapid doubling of the NIH budget from 1998 to 2003 and the windfall from stimulus funding in 2009 and 2010. Support for NIH remains strong in the US Congress, especially among champions who currently chair the House and Senate Appropriations subcommittees. There were overwhelming bipartisan votes in favor of the 21st Century Cures Act after the election in 2016, and then Congress rejected the Trump administration’s proposals for deep cuts in the 2017 appropriation for NIH and for cuts in indirect cost recovery. Clearly, NIH grantees are at risk for 2018, as is funding for health care generally; advocates are pressing for Congress to continue robust investments in biomedical research.

The book concludes with Bourne and Vermillion’s recommendations that the UCSF leadership secure substantial new financial resources, especially for the basic sciences, from philanthropy and from further expansion of the clinical enterprise. They specifically recommend a general endowment fund, a basic science division, special funding to provide partial salaries for selected faculty, assistance for young faculty, and silo-bridging research initiatives. UCSF has implemented some of these suggestions already. In fact, a one-page addendum as the book went to press notes that the school has established a Chancellor’s Fund to support faculty research, a Physician-Scientist Scholar Program for young faculty researchers (similar to the Biological Sciences Scholars Program operating at the University of Michigan since 1998), enhancement of the model for basic science funding, and expanded housing in the Mission Bay area for students and junior faculty.

UCSF has done remarkably well since 2014. As public documents show, UCSF revenues grew to $5.45 billion in 2015 for the whole enterprise, including $3.26 billion from clinical revenue (UCSF Health) and $1.19 billion from grants and contracts (an increase of 20%), including substantial amounts from industry. However, clinical margins are slim, even with better insurance coverage under the Affordable Care Act and Medicaid. Indirect cost recovery on grants and contracts remains limited, and the institution must cover major shortfalls on overhead from nonfederal grants. Meanwhile, UCSF has received several very large gifts and announced major building projects.

In the end, the authors have met their aims, showing how revenues, expenditures, operating margins, and especially internal transfers can reveal the cultures, priorities, vulnerabilities, and even jealousies of a splendid and transparent institution. Others in similar circumstances around the country can learn from Bourne and Vermillion’s book. While respecting their concerns, I expect that UCSF and other leading institutions will be more resilient than the authors fear.