October 5, 2006
UCONN HEALTH CENTER FINANCE CORPORATION
By: Saul Spigel, Chief Analyst
You asked for information about the UConn Health Center Finance Corporation.
The legislature created the UConn Health Center Finance Corporation in 1987 expressly to allow the John Dempsey Hospital, including the medical and dental schools' clinical operations, to operate with greater flexibility. A five-member board composed of UConn administrators and trustees and the Office of Policy and Management (OPM) secretary oversees the corporation. UConn staff administers it.
The corporation can acquire and dispose of hospital equipment, machinery, and supplies; acquire real property; enter into contracts, joint ventures, and shared services agreements to provide medical and related services or facilities; and create subsidiaries with these same powers. But it may not enter joint ventures or shared services agreements if they would reduce the number of hospital employees. The corporation also administers the hospital's malpractice insurance fund. It cannot operate the hospital or provide patient services there or at other UConn Health Center facilities.
The corporation is exempt from many statutory requirements that apply to state agencies, including competitive bidding procedures, certain freedom of information and travel reimbursement requirements, and procedures for declaring accounts uncollectible.
The corporation's procurement rules deal with contracts for supplies, equipment, machinery, computers, and similar items (called “Type A hospital facilities”); land and structures (“Type B hospital facilities”); joint ventures and shared service agreements; and professional or technical services. The rules generally call for competitive bidding when practicable but permit sole source awards in most situations.
A 2006 state auditors' report identifies these purchasing rules as an area requiring attention. The auditors recommended revising them to (1) make open bidding the standard practice and (2) require communicating the reason for any deviation from this standard to the corporation's board of directors and documenting it in their minutes. UConn disagreed with the auditors' findings and their recommendations.
The legislature created the John Dempsey Hospital Finance Corporation in 1987 (PA 87-458) and changed its name to UConn Health Center Finance Corporation in 1992 (PA 92-154). It took this action after legislative studies in 1981 and 1985 recommended giving the Health Center and the hospital flexibility in areas such as purchasing, contracting, and construction in order to permit effective competition with other acute care hospitals.
Initially, UConn sought legislative authorization to make the hospital an independent, nonprofit corporation. But this concept raised concerns because it would have required (1) UConn to cede control over the hospital and (2) hospital employees to leave state service. Further study led to a proposal to keep the Health Center's organizational structure and reporting patterns by creating an entity to conduct business for the hospital, but not operate it.
The corporation's powers and duties have changed little since 1987. In 1992, the OPM secretary, as permitted under the 1987 law, authorized the corporation to act for the UConn medical and dental practice groups. The next year the legislature authorized it to act for the medical and dental schools.
A copy of the OLR summary of PA 87-458 is enclosed.
CORPORATION STRUCTURE AND POWERS
The corporation is governed by a five-member board composed of UConn's president (who serves as board president), the chairman of UConn's Board of Trustees, a member of the Health Center's board of directors and its executive vice president for health affairs, and an OPM representative. UConn's vice president and chief financial officer serves as the corporation's executive director, and the Health Center's chief financial officer serves in that capacity for the corporation. The corporation is a political subdivision of the state.
The law authorizes the corporation, among other functions, to acquire and dispose of hospital equipment and facilities; acquire real property for hospital activities; enter into contracts, joint ventures, and shared services agreements to provide medical and related services or facilities; and create nonprofit or for profit subsidiaries with these same powers. (The “hospital” encompasses John Dempsey Hospital, the medical and dental schools' clinical practices, and the health care services the Health Center provides for the Correction Department.)
The law prohibits the corporation from
1. entering into joint ventures or shared services agreements for activities the hospital provided in 1987 if they would reduce the number of hospital employees,
2. operating the hospital or providing patient services there or at the Health Center, and
3. selling or disposing of land or structures without the UConn Board of Trustees' approval.
The corporation also administers the Hospital Insurance Fund, through which it insures the hospital against malpractice claims.
The law exempts the corporation from many statutory requirements that apply to state agencies. These include open competitive bidding procedures, certain freedom of information and travel reimbursement requirements, procedures for declaring accounts uncollectible, most Office of Health Care Access requirements, and the requirement that it adopt regulations under the Uniform Administrative Procedures Act (CGS §§ 10-252 to -263).
CORPORATION PROCUREMENT POLICIES
The corporation's purchasing and contracting policies and procedures establish procurement rules for four types of contracts: supplies, equipment, machinery, computers, and similar items (called “hospital facilities Type A”); land and structures (“hospital facilities Type B”); joint ventures and shared service agreements; and professional or technical services. The rules differ somewhat for each type.
The policies and procedures describe “open and competitive bidding” as any impartial process by which the corporation contracts for goods or services, joint ventures, or shared agreements. These processes can include solicitations to bid, bidder pre-qualification, review of written proposals, pre-bid meetings, sealed bids, negotiation, or any combination of these actions.
The policies and procedures describe “sole source” procurement as a procedure “without any formal process of advertising, pre-qualification or review of written proposals.” They permit such procurement “in any instance where the corporation has determined that the amount of the contract, the time available, the nature of the agreement, or other circumstances do not make a more formal bidding process practicable.” The corporation's chief financial officer must approve any sole source procurement.
Type A Facilities. Contracting for over $10,000 of Type A facilities must, “to the fullest extent practicable,” follow the hospital's contracting procedures. But the corporation can, in its sole discretion, modify these procedures if it determines that doing so is in the hospital's best interest. Contracts for supplies and equipment worth under $10,000 can be procured on a sole source basis.
The corporation's chief financial officer can enter contracts worth up to $50,000 without other approval. The executive director or the corporation's president can do so for contracts up to $250,000. In both cases, their actions must be reported at the next board of directors meeting. The board must approve contracts worth over $250,000 before they are executed. Contracts between $250,000 and $500,000 must first be reported to the Health Center's Finance Subcommittee; the Health Center's board of directors must first approve contracts over $500,000.
Type B Facilities. Contracts for land and buildings must, when practicable, be openly or competitively bid. But they may be procured on a sole source basis. All contracts must receive prior corporation board approval. The executive director must either (1) obtain at least two written appraisals before contracting to buy real property or (2) acquire it subject to obtaining a satisfactory appraisal. UConn's Board of Trustees must approve the sale of any real property.
Joint Ventures and Shared Service Agreements. The corporation can obtain these agreements either by open and competitive bidding or through sole source negotiation. They must all be approved by the corporation's board before they are executed.
Professional and Technical Services. The corporation must, when practicable, consider one or more contractors before one of these contracts is executed. The contract approval limits and process is identical to that for type A facilities.
2006 STATE AUDITORS' REPORT
Corporation Acquisition of Assets and Liabilities
A 2006 state auditors' report notes a recent change in the corporation's activities. Previously, the auditors stated, the corporation operated on a “pass-through” basis, and virtually all of its activities and balances were mirrored in the Health Center's operating and hospital funds. The corporation did not accumulate any significant assets or liabilities.
But this changed with the construction of the Health Center's new medical arts and research building (MARB) and acquisition of a facility at 16 Munson Road, Farmington. The corporation handled both transactions; the buildings are its assets and the debt associated with them its liability. It acquired the MARB to facilitate “the Health Center's efforts to increase patient facility space on campus.” It planned to move personnel and patient billing services from its administrative services building to Munson Road and renovate the former to expand clinical facilities.
External audit reports, conducted for the corporation by KPMG, show no long-term liabilities on June 30, 2003 and $34.4 million in such liabilities on June 30, 2005. They show $4,439 in capital assets on June 30, 2003 and $33.9 million on June 30, 2005.
Corporation Procurement Policies
Because the corporation's purchasing policies and procedures describe as optional certain key elements of a fully competitive selection process, the state auditors identified them an area requiring attention. They recommended revising the policies and procedures to (1) make open and public solicitation and consideration of bids and proposals standard practice and (2) require communicating the reason for any deviation from the standard to the corporation's board of directors and documenting it in their minutes.
The auditors state that, unlike most government organizations, which typically use sole source contracting when there is no alternative, the Health Center uses it for Finance Corporation purchases where no alternatives are considered. They state that corporation procurement often does not involve public advertising of requests for bids or proposals and may lack other key elements of a fully competitive selection process. This, they say, could result in higher costs through reduced competition or, potentially, create the impression that contract steering has occurred.
UConn disagreed with the auditors' findings and recommendations. It stated that (1) the corporation's policies and procedures conform to statute and (2) the corporation extensively uses competitive bidding. It noted that the corporation's directors must approve all contracts and purchases over $250,000; all other university transactions are reviewed by the Board of Trustees only for transactions over $500,000.
The auditors' report, including UConn's response, is available at UConn Health Center Audit 2006.