INTRODUCTIONS

Chairman Steinwachs suggested that the committee members introduce themselves since there are several new members this year. A schedule of future FBAC meetings was distributed to the Committee, along with the October 7, 2002 issue of the JHU Gazette, which includes an article on the FBAC.

APPROVAL OF MINUTES

Minutes of the meeting of May 14, 2002 were approved as distributed.

PRESENTATION ON HEALTH INSURANCE PORTABILITY & ACCOUNTABILITY ACT (HIPAA)

Joanne Pollak, Vice President and General Counsel for Johns Hopkins Medicine, made a presentation to the Committee on HIPAA. HIPAA is the Health Insurance Portability and Accountability Act, a federal law enacted in 1996. Part of the law deals with the privacy and confidentiality of health care information. The privacy regulations become effective April 14, 2003 and electronic transactions regulations became effective October 16, 2002, however, Hopkins has filed for a one-year extension, making the effective date October 16, 2003.

Under the direction of President Brody, Dean Miller and Ron Petersen, Johns Hopkins decided to organize all HIPAA activities for the University and Health System under one HIPAA office. A council made up of leaders from the various affected Hopkins entities meets monthly to discuss recent developments, address policy decisions and formulate implementation strategies. All affected employees, students and volunteers must be trained in HIPAA so that each understands Hopkins responsibilities for patient confidentiality and privacy.

Covered entities include health care providers, health plans and clearinghouses that transmit transactions electronically. The HIPAA privacy regulations govern the use and disclosure of identifiable health information created or received by a covered entity that relates to the health of an individual, the provision of health care to an individual or the payment for health care for the individual. Any individually identifiable health information that is transmitted, received or maintained in any form or medium by covered entities is protected health information. The University entities subject to compliance with HIPAA include the Schools of Medicine and Nursing, and those departments within the Schools of Public Health and Engineering with activities related to the School of Medicine.

Certain activities using protected health information may be done without an individual privacy authorization. Fundraising on behalf of the health care entity is one of these activities if only certain limited demographic data is uses. This demographic data does not include the department visited at the health care entity or the physician's name. This is an issue for Hopkins as significant philanthropic giving is accomplished through the departments, divisions and physicians. Both the HIPAA office and Development office worked to seek a regulatory change in this rule but this effort was not successful. Until this rule is changed, Hopkins must obtain a privacy authorization.

The Committee asked how much all of this would cost. Ms. Pollak stated that this year's budget (fiscal 2003) is approximately $600 - $700 thousand and she anticipates that this will not all be spent. For fiscal 2004 Ms. Pollak estimates the cost to be $1.5 million as the office is further developed and information technology costs for tracking disclosures are incurred. Dr. Rose asked if these costs would be a part of indirect costs? Dr. McGill responded that these costs may be allowable, however, since the costs are administrative in nature they will not impact the facilities and administrative cost rate as administrative costs are capped at 26%. The University currently exceeds that capped rate.

PRESENTATION ON NEW FINANCIAL SYSTEM

The Committee received a presentation on the status of the new financial system. Steve Golding, project manager, provided a brief history of the evolution of this project. The University and Hospital are jointly developing this project to determine what financial systems could be implemented together. Key personnel from each institution have been working in various focus groups to define the current state and future state of the financial systems within the University and Hospital. As a result of these focus groups and other individual discussions, the consultants are finalizing a feasibility study that is due to the Executive Steering Committee by the end of October. The Steering Committee will finalize their go or no-go recommendation within six to eight weeks.

Lynne Lochte (co-project lead) presented the project's scope and vision. The project scope includes defining the economic and operational benefits both the University and Health System may realize by jointly implementing the software and identify the risks both these institutions may encounter by doing such. Additionally, the project scope includes a comparison of costs should each institution elect to implement the software singly versus jointly.

The key functions of the project include various supply chain, finance and human resources/payroll systems. Some of these systems are e-procurement, purchasing, accounts payable, general ledger, fixed assets, budgets, research/grants management, payroll and human resources. Patient and clinical billing are excluded and would need to be interfaced with the new system.

The timeline for the project was discussed. If the project moves forward, it will be implemented in phases. The first release is anticipated for January 2006 and full implementation expected in July 2007.

Chairman Steinwachs asked what the impact to the University would be over the next three years as the project is being developed. Dr. McGill responded that the University would see business practices beginning to change. Dr. Townsend remarked that it was important to keep the faculty involved, not only informed, in the development as prior systems implementations were not very effective from a faculty point of view.

FISCAL 2002 OPERATING RESULTS AS OF JUNE 30, 2002

The University closed Fiscal Year 2002 with a total surplus of $109.3 million, of which $14.1 million is attributable to general funds ( Table 1). The Applied Physics Laboratory (APL), the School of Public Health and the Johns Hopkins Press account for most of the general funds surplus. All other divisions ended the year in balance or with a small general funds surplus. In addition to this surplus, the divisions added $95.2 million to balances through the retention of designated funds. Most of these additional balances are restricted, including the $54 million Kimmel gift at the School of Medicine and a $20 million gift for Malaria research at the Bloomberg School of Public Health.

Revenues

Total revenue was $2.4 billion, $249.1 million (11.7%) more than budget ( Table 1, line 17) and an increase of 12.2% over fiscal 2001 ( Table 2, line 17.) General fund revenue totaled $827.8 million, which is $38 million (4.8%) over budgeted levels. All major sources of general funds exceeded budgeted amounts, specifically tuition ($3.5 million), F&A recoveries ($11.0 million) and clinical revenues ($21.0 million). Compared to last year, general fund revenues are up $81.7 million, 10.9%, driven primarily by these same three sources.

Sponsored and designated revenues exceeded budgeted levels by $211.1 million, or 15.7%, totaling almost $1.6 billion. Sponsored research grants and contracts for Fiscal Year 2002 were $67.7 million (12.0%) more than budgeted and research activities at APL exceeded budget by $47.4 million. Compared to budget, there were also significant increases in gifts ($28.8 million) and revenue from affiliated organizations primarily Johns Hopkins Hospital ($24.0 million). Other source revenue was $36.1 million over budget, which included proceeds from the sale of WJHU. Sponsored and designated revenue grew 12.9% ($178.1 million) over fiscal 2001.

Expenditures

Total spending in Fiscal Year 2002 was $2.25 billion, exceeding the original budget by $128.8 million, or 6.1% ( Table 1, line 26.) The variance was attributable to sponsored and designated funds, which exceeded budget by 9.7%, reflecting additional research expenditures. This additional spending was offset by commensurate research revenue.

General fund expenditures totaled $842.6 million, which was 0.5% more than budgeted. All expenditure categories, except general services and administration and clinical services, were at or below budgeted levels. Administration costs exceeded budget due to rising compliance and insurance costs, while clinical services was greater due to the inclusion of Bayview Physicians. General fund expenditures in Fiscal Year 2002 grew by $84.3 million (11.1%) over Fiscal Year 2001.

Expenditures for sponsored and designated programs exceeded budgeted amounts, especially in instruction and research ($94.7 million, 12.3%) and at the Applied Physics Laboratory ($47.4 million, 10.5%). Total sponsored and designated fund spending grew $180.5 million (14.7%) over Fiscal Year 2001.

Mr. Puddester provided the following divisional highlights for selected Schools.

Krieger School of Arts & Sciences

The Krieger School of Arts and Sciences ended the fiscal year with a balanced budget within general funds. General fund revenue attainment exceeded budget by $3.9 million, driven by additional facilities and administrative (F&A) cost recoveries ($3.0 million). All expenditure categories came in below budget resulting in overall spending $2.3 million under budget. As a result, the School transferred $3.0 million less than planned from designated funds to balance the general fund budget.

In designated funds, sponsored research revenues totaled $57.3 million, a $7.6 million (15.3%) increase over budgeted amounts. All other designated revenues exceeded budget by $1.5 million.

Whiting School of Engineering

The Whiting School of Engineering reported a balanced general fund budget, but also needed less designated funds and transfers from net assets to achieve this financial position. Net tuition revenues were $700 thousand over budget due to better than budgeted results in part-time programs.

Total general fund expenditures in FY 2002 were $3.1 million less than budgeted. Most categories of spending were under budget. The School did not need to transfer the budgeted $1.1 million from net assets, and transferred $950 thousand less from designated funds and was able to reserve additional funds for future faculty start-ups.

Peabody Institute

The Peabody Institute balanced the Fiscal Year 2002 budget as lower than budgeted expenses and greater transfers from designated funds offset a shortfall in net tuition. The Institute experienced lower than expected enrollment resulting in a tuition shortfall of almost $700 thousand and auxiliary revenue shortfall of more than $200 thousand. At the same time, financial aid was $778 thousand over-budget. To accommodate this shortfall, Peabody curtailed expenses early in the year. Total spending for FY 2002 was $1.1 million (5.1%) below budgeted levels. To balance the budget, Peabody increased the transfer of designated funds by $623 thousand, principally from the funds associated with the Singapore Partnership.

Bloomberg School of Public Health

The Bloomberg School of Public Health finished fiscal 2002 with a surplus of $20.6 million. The general fund surplus was $7.1 million, which was due to the combination of higher than budgeted revenues and lower than expected spending. Higher than budgeted revenue was driven by increases in net F&A cost recoveries ($5.1 million), offset by lower than budgeted tuition revenue ($346 thousand.) General fund spending for Fiscal Year 2002 was $3.0 million less than budgeted.

Designated fund revenues exceeded budget by $43 million, led by a $20 million gift for Malaria research and approximately $27 million in sponsored research. These additional revenues were partially offset by additional research expenditures, resulting in a $13.5 million operating surplus in designated funds.

School of Nursing

General funds revenues were $879 thousand more than budget primarily due to greater than anticipated tuition revenue, offset by lower than budgeted F&A cost recoveries. General fund expenses were slightly over budget ($171 thousand, 1.2%), and so the School was able to reduce the need for designated support by $708 thousand.

Sponsored and designated revenues exceeded budget by almost $1.9 million due to greater than anticipated grants and contracts and gift revenue. While research spending also increased, these additional revenues and lower than budgeted transfers to general fund resulted in a $2.0 million surplus in designated funds.

REPORT ON DIVISIONAL BALANCES AS OF JUNE 30, 2002

The market value of the University endowment at the end of fiscal year 2002 totaled nearly $1.64 billion. This represents a $117.4 million decrease compared to the prior year's market value. Included in these balances are funds added to endowment principal during the fiscal year, unrealized gains and losses, distributions to the divisions and funds used to pay investment management fees and a portion of the Development Office budget.

Additions to endowment were $68.1 million for the year and were offset by $86.5 million decrease in earnings. Total payouts, including campaign expenses and management fees, were $99.0 million Fiscal Year 2002.

Other balances for the University at the close of Fiscal Year 2002 totaled $531.9 million, a $99.3 million increase over fiscal year 2001. Much of the increase is attributable to restricted gifts, specifically Malaria and Kimmel. Most of the $531.9 million balance is restricted as to purpose. Only the general fund balance, $53.3 million, and a small portion of the other balances are available for unrestricted use.

The Committee discussed endowment payout. Currently the payout exceeds the Trustee policy of 5% based on a three-year trailing average. Dr. McGill anticipates fiscal 2004 endowment projections will be lower than previously projected but the Trustee Investment Committee will be finalizing a decision on this at their December meeting. Dr. McGill also updated the Committee on other potential financial risks for fiscal 2004, including Maryland State Aid, facilities and administrative cost recoveries, health insurance costs and salary expenditures. The Committee will be kept abreast of these issues as they further develop,

CAPITAL PROJECTS

Dr. McGill provided an update on the University's capital projects. He spoke specifically about several major projects that are in various phases of development. Large Homewood campus projects include the San Martin Center and the New Chemistry building. Planning studies are under for the Garland Quad development, which would include a Computer Science building, Admissions Center and parking. The East Baltimore campus projects include the Broadway Research Building, Cancer Research Building II and additions to the Bloomberg School of Public Health to house the Malaria Institute and other research. Other large projects include the Montgomery County Campus Building III, the Peabody Institute renovation, Buildings 17 and 21 at the Applied Physics Laboratory and the Mason F. Lord Center Tower at Bayview.

Chairman Steinwachs asked how much of the capital projects are supported by state aid and what is the total University debt. Dr. McGill responded that currently the University has applied for $75 million in aid: $25 million for the Cancer Research Building II and $50 million for the Children's and Women's hospitals. Total debt is approximately $650 million, of which Dr. McGill stated he is not concerned with debt that is built into divisional operating budgets and want to ensure that new debt has sources identified as well.

GUIDELINES FOR FUTURE DIVISIONAL FACULTY SALARIES PRESENTATIONS

Associate Provost Zeller led a discussion on guidelines for this year's divisional faculty salary presentations. With the positive feedback received from last year's presentations the Committee agreed to follow last year's procedures whereby Mr. Zeller will work with the divisional representatives on reviewing their data, including a review of their peers and any other anecdotal information on where strides are being made. At the March 2003 meeting presentations by Arts & Sciences, Engineering, Peabody and Professional Studies will be made. At the May 2003 meeting the remaining divisional presentations will be scheduled.

As a follow up to last Spring's Committee meeting, Mr. Brunyate distributed an update of the percentage of professional income for the Peabody Institute. This was in response to a question raised earlier if Peabody faculty typically relied solely on University salary. The data indicated that for the academic faculty 93% of salary was paid by the University and that percentage drops to 67% for the performance faculty.

The next committee meeting is scheduled Tuesday, December 17, 2002 at 3:30 p.m.

© 2002 The Johns Hopkins University. Baltimore, Maryland. All rights reserved.
Last updated 31Dec02 by dgips@jhu.edu