Inside Duke Medicine

State of Duke Medicine: Ready for tough times

In his annual State of Duke Medicine speech Nov. 3, Victor J. Dzau, M.D., chancellor for health affairs and CEO of Duke University Health System, highlighted the successes of the past year while also outlining the significant challenges posed by the current financial crisis and how the organization plans to manage through it.

“It has been a year with a lot of successes, and I hear a remarkable ‘buzz’ from people about Duke,” said Dzau. “The people I meet around the country and the world have a sense that great things are happening at Duke Medicine.”

There are many reasons to be proud, he said.

(Click here to view a video of the State of Duke Medicine address.)

The schools of medicine and nursing, as well as Duke University Hospital, continue to be ranked among the very best institutions in the country. Duke’s basic and clinical researchers continue to makeimportant contributions to science, perhaps best exemplified by Robert Lefkowitz, M.D., receiving the National Medal of Science. And, clinical faculty have attracted much attention through the delivery of innovative and differentiated clinical services.

This past year saw Duke become the No. 2 medical school in the country in research funding from the National Institutes of Health.

The Duke School of Nursing now offers a Ph.D. and Doctor of Nursing Practice degrees. Also, Duke Raleigh Hospital was named one of thetop 100 places to work by Modern Healthcare magazine, and Durham Regional Hospital continues to be recognized for its commitment to excellence and community service while being described by citizens of Durham as “their hospital.”

As he looked ahead to the coming year, Dzau said the current global financial crisis represents a serious situation that has already had an impact on Duke Medicine, and that its effects will likely be felt for years rather than months.

Not surprisingly, the economic downturn has negatively impacted the health system’s investments as well as some of its borrowing rates, resulting in significant temporary increased payments on some loans that have now moderated.

Also, over the last three months, especially October, signs have begun to emerge that suggest a softening in utilization of services across the health system, Dzau said. Most experts also expect future decreases in Medicare and Medicaid reimbursement as part of the new administration’s health care reform efforts.

For the nursing and medical schools, the impact has been felt primarily in decreased values of endowments, which is related to the recent market volatility, and in research funding from the National Institutes of Health. It is expected that government research funding will be flat for the next several years.

“The fact is, this is a very serious situation and it will demand a high level of organizational focus, determination and team work - involving all of us - if we are to navigate it successfully,” said Dzau.

The silver lining to the current situation is that the main source of income for the Duke University Health System comes from reimbursement of services by private and government insurers, and at this point, that remains relatively stable.

“While the headwinds we, and academic medical centers across the country, are facing today are strong and threatening, Duke Medicine is in as strong a position as any institution in the country,” Dzau said. “I’m particularly proud of the fact that we have the opportunity to proactively manage through this situation from a position of strength.”

Dzau explained that Duke Medicine took several foresighted steps before the economic crisis began.

In 2006, $280 million was transferred from the health system to the School of Medicine as part of a commitment to provide the school with long-term, stable support. Also, Duke Medicine began a project last summer to identify $50 million in annualcost savings through improved efficiency, increased productivity and expense savings.

“The good news is that we are very close to reaching that goal already,” Dzau said. “Initiating such a project before the storm hitprepared us to make thoughtful decisions while preserving our core operations.”

In addition, Dzau pointed to recent efforts to preserve our cash position by carefully prioritizing current planned capital expenditures, and also initiating an added level of scrutiny to the hiring of non-clinical positions.

Duke Medicine is pushing forward with strategic priorities, while keeping a close eye on the financial situation as well as any changes in the health care industry.

“We believe that to be frozen by fear or indecision is a losing proposition,” he said. “In times like these we must show leadership.”

Duke Medicine will move ahead with key recruitments, Dzau said, but new hires will be rigorously evaluated. Faculty support will continue. Duke Medicine will providebridge funding for National Institutes of Health grant shortfall for scientists.

Dzau also announced that the Chancellor’s Scholarship, which provides two years of funding for outstanding international graduate students who cannot receive NIH grants, will be continued for at least another two years.

“Graduate students are a crucial component of our research enterprise and the international students represent a fantastic talent pool that we could not tap into prior to the establishment of these scholarships,” Dzau said.

Planning will continue on the major expansion of Duke University Hospital and the creation of a Cancer Center, for which a certificate of need will soon be filed with the state. Without hospital modernization and expansion, thequality of our patient care could suffer and growth plans would be significantly stunted, Dzau said.

However, health system leadership will continue to closely monitor the financial environment and any changes in the health care environment while planning continues. The “go-now/go-later” decision points on the DUH expansion and the Cancer Center project - if granted a CON in the spring - will not be reached until mid-2009, meaning that there is time for further thoughtful analysis.

Meanwhile, planning is moving forward on a new state-of-the-art learning center for the School of Medicine. Earlier this year, The Duke Endowment committed $35 million to the project.

Dzau also said that Duke Medicine’s commitments to global and community health remain undiminished. A recent $250,000 gift will build yet another community wellness center that Duke Medicine will manage in Durham.

Expansion in Wake County will also continue - a new facility in Morrisville will open soon and another in Knightdale will open in March.

Dzau concluded his address by repeating the seriousness of the current situation and the need to work more collaboratively than ever before to overcome the many challenges Duke Medicine will face. And, by restating hisintense pride in the organization.

“I couldn’t be more proud to be a part of Duke Medicine and to count all of you as my colleagues,” he said. “I thank you for your continued excellent work and for making Duke Medicine synonymous withexcellence worldwide.”