News Analysis: Kelley's dismissal not a total surprise

The nametag for William Kelley remained on the table outside the University Trustees meeting yesterday long after the gathering had ended, unclaimed by the man who had just been relieved of his duties as head of Penn's expansive Health System. Kelley, who for more than 10 years served as dean of Penn's School of Medicine and spearheaded the creation of the $1.9 billion University Health System, was ousted yesterday from his position as head of the financially troubled system. The announcement comes as little surprise to those who watched UPHS suffer through two-year losses of nearly $300 million, the planned elimination of 20 percent of the Health System's workforce and the retention of an outside consulting firm to fix the progressively more devastating financial crisis. The crisis has also affected the academic side of the University, particularly the Medical School, which has for years relied on UPHS profits for funding. Still, throughout long months of difficulty, Penn administrators, including University President Judith Rodin, had said Kelley's job would be secure, insisting that he was capable of leading the Health System's efforts at remediation. And the academic prestige of the Medical School -- which boasts a No. 3 national ranking from U.S. News & World Report and is second in research funding from the National Institutes of Health -- is at an all-time high. "From an academic perspective, if you look at the accomplishments? I think it's been unparalleled," said Stanley Goldfarb, the senior vice chair for clinical affairs of the Department of Medicine. The financial problems exploded late last spring when Kelley announced that the Health System would slash its workforce by 9 percent. UPHS eliminated 1,100 full-time positions and laid off 450 employees in programs ranging from Human Resources to Finance to Information Systems. The Health System's four wholly-owned affiliates -- the Hospital of the University of Pennsylvania and Phoenixville, Presbyterian and Pennsylvania hospitals -- were left to struggle with significantly fewer resources, nurses and administrators in the wake of the system-wide layoffs, which followed news of a $90 million deficit for Fiscal Year 1998. Kelley said at the time that he and other top UPHS officials were projecting similar losses for the next year. The actual deficit for FY 1999, as the Trustees would learn at their October meeting, was $198 million -- more than twice that of the previous fiscal year. At the Budget and Finance committee meeting of the Trustees four months ago, Kelley announced that UPHS would eliminate an additional 1,700 positions over the next six months in order to complete the 20 percent reduction. He also said that he planned to remain in his position at Penn until the crisis was resolved. And until recently, top Penn administrators said they expected Kelley to finish out his term as dean, which was set to expire next summer. After all, throughout the problems, UPHS officials have maintained that the Health System's financial difficulties were no different than the ones facing other large academic health systems. Specifically, Kelley and other administrators have long attributed the Health System's deficit to several issues which are unique to the Philadelphia health care market, including the dominance of two payers -- Blue Cross and Aetna, which together control 80 percent of the market -- too many hospital beds and the absence of state reimbursements for indigent care. In addition, health systems nationwide have struggled with slashed Medicare payments, a result of the Balanced Budget Act of 1997. "So much of [the problem] was due to changes in the reimbursement scheme," Goldfarb said. "This seems to be a function of location and particular structures."

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