Revenue Up 56% over the Past Five Years

Graphic showing UCSF's growth in revenue over fice fiscal years, which is 56%.

The Role of Strategic Growth in UCSF’s Financial Future

UCSF has a deliberate strategy of growth. The signs of this growth are everywhere, from the multiple new and renovated buildings on the UCSF campuses, to our new health care affiliations in the Bay Area and beyond, to the rapid increase in the number of patients served, and much more. This growth also includes an astonishing increase of 56 percent in our revenue over the past five years, as shown in the accompanying infographic. During this time, we have seen 80 percent growth within UCSF Health from $2.2 billion to $3.9 billion, and 20 percent growth in our contract and grant sponsored activity from $1.1 billion to $1.4 billion. I want to focus on growth – particularly revenue growth – in this post to discuss why it is strategically important for UCSF, and what we may see in the future.

Did We Project This Kind of Income Growth?

Although we did expect to grow revenues over the past five years, we have actually been much more successful than we anticipated. In 2012-13, we estimated our revenue to increase over five years from $4.1 billion to $4.8 billion, which would have represented a nearly 16 percent rate of growth. Instead, we reached $6.4 billion in revenue in 2016-17 – or a 56 percent increase. That’s a substantial, highly favorable difference, especially when compared to either the inflation-based growth in consumer prices of 5 percent, higher education prices growing by 11 percent, or even the health care industry overall which saw growth in the range of 18 to 19 percent. The biggest drivers of our fast growth have been amazing success in attracting new clinical revenues and research funding, as well as significant new philanthropic giving.

To give some context to this discussion, I am referring to UCSF revenues for the combined enterprise of both UCSF Health, which provides patient care services to the community, and the UCSF campus, with its focus on research and educational activities. Last year, the vast majority of our combined revenue – 83 percent or $5.3 billion – was generated in two areas: UCSF Health patient care services ($3.9 billion), and sponsored activity ($1.4 billion in contracts and grants, largely for research). It is remarkable, and not widely known, that our own faculty and staff colleagues generate the bulk of UCSF revenue themselves. While state funding and tuition are critically important to us, they are a proportionally small part of UCSF revenues. (An infographic from a recent blog post shows in detail the sources of our annual revenue.)

Why Is Growth Important to UCSF?

There are several compelling strategic reasons to grow. First, growth enables UCSF to provide top-quality health care to an even larger segment of the population, expanding beyond our San Francisco home and into other parts our region. Caring and healing are key aspects of our mission as an organization. More patient care also supports our discovery and teaching missions by providing clinical access to patients for our scientists and professional students. In support of this mission, UCSF Health has a key strategy of developing a “High Value System of Care” to remain competitive in a market that requires both care (such as hospital and physician visits) for broad populations and coverage (health insurance). These strategies promote growth. For example, in March more than 800 inpatients were receiving care in our hospitals each day – a first in UCSF history. To meet this demand, UCSF will add to its clinical capacity, either within its own facilities or with partners. Such expansions will lead to more needed growth, as UCSF Health remains – for now – a relatively small player in the local health care marketplace, taking care of only about 6 percent of Bay Area hospital patients.

Second, a larger UCSF helps us achieve economies of scale and thus become a more efficient health care provider by pulling together large teams of health care professionals, hospitals and other health care facilities, as well as other systems. This is critical to being what is known in the health care industry as an Accountable Care Organization. This means operating a robust health care delivery system that produces better value and outcomes by being less siloed and more expansive and collaborative than traditional systems. This also means focusing on the whole patient or on populations of patients. UCSF’s recent affiliations, partnerships, and mergers with a number of health care providers in the Bay Area and beyond help us to achieve these goals. Our recent affiliation with Benioff Children’s Hospital of Oakland is an outstanding example, adding almost $500 million to our total revenue picture.

Finally, higher revenues result in healthier and more flexible financial operations for UCSF. We gain greater access to more assets, we can maintain larger cash balances that facilitate smooth daily operations, and we have better access to borrowing money when needed. Our better-than-expected revenues also set a new financial baseline so that we can start addressing the critically important seismic renovations of the Moffitt Hospital at Parnassus Heights. We had originally planned to renovate the hospital at the end of the next decade to meet a deadline of 2030. Thanks to additional revenue and a significant recent gift, we are speeding up the construction timetable.

What are Some Other Financial Considerations of Growth?

UCSF Finance is always looking at how to do things more efficiently. In these periods of growth, we look at operational and administrative services and ask ourselves how we can actually serve a bigger population in a way that keeps these costs rising more slowly than our expanding expenses for clinical care, teaching, and research. While we are always trying to keep our operating and administrative costs under control, in a growth environment we have to balance that concern with supporting additional services.

When people think of growth at UCSF, they often think about the many new capital projects on our campuses because they are so visible. The costs of constructing these new projects is not our only concern. Once a project is completed, we also have to address the continuing costs of operations, security, utilities and so on. Additional revenues help us cover these expenses. And besides new facilities on our San Francisco campuses, we have to keep all these things in mind as we grow through our partnerships and affiliations.

Is UCSF Revenue Expected to Grow Fast in the Future?

In our most recent Ten-Year Financial Plan out to the year 2026-27, we estimated that our revenue will grow by 54 percent over the period, reaching annual revenues of $10 billion. This would seem to represent a slowing rate of growth from the past five years, but it also indicates our strategy of conservative assumptions in the out-years of our plan. Generally, we believe it is wiser to under-anticipate revenue than over-anticipate revenue. Unless we have identified sources of new revenue in the future, we try to keep our projections as close as possible to reality, as we know it today. However, the outlook for continued revenue is strong, and we may well beat our expectations once again.

In closing, it is good to keep in mind that UCSF is a non-profit organization, where any revenue growth that produces new net income is reinvested to expand activities that support our mission. There is no private gain, unlike in business. In this way, UCSF, through its growth, can have an even greater positive impact on the health of our world.

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