University of Washington School of Dentistry: Improving Financial Health and Accountability

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The University of Washington School of Dentistry is one of only two dental schools in the Pacific Northwest. Its students and instructors offer essential dental services to patients from Washington and nearby states. But, due to poor decisions and challenges beyond its control, the School's expenses have exceeded its income. This resulted in almost $40 million in debt owed to the university.

This performance audit found many reasons why the debt mounted, and made recommendations to address some of them. Some issues are out of the School’s control. It could address others through greater use of performance improvement tools. But to resolve underlying challenges, the School must decide how to balance its financial responsibilities with its educational and service objectives. It must work with University leaders to develop a clear plan to address its long-standing financial liabilities.

Of equal concern to the accumulated debt is the fact that the University allowed this to happen. To its credit, the university has taken positive steps to help prevent similar situations from happening again. However, the audit found gaps in financial oversight, an out-of-date financial system and a lack of business training for department chairs. These show the University still has plenty of work to do.

Read a two-page summary of the report.

Report Number 1025878 Report Credits

Key results

The audit produced four key results:

First, the School owes the University almost $40 million. The debt roughly equals the School’s annual budget. So far, the School has laid off staff, raised tuition and asked for additional state funding. These steps have not been enough to repay the debt. In addition, the School must continue repaying a loan from the University, which it used to establish the Center for Pediatric Dentistry (now part of the Magnuson Park Clinic). We found many underlying causes, some of which may prove difficult to remedy. The issues around the deficit are discussed on later tabs.

Second, the School could make better use of its available performance data to improve its financial health. The School has not effectively tracked information it needs to identify and fix billing issues. As a result, over seven years, it lost about $3.5 million in revenue from correctable problems. School officials recently adopted new performance measures to help manage finances, but they lack some measures other dental schools already use.

Third, while the University has improved its oversight of schools’ budgets, it could do more to reduce the risk of future deficits. It gives its many schools and departments great autonomy in their financial decision-making. However, the financial management software it uses is out of date, making it harder to track fiscal health. Furthermore, the University offers little training to help academic experts responsible for managing the schools’ funds prepare for the task.

Fourth, School and University officials must work out a long-term strategy to reconcile the School’s competing financial, educational and service objectives. The School lacks a strategy to help it balance its financial responsibilities with its educational and service objectives. The School must decide how much ‘safety-net’ care it can actually provide, and ensure all providers stick to the plan.

Background

The School of Dentistry teaches its students through hands-on clinical practice, which also serves its public service mission. It operates 15 teaching and specialty-care clinics, offering services from preventive care to extensive restoration after traumatic injury.

Clinical practice is an important and expensive part of all dental school training. Faculty members supervise students closely, checking each step as the student completes it. They do this because students perform permanent dental and surgical procedures under the faculty member’s practitioner license. Furthermore, dental students are expected to perform surgery independently at the end of their four-year program. This is greater mastery than is required of medical school graduates, who practice under supervision for several years following graduation. The detailed supervision of student dentists means treatment often takes longer than at private dentists. The School sets lower fees to offset this inconvenience.

Clinical care also meets the School of Dentistry’s service mission by providing care to patients other dentists cannot or will not treat. This includes a large number of patients covered by Medicaid.

Low Medicaid rates

The School treats patients willing to accept longer treatment times, so students can gain necessary experience. Most of these patients cannot pay the full cost of care, and are covered by Medicaid. However, Washington’s Medicaid reimbursement rates are among the lowest in the country. Because the School depends on patients covered by this program, working with these low rates is beyond its control.

Development debt

The School took out a loan from the University to create its Center for Pediatric Dentistry. However, the Center brought in only one-quarter of its projected revenue, in large part because of foreseeable problems in its revenue forecasts. The School has since redeveloped the building into the Magnuson Park Clinic, and houses other services there. However, revenue is still nowhere near the projected income.

The School must weigh the costs and benefits of its plans to maximize use of Magnuson Park Clinic. For example, it might reinstate a faculty practice. Some dental schools use faculty practices to generate significant revenue: the top-earning school reported net revenues of about $13 million a year. It could also pursue options such as:

  • Expand clinic hours to include Saturdays, which could help patients avoid lost work or school hours
  • Establish a new partnership with Seattle Children’s Hospital to serve patients that exceed Seattle Children’s capacity

The School has not formally assessed these options. We gave the School a template to help officials analyze each option’s costs and benefits. Open the template here.

Billing errors

In addition to the Center for Pediatric Dentistry, most of the School’s other clinics also lose money. The audit identified multiple points – between the patient’s check-in for treatment and payment by the patient’s insurer – where errors can creep in. Some errors can be resolved by closer attention to insurer rules or clearer School policies and procedures. Fixing other issues requires a better understanding of its own operations.

To do this means the School must improve its use of existing data and collect information on other metrics. The School recently adopted new performance measures, many of which align with leading practices. Nonetheless, it lacks some key information:

  • Measures on clinical costs, staff productivity and collected revenue
  • Detailed information about why an insurer denied payment
  • Information for scheduling faculty and students

Competing responsibilities

The School currently lacks strategic direction on how to balance its competing responsibilities. They include training student dentists, serving the community, and breaking even. But because the School lacks clear direction for achieving this balance, it also lacks the necessary policies and procedures to get there.

For example, the audit found that faculty members provide care they know will not be paid for out of a sense of ethical responsibility. However, the school lacks a clear charity care policy, to guide faculty on providing this type of care.

Writing and adhering to a strategic plan that spells out how to balance these responsibilities is a good first step. Because, while the School has taken steps to increase revenue, it is evident that no single action will be enough to clear its deficit.

Recommendations

We made recommendations to both the University and the School of Dentistry.

The University should make sure its academic experts get the training they need to manage their schools’ finances. When the University considers loans to its schools, it should have an impartial external specialist review the applications. In addition, the University should improve its guidance for financial stability plans, for times when schools get into financial difficulties.

The School of Dentistry can improve many aspects of it financial and business management processes. Key among them are:

  • Track, understand and address the root causes of billing write-offs
  • Inventory available reports and decide which ones all clinic administrators should regularly use
  • Complete a cost-benefit analysis of options for the Magnuson Park Clinic
  • Develop a clear policy for charity care, and ensure clinics works within the policy

Finally, the University and School must work together to establish a workable plan to address the School’s debt.