Health Sciences
Financial Principles & Practices

General

The budget should be a performance, financing, and spending plan agreed to by the Office of the Vice Chancellor (VCO) for Health Sciences, the respective schools (School of Medicine, Pharmacy or Public Health), and UC San Diego Health (where applicable). It should contain information and data regarding expected revenues and expenditures. During the fiscal year, actual performance (revenues and expenditures) will be periodically measured against the plan.

Fiscal Integrity

The school, department, or organizational unit will maintain the fiscal integrity of its operating budget.

At a school/departmental level or financial unit level 4 for select divisions/organizational units, ongoing operational costs will not exceed the amount of ongoing revenue to finance those costs. Loans will not be used as a funding mechanism to address ongoing gaps between revenues and costs. If a new program/operation/service is added on an ongoing basis, an ongoing revenue source will be identified to fund the costs. General carryover balances will only be used to offset one-time costs; project-specific carryover balances should be used based on funding requirements and the respective project intent or scope of work. Programs/operations/services that are not sustainable will be suspended or discontinued.

A department facing financial challenges should consider the following operational tactics to evaluate and plan mitigation approaches:

• Delay recruitments that are not mission critical and/or requiring department investment
• Evaluate trainee program sizing/education expense
• Share infrastructure with other department(s)
• Eliminate, defer, or reduce investments/initiatives/programs/activities deemed not critical
• Freeze/reduce discretionary expenses (e.g. minor equipment, non-essential travel, entertainment, new service contracts, software)
• Leverage unspent gifts or faculty discretionary sources
• Do not fill/backfill vacancies
• Decrease non-mission-critical payroll expenses
• Other expense reduction or revenue opportunity measures

At a school/departmental level or financial unit level 4 for select divisions/organizational units, unfavorable budgeted bottom lines in the department portfolio in excess of $250,000 (adjusted for use of existing balances) require an approved financial breakeven plan for the respective year; authorized positions should not officially be filled until the plan is agreed to by the applicable enterprise leadership.

The referenced threshold is consistent with Campus Budget Office guidelines noted in the Deficit Resolution section.

Basis & Framework

The following information provides general budgetary and financial guidelines. Schools/departments should review the Office of the Vice Chancellor (VCO) and School of Medicine (SOM) call letters for specific budget year assumptions and the related development process.

General

• A budget is not applicable for the research mission. Schools/departments/units must submit a Managerial Hierarchy budget and budget for the department and faculty portfolios for all other missions.
• Schools/departments/units should use balances to support respective programs and services. Factoring in appropriateness on use of balances, schools/departments/units should prioritize use of restricted funding over less restrictive sources.
• Budgets should include revenues and expenses for approved faculty recruitments that will be filled in the budgeted year. In the SOM, recruits must have formal approval with an ECC position ID number at the time of budget submission.
• Outside of clinical compensation based on approved compensation plans, all faculty salary increases otherwise require ongoing committed funding.
• The budget is a spending plan, not a commitment to pay. Regardless of contingencies or when funding is known/available, departments should budget and align activities consistent with historical practices (e.g. faculty incentive payments and transfers from department to faculty portfolios) for a more accurate budgeted bottom line. Faculty incentive payments should be budgeted in accordance with approved compensation plans, and are not guaranteed if resources do not materialize or the department’s financial outlook is unfavorable.
• All budget systems do not have a line for use of existing balances, prior year resources, or carryover funds. Schools/departments/units may show budgeted deficits where spending occurs on projects with realized revenue (e.g. gifts, other faculty portfolio activities, etc). Refer to the prior section on fiscal integrity for true deficits.

Clinical

• Compensation from clinical funds should be distributed based on approved clinical compensation and/or clinical incentive plans.
• Department work relative value units (wRVU) and volume projections should be consistent with the Clinical Enterprise growth plan.
• Health System Support (HSS)
  • Contingent expenses are costs that would not be incurred if HSS is not approved and should NOT be budgeted. Any updates to expenses with approved HSS should be coordinated with SOM Finance after the budget meeting.
  • Non-contingent expenses are costs that would be incurred regardless of HSS request status and should be budgeted.
• Departments should not enter manual adjustments in the landing page to update HSS budgeted amounts. Departments should align assumptions with UC San Diego Health and coordinate with SOM Finance where an adjustment is needed.

Medical Education

• ACGME Program Director/Associate Program Director Funding – The Program Director/Associate Program Director funding model provides funds flow to clinical departments for accredited residency and fellowship Program Directors and Associate Program Directors based on ACGME minimum effort requirements. The model provides funds flow based on ACGME effort requirements and sets a salary benchmark based on a 3-year rolling average of AAMC specialty median for Associate rank, capped at 3-year rolling average of the overall AAMC median Associate rank. Funding distribution is 60% Health System, 5% Dean and 35% Department.
  
  Program Director funding flows through the Division of Medical Education. Using amounts provided by the Office of Graduate Medical Education (GME), departments should enter a manual adjustment to the VC/Dean Allocation line item under the department portfolio in the landing page.
  
  
• ACGME Requirements for Program Coordinators and Core Faculty – The ACGME defines the dedicated time and support requirements for program coordinators and core faculty in accredited residency and fellowship programs. Citations may be issued to programs that are non-compliant. Departments are responsible for complying with the respective ACGME Program Requirements document on the ACGME website. When budgeting, consult ACGME to ensure financial alignment with program requirements.
  
  
• UME High Intensity Teaching Funding – The UME high intensity teaching model provides funds flow to departments for teaching roles that have been identified as high intensity based on specified criteria.
  
  UME High Intensity Teaching funding flows through the Division of Medical Education. Using amounts provided by the Division of Medical Education, departments should enter a manual adjustment to the VC/Dean Allocation line item under the department portfolio in the landing page.

 Core

• Recurring – Recurring funding to departments include, but are not limited to, FTE salaries and benefits, education, and other departmental administrative expenses. While the budget is in CORE CBO Allocation account codes in EPBCS, actuals may be posted in said account codes or the Other Allocations account code (e.g. GSGEI). Departments may realign their budget in the landing page to minimize variances. Recurring funding for joint FTE holders is budgeted and allocated proportionally to the respective appointment units.
  
  
• One-Time – Reflected in one-time account codes (CBO non-recurring allocation account codes and VC/Dean allocation account codes) are allocations to departments consisting of IDC, chair stipends, and other VC/Dean commitments. 

Systems/Tools

Health Sciences schools, departments, and organizational units use the following tools and systems for budgeting: 

Recharge

Schools, departments, and organizational units providing ongoing products or services including, but not limited to, administrative services, clinical trial support services, or analytical services which provide a research-oriented benefit to other departments or external entities on a fee for service and cost recovery basis must have an institutionally approved charging mechanism (e.g. recharge) to recover the costs of providing those products or services. Review the Health Sciences Recharge Activities site for additional information.

Services offered as a one-off occurrence to an entity outside the university may be facilitated through a service agreement. Contact Health Sciences Business Contracting and refer to the following section for additional information.

Departments and organizational units must engage with the VC Finance Office for guidance, vetting and formal review process and endorsement of a proposed fee for service activity prior to offering products and services to customers.

Service Agreements

Health Sciences Business Contracting should be engaged on any of the following agreements prior to execution:

• Clinical service agreements
• Consulting agreements
• Laboratory service agreements
• Other non-clinical service agreements
• Training (formerly affiliation) agreements
• Provider agreements

Gifts/Endowments

Schools/departments/units are expected to budget their gift funds usage and projected income on an annual basis. A summary of gift fund expenditures will be required as part of the annual budget process.

Deficits

In accordance with PPM 300-2, deficits over $25,000 may not be carried over fiscal years without an approved deficit resolution plan.  This deficit threshold is measured at the financial unit/fund level for unrestricted accounts and at the project level for restricted accounts. Core funds may be withheld by CBO for any deficits without an approved deficit resolution plan or are not resolved by fiscal year-end. 

Schools/departments/units should categorize deficits as high risk, medium risk, or low risk as part of the Controller’s Office quarterly deficit balance review process. Resolution is required by fiscal year-end for medium and low risk deficits; previously created plans and/or details for resolution should be shared with the VCO Accounting & Report unit for review. Schools/departments/units may complete the deficit payback forecast for each identified deficit.

Deficits that cannot be resolved by fiscal year-end need to be classified as high risk. A detailed plan is required using the 'High Risk P&L Template' to understand how and when the deficit will be resolved. Situations requiring deficit rollover beyond fiscal year-end are rare, and any such occurrences will entail a thorough evaluation by, and collaboration with, the VCO, including a signed Memorandum of Understanding (MOU), justifying the necessity of the rollover and identifying alternative funding sources if the deficit is not resolved successfully.  As an alternative, the sponsored project template can be utilized for high-risk restricted fund deficits.

A deficit resolution plan is considered effective only upon final approval from the VC-Chief Financial Officer.

Refer to the Controller’s Office’s Quarterly Deficit Review Policy for additional information.

Variance Reporting

All schools/departments/units receiving a variance report must submit and return to the Controller’s Office.

Subject to approval, adjustments not automatically approved must:

• Include supporting documentation, and any data for validation
• Impact the bottom line (net operating results)
• Include respective written confirmation/agreement where Health System-related

Refer to the variance template for a list of adjustments automatically approved. Adjustments for incentives and timing of transactions are not expected. Financial practices regarding incentives/Z payments can be found in the following section.

Schools/departments/units are expected to review and update the forecast to reflect a more accurate bottom line.

Operating performance for leadership reporting is based on the school’s/department’s/unit’s net surplus/deficit (line 65 in the variance report), and not the bottom line (after non-operating transfers).

Faculty Incentives/Z Payments

Accruals

Schools/departments/units are expected to have a regular Z Payment accrual process. For department portfolio payments only, schools/departments/units are required to submit their annual Z Payment and incentive accrual amounts (broken down by salary and benefits), along with supporting documentation and calculations, as part of the annual close form typically distributed in early August. Accrual amounts should be adjusted during the monthly close process (quarterly at a minimum) as needed. Accrued Z Payments and incentives are not a commitment to pay.

Accruals will contribute to greater accuracy in financial reporting, resulting in a more realistic forecast of the bottom line, and yielding financial results consistent with the school’s/department’s/unit’s historical practices (regardless of when funding is known/available). 

Payment Processing

Z payments can be processed directly in Online Z or by request to ARC. To ensure accurate reporting, schools/departments/units are required to designate the Z type (clinical, general, guaranteed, outside professional activities, or special) as well as specify the effective date for the Z payment (using the “EarnBeginDate” and “EarnEndDate” fields in Online Z or the “Earnings Begin” and “Earnings End” columns on the ARC template). Properly designating the Z type and associating Z payments with an earnings period distinct from the accounting period for which payroll is submitted can significantly enhance reporting accuracy and provide a clearer understanding of fair market value. Negotiated/guaranteed Z payments used in place of negotiated Y, where properly categorized as a Health Sciences Z Admin earn code (HZA), will be considered part of total negotiated/pre-incentive salary; while “Admin” may be referenced in reports (e.g. DOPE), the description should otherwise be disregarded.

As the noted fields are mandatory, processing of Z payments will be delayed until the required information is provided.

Balances/Collapses

Unless noted otherwise, year-end collapses are at the department’s discretion.

Project Owning Organization

A project can only be associated with and assigned to a single financial unit. Mismatches between projects and financial units occur when the project or financial unit fields—typically from journal entries—are entered incorrectly and subsequently posted to the general ledger.

These discrepancies can be identified by comparing the financial unit code column (indicating where transactions are posted in the ledger) with the project organization code column (showing the correct financial unit assigned to the project) in the FINMAN Detailed Ad-Hoc Data or Fund Balance Summary reports.

Schools/departments/units should monitor these disparities and coordinate with appropriate central offices to resolve them in a timely manner.

Commitments

To support evaluation of one-time and multi-year funding needs, schools/departments/units receiving a central commitment from the VCO or SOM Dean’s Office should establish a unique project to track the commitment separately from other financial activity. For alignment, spending should occur directly in the project where central support is transferred, unless the commitment is intended for subsequent intra-unit allocation such as faculty recruitment startups. The following table details allowable funds based on the funding source:

Clinical Funding Relationship

Health System support encompasses funds flow from the Physicians Group (PG) and Medical Center (MC). The following accounting principles promote financial transparency on use of Health System funds flow.

Clinical Benefits

Funds flow for clinical benefits are transacted either in the Clinical Benefits Reimbursement P&L line item or as a Health System transfer.

Clinical Benefits Reimbursement

• Employees eligible for clinical benefits reimbursement consist of faculty, MSPs, APPs; supervisors are not eligible.
• Eligible employees are also credited for GAEL, NGN, Medical Center Network charge, and 1% UCOP assessment on salary expenses.
• The following SOM areas are not reimbursed for clinical benefits, altogether or by this mechanism: Medical Education, Pediatrics, Ophthalmology, Student Run Free Clinic, and Hospitalist.
• Any benefits covered by GME are not eligible for reimbursement.
• Benefits eligible for reimbursement are reflected in the "Clinical Benefits Reimbursement" P&L line item on funds 15003, 15007, 15023, 15025, 15026, 15031, 15032, and 15033.

Health System Transfers

• Clinical benefits for the Hospitalist division are provided as a Health System transfer.

Pure Clinical

• Health System transfers are allowed only on pure clinical funds where outlined in this section. Transfers are not permitted in other funds, including, but not limited to funds 15013 (Academic Operating Fund), 15015 (HS Coverage Reserve), 15016 (HS Clinical Reserve).
• Health System funds should meet the intent of the support as transferred.
• Corresponding expenses for Health System support must be accounted for in the respective fund.
• Physician (ccFTE) compensation payments and productivity bonuses must be transferred to or paid from fund 15003 (PG to SOM Clinical Funds), and not fund 15011 (Clinical Operating Fund).
• CARE Payments attributed to APPs must be accounted for in fund 15023, and not fund 15003. On a monthly basis, the Controller’s Office distributes CARE Payments, split either by service provider or bill provider, based on data from PG.
• All activities related to East Campus must be implemented using East Campus-specific fund numbers and in accordance with East Campus MOUs.
• Additional information regarding implementation related to fund 15027 can be found here.
• ASC, where abbreviated, indicates an Administrative Service Component fund.
  
  

Other Clinical

Funds listed in this section are not eligible for clinical benefits reimbursement.

Portfolios

Reserves

The following categories are used and required in the “project class code” element in PADUA. Balances from projects designated as such are reported to leadership on a quarterly basis. The noted categories are permitted on funds in fund ranges 12xxx, 13xxx, 15xxx, and 16xxx. The noted categories are not permitted on gift, endowment, or research funds.

Gifts/Donor Intent

Transfers

Account Hierarchy

Definitions of managerial hierarchy line items can be found by accessing the Health Science Managerial Account Line Item Mapping report.

Acronyms

ASC – Administrative Service Component

CDO – Central Department Operations (formerly); Department Portfolio (currently)

DO – Department Operations (formerly); Faculty Portfolio (currently)

GME – Graduate Medical Education

SOM – School of Medicine

VCO – Vice Chancellor’s Office

Download the PDF:

Financial Principles & Practices - 12/18/2024

Contact Rob Nelson with any questions.