Document #3 and Document #4 were distributed to the committee.

President James W. Abbott addressed the committee. President Abbott explained the University Physicians program, using Document #3 as the basis for his presentation. He said University Physicians are controlled by doctors, not the School of Medicine and that University Physicians involve the 3^rd and 4^th year medical students.

President Abbott explained that between FY96 and FY00 University Physicians contributed $1,438,880 in cash income to the School of Medicine and donated approximately $3.5 million in estimated physician time, space, and staff time (page 3, Document #3). President Abbott said that University Physicians has had operating losses the last two fiscal years with the reasons being outlined on page 4 (Document #3). He said University Physicians is an economic model that no longer works and that it will no longer provide a significant impact for the School of Medicine's operations. He said the question for the future is how to continue to operate the School of Medicine.

President Abbott (page 5 of document #3), outlined the School of Medicine's response to the loss of the University Physicians program and staff. He said that years 1 and 2 would not be affected, but that years 3 and 4 would change significantly. President Abbott said the School of Medicine will begin operating a mission-based management program. He said the school will still have department chairs but without the same service function, and that physicians will be hired to teach for years 3 and 4.

Dr. Robert Talley, Dean, School of Medicine, said the mission-based management model had been previously implemented in Yankton, but that this program will now be expanded to include Sioux Falls and the West River area. He said in that in Yankton there is presently one full-time faculty and the School of Medicine pays the clinic for the use of a physician.

Representative Adelstein questioned the discharge of two doctors that were department chairs. Dean Talley indicated that the two doctors were relieved as chairpersons, and that it was his philosophy that the leadership of the school was to be of one mind. President Abbott indicated that chairs were to report to the Dean.

Representative Adelstein questioned whether any of the school's faculty members had interlocking directorships with Avera McKennen or Sioux Valley boards. Dean Talley indicated he is on the Board of Trustees for Sioux Valley and that some faculty doctors are on hospital boards at Sioux Valley. He indicated that the present CEO for Sioux Valley was once on the board of University Physicians .

In response to Representative Adelstein's questions, President Abbott indicated that with the chairs

now being paid at a 60 per cent level the School of Medicine will have a teaching resource with these positions, but no longer a leadership position.

Representative Adelstein questioned whether the state should consider buying spots in other medical schools for years 3 and 4. Dean Talley indicated that the last time he checked, the state of Wyoming spends more money buying spots than South Dakota spends on the School of Medicine budget. President Abbott said that because the state does have a four-year medical school, more doctors stay in South Dakota.

In response to Senator Duxbury, Dr. Talley said the School of Medicine has to decide what experiences a medical students needs and document that these needs are being met. He said that there are 27 rural teaching sites and there is pressure to develop a data base that will protect confidentiality. He said that with 600 physicians in the state, the medical school doesn't need more faculty.

Harvey C. Jewett, President of the Board of Regents, spoke to the committee. He said that with the implosion of University Physicians, the legislature will have to discuss how to continue the School of Medicine beyond this year. He said the Board of Regents has plans to make it through this year.

President Abbott indicated that if all the physicians left, and the school had to contract for services, the one-time costs that are not included in the present budget would be approximately $508,486 (Document #4).

In response to Representative Burg's question President Abbott explained the School of Medicine's use of the $10 million that Sioux Valley had paid for the use of the University of South Dakota's name.

Senator Madden questioned the increase in FTE's, from 262 to 273. Rich Van Den Hul, Director of Budget, USD, i ndicated that this was just a shifting of FTEs from USD Proper to the School of Medicine.

In response to Senator Drake, President Abbot explained that the $508,486 in transitional costs (Document #4) would be maximum one-time costs in sick and annual leave pay outs if all faculty leave, and that the $387,883 (Document #4) is an ongoing request that will be needed to meet accreditation needs.

In response to Representative Adelstein's question, President Abbott explained that the school will lose approximately $3.4 million in the transition from the faculty chair program to mission-based management services, and that the School of Medicine is not requesting this amount of money from the legislature, but will get by. He said the School is still expecting that physicians will continue to donate their services and that faculty will continue to give more than what they are being paid for.

Representative Adelstein questioned the recent acquisition of a building in Rapid City by the School of Medicine. Dean Talley explained that the building had been under lease by USD.

Regent Jewett explained that University Physicians is not under the control of the School of Medicine.

Representative Adelstein suggested an independent task force study how the School of Medicine should proceed. Regent Jewett welcomed the suggestion, but was skeptical of bringing in outside experts that don't understand the medical school's business. Representative Adelstein thought there should be 9 to 11 people in South Dakota who could serve on the Task Force, yet not be connected to the School of Medicine. Regent Jewett suggested that a task force would need people on board who understood what's going on.

Representative Lange questioned whether a meeting had been held with 67 people who had signed a petition concerning the demotion of two chairs. President Abbott again explained that the proper chain of command is for a department chair to report to the Dean, who reports to the President, who reports to Dr. Perry, and that this chain shouldn't be circumvented. He said there wasn't a need for an additional meeting to discuss the decision. Dean Talley explained that there had been numerous meetings with all involved parties before the decision had been made.

Senator Apa questioned the Rapid City lease previously discussed. President Abbott explained that USD does not have a liability in regards to this 10-year lease.

Senator Apa commented that Dean Talley has devoted his life to the School of Medicine at great personal financial loss. He thought it would be hard to find a physician that didn't have ties to USD or the School of Medicine, and that Dr. Talley is to be commended.

In response to Representative Richter, Dean Talley explained the accreditation process for the School of Medicine. He is a member of the national accreditation committee. The accreditation will be for seven years, although probationary periods are possible.

Senator Apa questioned whether a surgical center had an impact on the School of Medicine. Dean Talley said it had not.

In response to Representative Clark, Dean Talley said that USD nursing students do have an out-of- state clinical in Sioux City, but only for a short time.

Dr. Kelby Krabbenhoft, Chief Executive Officer, Sioux Valley Hospital, spoke to the committee. He briefly described the history of financial support Sioux Valley has provided the USD School of Medicine and welcomed questions from the committee.

In response to a question from Representative Richter, Dr. Krabbenhoft said that Sioux Valley Hospital is separate from University Physicians, and University Physicians is separate from the University of South Dakota and the School of Medicine. Dr. Krabbenhoft listed the various clinical specialty departments within University Physicians which would not have existed if Sioux Valley had not gifted land, buildings, and dollars towards those programs. He mentioned that the costs for the Sioux Valley Children's renovations had been borne by Sioux Valley.

Dr. Krabbenhoft spoke of Sioux Valley Hospital's name change to Sioux Valley Hospital USD Medical Center. He said the name change resulted from the Governor's input, and that the $10,180,000 Sioux Valley agreed to pay USD School of Medicine as a result of this name change was with the intent of improving the School of Medicine.

Dr. Krabbenhoft said that over the years, Sioux Valley Hospital has provided $35,000,000 to the School of Medicine and another $2.5 to $5 million to University Physicians in direct subsidy support. In response to Representative Lange's question, Dr. Krabbenhoft said these gifts met the IRS non-profit requirements.

Representative Adelstein commented that some Rapid City pediatricians feel Sioux Valley has the advantage when it comes to getting medical school support. Dr. Krabbenhoft said this might have resulted from the financial situation with University Physicians.

Referring to page 6, Document #3, Representative Richter questioned what Sioux Valley's involvement would be as far as providing resources for the transition of the School of Medicine to mission-based management. Dr. Krabbenhoft indicated that since Sioux Valley Hospital has the teaching campus, the hospital should contribute some funds based on the medical school's needs. He said, for example, if University Physicians doesn't need $2.5 million in sponsorship, the hospital would like to transfer these funds to the School of Medicine.

Representative Klaudt questioned the absence of Avera McKennan Hospital in the presentation. Dr. Krabbenhoft indicated he could not speak for Avera McKennan, but that the Sioux Valley and USD

medical school relationship had evolved historically. Representative Richter said the committee could request that Avera McKennan also meet with the committee.

Representative Klaudt commented that it looks like there is a conflict of interest with the medical school faculty and the Sioux Valley boards. Dr. Krabbenhoft said he didn't see Dean Talley being on the Sioux Valley Hospital's board of trustees as a conflict of interest, but more as an enhancement of the relationship between the two entities.

Representative Klaudt said he questioned a non-profit having $10 million laying around. Dr. Krabbenhoft said the hospital has less than 65 days in operating cash “laying around.” He said that the $10 million gift to USD was a good deal for all involved, that Sioux Valley benefits, the medical school benefits, and the name change was originally suggested by the Governor.

Senator Duxbury said the patients are going to have to support the costs once the pieces are put together, and he hopes that what the medical community is doing works out for the patients' best interests. Dr. Krabbenhoft said that the medical school provides South Dakota with physicians and allows South Dakota children to pursue their dreams. He said that Sioux Valley's job is taking care of sick people, and that less than .5 of 1 percent of Sioux Valley's operating budget over the years has gone towards the medical school.

Senator Duxbury said that the student interns are good ambassadors. Dr. Krabbenhoft said that over 60 physicians working at Sioux Valley have came out of USD.

Regent Jewett said that no hospital has been excluded from the School of Medicine, and that when the school was in need of cash and equipment, every hospital was given the opportunity to contribute, and Sioux Valley responded.

President Abbott said that conflict of interest was not an appropriate statement. He said that conflict of interest can't be avoided unless the School of Medicine has its own hospital; that the School of Medicine must be in partnership with the hospitals; and that conflict is unavoidable when the School depends upon the hospitals for teaching.

Representative Richter said the Legislature is always concerned about partnerships, it's marriages it wants to avoid.

Rena K. Ortbahn