The study is produced after the payment of 80 million dollars
Posted on June 5, 2024 by Beth JoJack
Part of the Virginia Commonwealth University campus. Photo courtesy of VCU.
After a failed development deal and a nearly $80 million payout, VCU Health needs to change the way it is governed, the Virginia General Assembly’s investigative body declared Wednesday. The president of Virginia Commonwealth University has too much latitude to influence health system operations, the Joint Legislative Audit and Review Commission (JLARC) has found.
State lawmakers directed JLARC to review VCU Health’s capital and governance process last fall, after news broke in spring 2023 that the Richmond health system planned to pay developers $72.9 million to back out of a $325 million downtown development project with higher costs than the university had anticipated.
Known as the Clay Street Project, VCU planned to build a medical office tower and mixed-use project on the site of the city of Richmond-owned Public Safety Building at 10th and Clay streets. In the end, VCU paid about $5 million to demolish the Public Safety Building in a promise to the city, raising the university’s costs to nearly $80 million.
Additionally, the health system is on the hook for the city of Richmond for about $56 million it agreed to pay the city in lieu of taxes. According to JLARC, dues of $2.5 million per year will be paid.
To date, VCU Health System has paid $1.9 million in fees to the City of Richmond in lieu of taxes, according to a spokesperson for the health system.
State lawmakers have directed VCU Health System to “seek to terminate payments” to Richmond for these fees. A request for comment to Richmond officials was not immediately returned.
VCU President Michael Rao came under heavy criticism for the misstep, including calls from former Gov. Doug Wilder for him to resign after news of the 2023 payment broke.
The failed project also led to the abrupt resignation in November 2022 of former VCU Health CEO Dr. Art Kellermann, who had tried in 2021 to convince Rao and other VCU administrators not to sign the deal, citing outsized costs for VCU Health. , which the developers anticipated. pay $650 million over 25 years to lease the office tower. A slide presentation presented Wednesday noted that Rao’s cabinet had “strongly advised” Kellermann to sign the lease for the Clay Street development, despite his stated concerns.
Kellermann left his position in 2022 after Rao asked him to resign, and Dr. Marlon Levy became interim CEO of VCU Health and interim senior vice president of VCU Health Sciences, positions he still holds.
Changes in leadership structure
In addition to leading VCU, Rao is president and chairman of the board of VCU Health System, which generated more than $3 billion in operating revenue in fiscal 2023. During a lengthy presentation Wednesday, chief legislative analyst Lauren Axselle reported that the JLARC team found that VCU Health “improved its capital process after the Clay Street project, but needs to develop a long-term strategic capital plan, strengthen several policies, and increase staffing to effectively manage capital projects.”
Furthermore, the health system’s leadership structure needs to be changed to “reduce the possibility that the VCU president…has too much influence over (the health system’s) operations and decisions and ensure that the director’s primary focus executive (of VCU Health) is in health.” strategic planning and system operations.
Five people serve on both the health system’s board of directors and VCU’s Board of Visitors, according to JLARC, which found that while the collaboration between VCU and VCU Health is beneficial, the two entities would benefit from “a greater number of impartial board members.”
Virginia lawmakers could consider amending the health system’s charter to eliminate the position of president of the health system and make the CEO its top executive, according to Axselle. General Assembly members could also amend state code to limit the VCU president’s role on the health system’s board of directors, so that the VCU president is a non-voting member of the board and is ineligible. to serve as chairman of the board.
Additionally, the health system’s CEO position and VCU’s senior vice president of health sciences would be filled by two people if JLARC’s recommendations are followed.
Other possible changes
Virginia lawmakers could also consider changing the code to require the health system to elect a president every two years and mandate that the president cannot serve on the VCU Board of Visitors and cannot be a health system or employee of VCU, according to JLARC. Additionally, the agency recommends that members of the General Assembly consider granting four-year terms, rather than three years, to members of the health system’s board of directors. Lawmakers could add “commercial real estate” and “finance” to the existing experience requirements for people selected for the board.
According to JLARC, VCU Health System staff should develop a 10-year strategic capital plan for the board to consider. Additionally, JLARC noted that hiring outside experts can reduce risk in capital projects.
According to JLARC, VCU Health System did not hire a site consultant for the Clay Street project and only hired outside legal counsel after the board approved the project.
Additionally, the health system needs to have “director-level positions that oversee construction and real estate functions,” that report to a health system executive, and needs to develop a staff capacity “to effectively plan, procure, and manage future capital projects. The JLARC study states.
VCU Health System filled a vacant construction project management director position and created a real estate director position, according to JLARC.
Rao spoke briefly to the commission and noted that he has publicly supported updating the role of the VCU president and VCU Health System board chairman.
Regarding the failed Clay Street project, Rao noted that in July 2021, the health system’s chief legal officer and chief financial officer positions became vacant around the same time. He said he “asked the former CEO of VCU Health to work with available university leadership.”
Still, Rao said, “the responsibility falls on me as president of the health system.”
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