Special Report: Dean Gotto (October 2006)


Big Apple medical school needs big help


By John Mugford


Editor’s Note: What are the unique real estate challenges faced by a medical center operating in New York City? Dr. Antonio M. Gotto Jr., dean of the Joan and Sanford I. Weill Medical College of Cornell University in New York described some of those challenges earlier this year at a conference. Healthcare Real Estate Insights was on hand to cover the event.  Here are some highlights.

New York City is filled with great restaurants, eclectic neighborhoods, historic sites, and plenty of glitz and glamour.

But it’s also a tough place to be in the business of running a hospital and medical school – especially when it comes to dealing with real estate-related issues.

That was one of the main messages from Dr. Antonio M. Gotto Jr., dean of the Joan and Sanford I. Weill Medical College of Cornell University, during a one-day conference on healthcare real estate held earlier this year in New York. The conference, titled “Breaking New Ground: The Escalating Flow of Capital to Medical Real Estate was sponsored by New York-based Granite Partners LLC, a real estate investment banking firm with one group focused on healthcare properties, and the law firm of Heller Ehrman LLP, which has worked with Granite Partners on real estate transactions

Granite Partners’ Jeffrey Cooper, senior managing director, informed the 100-person audience that Dr. Gotto was the only physician and hospital administrator in attendance that day. Prior to his arrival at Cornell Medical School, Dr. Gotto spent 20 years as the chair of the department of medicine at the Baylor University College of Medicine in Houston.

“I thought the discussion on physician equity and economics would be interesting (to Dr. Gotto) and hopefully he can take it back and somehow get it into his curriculum at Cornell Medical School in the years to come,” Mr. Cooper said.

Dr. Gotto responded: “I expect that I will have learned a lot more from you than you will from me when this day is over. That’s because the meetings I usually participate in have to do with statins and preventing heart attacks, or with cardiovascular research or the structure of medical schools in the United States and various problems facing American medicine.”

Real estate, real difficult

After the introductory comments, Dr. Gotto turned his focus to the real estate and development difficulties that go hand in hand with running a large medical school and hospital in New York City. Cornell Weill is affiliated with New York Presbyterian Hospital.

He also provided a closer look at the Cornell Medical School’s real estate needs and methods for raising funds and attracting students, researchers and doctors. For Cornell Weill to make investments in its facilities and programs, Dr. Gotto said, it relies heavily on philanthropic campaigns – huge philanthropic campaigns, in fact.

During the past decade, the medical school has embarked on two major fundraising campaigns in which it has raised a whopping $1 billion, he said. The med school is expecting to launch a new campaign shortly.

“From my perspective medical real estate issues are related to all parts of our mission,” Dr. Gotto said. “We can’t address our mission without the space and we can’t have the space for clinical care or teaching without the real estate. We are in aging facilities and we are in the most expensive place in the world to do renovations and reconstruction.

“But if we want to continue to maintain our current location and attract the best students and provide the best clinical care, as well as provide care for the underserved and the underinsured, then we need the best facilities possible,” he added.

Cornell Medical School is located in Upper Manhattan on an area along the East River. It’s situated amid a conglomeration of medical institutions with which it has affiliations, including New York Presbyterian Hospital, Memorial Sloan Kettering Cancer Center, The Rockefeller University, and the Hospital for Special Surgery.

Ever since the Cornell medical college and New York Presbyterian moved from southern Manhattan to the Upper East Side in 1932, at least four buildings had been added to the initial facilities through 1975.

“Then in 1997, the Maurice R. Greenberg Pavilion opened – which is our current hospital – and, to show you how difficult land is to find in that area, it was built entirely over East River Drive,” Dr. Gotto said, noting that air rights had to be obtained over the highway to allow the construction.

Even though expanding and building facilities in Manhattan has proven for be difficult – even residential neighbors don’t like institutional growth – the medical college and hospital feel strongly about growing in their current location instead of in the suburbs.

“In order for the faculty to obtain grants, in order to obtain clinical revenues, they need research space that’s organized in a way that doctors and faculty can interact with each other,” Dr. Gotto said. “Our clinical practice doctors want their offices to be as close to their clinical laboratories and academic offices as possible. They don’t want to go out to Westchester County to see patients. And besides, researchers like to sleep with their mice.”

When it comes to redevelopment and expansion projects, Dr. Gotto said Cornell and New York Presbyterian do not find it worthwhile to demolish buildings.

“We’re in old buildings, and in most cases it’s too disruptive and too expensive to demolish an existing building,” Dr. Gotto said. “So you take care of it like a puzzle and we do it piecemeal, like a domino effect. You move one group out into swing space, and then the next. This is very time-consuming and costly.”

The first campaign

“Our strategic plan – phase one, if you will – was to strengthen the research space of the medical college: structural biology, genetic medicine and neuroscience,” Dr. Gotto said. “In order to be able to attract 30 new scientists in this area, we had to have the space at our institutions as well as housing to take care of the post-docs and the graduate students. In order to pay for all of this we needed a capital campaign and an endowment.”

That first campaign, between 1997 and 2001, was for a total of $316.6 million.

Dr. Gotto said: “This was how we spent the money: $45.8 million to recruit faculty; $165 million for facilities and equipment; $67.4 million for operating costs; and $38 million for the endowment. We obtained a 15-year lease from the hospital for the Whitney Building, named after Payne Whitney, who purchased our property back in the 1920s. And we renovated 25 percent of the remaining research space for the medical college.”

As Dr. Gotto noted, the medical college and hospital, in its effort to recruit and retain students, researchers and young doctors, wanted to provide housing as well.

“But building housing in Manhattan is extremely difficult. The cost escalated so much since the plans were made that we were not able to obtain the housing in Manhattan,” Dr. Gotto said.

Instead, Cornell Weill built, remodeled and acquired housing – more than 220 units – just across the East River on Roosevelt Island. The housing developments offer a fine view of Cornell Weill and New York Presbyterian.

Campaign II – bigger yet

The second campaign, which kicked off in 2002, was for $750 million and entails “building our Clinical Academic Enterprise – called ‘Weill Cornell: We Care,’” Dr. Gotto said. “This campaign includes recruiting 10 new chairs of clinical departments, over $320 million in facilities, $33 million in technology, $60 million in infrastructure – mainly in information technology – and $75 million for our endowment fund.”

Included is the nearly complete ambulatory care and medical education building, a $200 million, 300,000 square foot tower at the corner of York Avenue and 70th Street.

“We’ve reached the point where we have over 1 million outpatient visits per year,” Dr. Gotto said. “About 750,000 of the visits are by private patients and the rest are by public patients who come into the clinics run by the faculty and supported by the hospital.”

In addition, the medical college plans to renovate space vacated by the move into the new building.

As he wrapped up talking about the philanthropic campaigns, Dr. Gotto added: “Stanley Weill, the chairman of our board, said we could have a week or two off before we announce our next campaign, to be carried out in conjunction in a combined campaign with Cornell University.”

Interesting balance sheet

In order to demonstrate the financial challenges that Cornell Weill faces year after year, Dr. Gotto informed the audience that only 2 percent of the medical school’s overall budget comes by way of tuition payments.”

The med school also receives about 9 percent of its budget annually from New York Presbyterian Hospital through monies paid to the faculty to supervise hospital services and laboratories.

“Our budget for 2005-2006 is $851 million, and if you look closely, clinical revenues only make up more than 40 percent of our income,” Dr. Gotto said. “In fact we’re so dependent on Medicare and Medicaid that when they sneeze, we go into convulsions.”

When a member of the audience asked how Weill Cornell can survive when just more than 40 percent of its revenues come from clinical services, Dr. Gotto had a quick answer.

“We’re constantly raising money through philanthropy. It involves going to dinners every night,” he said. “It is a challenge and being in the hospital business in New York is not a good business to be in. Last year there was a net loss for all of the hospitals in the city… you’re seeing more and more hospitals here in New York go into bankruptcy. Some are closing and others are in precarious positions.”

The medical college’s $1 billion endowment fund is controlled by Cornell University, which is located upstate in Ithaca, N.Y. According to Dr. Gotto, the endowment “throws off something like $40 million each year.

“Most of the endowment is in the long-term investment pool. Investments of less than three years are put into a short-term pool,” he said. “We have no borrowing ability outside of that of a university. So our borrowing is limited to what is available through the university and our worth represents about 25 percent to 30 percent of the net worth of Cornell University.”

Healthcare woes

During part of his presentation, Dr. Gotto spoke about broader healthcare issues, including increasing costs and an overall medical system that “everyone, including the government, says is broken.”

He said: “We’ve reached a point where 16 percent of our GDP (gross domestic product) is currently being spent for healthcare. If the current trends continue, it would hit 40 percent by the year 2020… the closest that any other country comes to the United States is Germany, which currently spends 11 percent on healthcare.”

Health officials in Europe continually ask “the United States to prove that our health system is better than theirs, despite how much we spend,” Dr. Gotto said. “For example, Italians have a longer life expectancy than Americans.”

But healthcare is currently in an era of rapidly developing technology and the greatest investment in facilities since post-World War II.

“And almost everyone who needs healthcare wants the latest and the best of the available technology and facilities for themselves and their family members,” Dr. Gotto said.

He added that he recently had a meeting with the leaders of 10 major medical centers, Sen. Bill Frist (R-Tenn.), and others involved in healthcare administration and finance. One of the major revelations to come from the meeting, according to Dr. Gotto, was the fact that by the year 2020 more than 50 percent of the federal government’s budget will go toward Social Security, Medicare and Medicaid.

“Market forces alone cannot drive that back into bounds,” Dr. Gotto said. “I don’t have an answer as to how that is going to be accomplished and there is no immediate answer.”

While Dr. Gotto said he does not believe that government alone can cure the current and future problems, he adds: “I think it will require the participation of government. There’s already a lot of pressure from the industry for this to happen because it makes American businesses non-competitive to foreign competition. Part of the cost of the product is from health benefits.”

Despite some pending woes and questions about the health of the country’s healthcare industry, Dr. Gotto said: “Still we have a very exciting field of medicine with very bright young people who continue to go into it.”

Dr. Gotto added that he does not see any major reasons why the country cannot and should not spend 20 percent of its GDP on healthcare. q

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