About this time last year, new Baylor College of Medicine president Dr. Paul Klotman, laid out his goals for his first year in his new job. In a CultureMap interview, Klotman promised to shake things up at the revered institution with a troubled recent past when he assumed the top post last September. A fractious break-up with Methodist Hospital, an ill-fated attempt to build its own hospital and financial woes had damaged the institution in recent years. Klotman, who faced a similar situation in his previous job at Mount Sinai School of Medicine in New York, was hired to get Baylor back on track.

Now, more than 10 months later, we went to him for a progress report. Here are some excerpts from our conversation:

CultureMap: In our previous interview you said you hoped to change the morale at Baylor College of Medicine. How have you addressed that?

Paul Klotman: We've had multiple town hall meetings. We've changed the communciations a lot, so there's regular reporting through newsletters and email news accounts. I send out accolades to the faculty. We've even done a brochure about all the great things in the past year, just so people who sometimes say, "What's so great about what's happening?' now have a whole list of things to (look at). Even though we've had some tough issues to deal with, the faculty and students have been very responsive.

CM: Another priority was to have a budgetary process that makes sense.

PK: We've just finished that; I can say it makes sense to me (laughs). We've instituted a zero-based budgeting process that is mission-based. It was new for the school. It took a lot of effort to institute but that is done.

CM: The third priority you mentioned was growth in clinical and research.

PK: We've had a tremendous number of outstanding recruitments. We've recruited Peter Hotez of the Sabin Vaccine Institute. He is going to be the first dean of our new School of Tropical Medicine. We sit on the 30th parallel, which is actually where most of the people in the world live and where tropical diseases thrive, including in the Rio Grande Valley, so having a School of Tropical Medicine is really helpful for the state of Texas.

We recruited Russell Ware, who is one of the outstanding sickle cell investigators in the country. Jake Kushner, a tremendous endocrinologist, just agreed to come. A tremendous neuroscientist, Dora Angelaki, is coming from Washington University. It's been a very, very good 10 months for Baylor College of Medicine.

CM: On the other side, you've cut staffing.

PK: We did cut about 250 people before November. When I came in I looked at the proportion of administrative (employees) to our size of an institution. We cut about 15 percent of our administrative staff without touching any physicians or professional researchers. It saved us about $15-18 millon, which is big number for us. But other institutions cut more this year. This process of right-sizing your organization should really be something you do all the time.

CM: Your goal also was to break even by June 2011. Were you able to do that?

PK: We are not going to break even. We are going to be around $18 million in deficit based on a $1.2 billion budget. That was a budget I inherited. The budget I am delivering is also going to be slightly in deficit, somewhere between $5-10 million. In the last three years, we've been able to go from (deficits of) $80 million to $40 million to $18 million and hopefullly to $5-10 million next year, so we're making a lot of progress on that. Our cash position has been positive all along, which is acutally the most important thing.

CM: How are you affected by the Texas legislature?

PK: We are going to lose around 10-12 percent, which is about $5 million per year for the next few years. But relative to other institutions that are state supported we come out a little ahead because we don't have special programs or capital projects or tuition bonds, so we're just losing tuition support. We're just happy because it's our mantra all the time we just want to be treated like everybody else.

CM: What have you learned over the past year?

PK: I've learned that Texas Medical Center is complex. I've learned that the Texas legislative process is fascinating. And also there are some really great partners here in the Texas Medical Center. And Houston is the most welcoming community I've ever been in. Everybody has reached out to try to be helpful to me and to Baylor.

CM: In our previous interview, you said that Baylor needs an affiliation with an adult medical surgical hospital. Where does that stand?

PK: We have a great adult partnership with Ben Taub and the VA hospital. We have a very good relationship with St. Luke's. We still have a few programs at Methodist, although they are waning. We have a great program at TIRR and with the Menninger Clinic. So we have plenty of adult partnerships. What we need is an outlet for our adult med surgery, with the private payer. We just don't have that.

One interesting thing is because of the changes in health care we might be ideally positioned by not having hospital beds. So in a strange way we're kind of lucky in that we have the opportunty to build out beds as needed.

CM: Most people have difficulty understanding upcoming changes in health care. How can you explain it?

PK: The system that we live in, which is fee for service, is very expensive, with a lot of duplicated costs the country cannot afford. So I think the future of health care reform will be to move the risk of cost onto the provider. How that plays out will really be what happens over the next five years. Who will be managing that risk? Will it be doctor organizations? Hospitals combining with doctors? Insurance companies? The idea will be you will pay a premium and you will get your services without paying each time you get them. That has got to be the future of health care. How it plays out and which groups come together to take on risks is unclear.

CM: Methodist officials feel like their split with Baylor has been good for them in the long run. How do you feel about that split and how it has affected Baylor?

PK: That's a complicated question. What has happened is each institution has moved on to accomplish what they need to do. Methodist has been interested in being an academic hospital, so they've created research and academic parts that Baylor previously provided. Baylor has moved on as well and we are creating a very nice integrated clinical practice with full-time faculty with real efficiency and quality metrics. We're in different places. I'd say both institutions are healthy and doing fine.

I do think without question Houston is one of the cities in the United States that has an overabundance of medical care. There's 6,000 empty beds on a daily basis. One could argue that what should be happening is consolidation in this market and that the less duplication that exists is best for Houston. Which partners come together and try to do what's right is unclear to me, but the most important thing from a community perspective is the providers of care have to start working together.

CM: So is it going to be survival of the fittest in the health care industry?

PK: I'd say survival of the smartest, not necessarily the fittest because health care is a different industry. It's supply driven, not demand driven. You have to be very smart to understand how to best position yourself in a market that is going to switch from one method of reimbursement to a different method of reimbursement. There's plenty of examples of great companies that seem to be in a dominant position that failed because they didn't read the shifting sands.

Most of the hospitals are marshaling cash reserves and have stopped doing capital projects. I think they are just trying to ensure that they have enough reserves to manage changes in health care. If you really get down to the business of health care, it's not hospitals. It's patients seeing physicians. If you have loyal patients seeing physicians and they're happy with their care whoever the group is, they'll make it through health care.

CM: A lot of people feel that people confuse Baylor with the university in Waco, even though there is no affiliation. Have you considered changing the name?

PK: We've done marketing surveys. Baylor College of Medicine is a highly, highly recognized name. Nationally and internationally, people know Baylor College of Medicine. It wasn't until the basketball team started being so good at Baylor University that they think Baylor University. There is brand confusion, but it is such a great brand name that I think it's more important that we educate people that we're a health sciences university, not a college of medicine. We have a graduate school, a medical school, an allied health professional school and soon to have a school for tropical medicine.

People don't know that half of the patients seen in the Texas Medical Center are seen by Baylor physicians. We just need to get the word out and then it will be less confusing.

CM: So it doesn't sound like changing the name is your top priority.

PK: My top priority is getting people to know about it; not to change the name.