The Key — A Double-Edged Sword: How Penn Medicine Shapes the University’s Financial Future
Penn’s $1 billion in annual federal funding may be endangered. After the university declined to sign the draft Compact for Academic Excellence last week, White House spokesperson Liz Huston told The Daily Pennsylvanian, “Any higher education institution unwilling to assume accountability and confront these overdue and necessary reforms will find itself without future government and taxpayers support.”
Although other government representatives deny the threat of a loss of federal funds, the warning raises uncertainty across higher education. These fears are intensified at Penn, where the health system heightens financial exposure.
Penn’s special structure
The University of Pennsylvania Health System (UPHS, encompassing Penn Medicine and the Perelman School of Medicine) is technically part of the university, governed by the same Board of Trustees and President Larry Jameson. Although the two mostly run their financial operations separately, they are legally one entity. This structure gives Penn unique advantages but also makes it uniquely vulnerable to policy shifts and funding challenges.
The health system’s scale is staggering. UPHS raked in nearly $12 billion in FY 2025, compared to only ~$1.9 billion from tuition and fees, and comprises 14 hospitals and 23 outpatient centers. This is different from Penn’s Ivy peers, which are associated with hospital systems to various degrees but do not own or solely govern them.
This distinct relationship offers advantages for Penn. It brings international recognition and funding to the university, enables cross-discipline studies and research, and boasts financial benefits.
The hospital system transfers funds to the university to subsidize learning and research at the medical school and for more fungible expenses across Penn. In FY 2025, this consisted of $208 million in transfers to uplift operations across the university.
However, this coin can just as easily flip. In times of increased financial uncertainty, a contracting grant pool, dropping acceptance rates for NIH grants, and the potential loss of future federal funding due to Penn’s refusal to sign the Compact for Academic Excellence in Higher Education, the arrangement also poses dangers.
With a bigger cushion comes a bigger risk
Because Penn and UPHS are legally one institution, financial turbulence in one impacts the other. This means a downturn in the health system’s finances would reverberate across the university.
Consider Penn’s credit rating. The university often borrows debt to increase its cash on hand. In FY 2025, Penn secured $500 million through new lines of credit and received a $300 million loan, a common technique to increase liquidity in times of financial uncertainty. A lower credit rating would mean higher interest rates and lower availability of credit. If UPHS’s revenue or margins decline, lenders may view the combined institution as less financially solvent, shrinking its flexibility in borrowing.
Financial risks from the health system are growing. Under the One Big Beautiful Bill Act, the federal government is cutting over $1 trillion in healthcare spending through 2034, including $500 billion from Medicare unless Congress prevents automatic cuts. Reduced low-income Medicare subsidies and new Medicaid work requirements could further diminish coverage and hospital revenue, weakening UPHS’s ability to meet its obligations.
For Penn Medicine, this poses a serious problem. Over the last two years, 35% of UPHS patient revenue came from Medicare and 12% from Medicaid, nearly $5 billion annually of Penn’s $17 billion in total revenue.
As of now, there is no way to know which automatic cuts will be stopped, whether the Pennsylvania state government will subsidize the programs, or how much of Penn Medicine’s revenue will be lost. One thing is for sure: Penn’s healthcare payment environment is entering an era of profound change.
The research pipeline under pressure
With $2.6 billion in active NIH grants, Penn’s research enterprise, which is tied closely to the health system, depends heavily on federal support. That support is now uncertain: the Compact clouds eligibility, the NIH grant pool is dwindling, and overall NIH grant approvals are dropping, seen in cancer grant approvals falling from 9% to 4%. Unless Congress intervenes, both the overall pool of federal funds and indirect funding could tighten further.
As we explained a few weeks ago, indirect costs, also known as Facilities and Administrative Costs, are funds provided on top of grant allocations to cover the overhead of research. Penn currently has a 62.5% negotiated rate on indirect costs, meaning that the university receives an additional 62.5 cents on top of every grant dollar. Proposed new legislation to introduce a universal, far lower rate would significantly hamper operations across the health system and the university.
As Penn’s EVP Dingfield mentioned to The DP, the pooled indirect funds are used for facility operations and maintenance, staff for clinical trials, and other personnel and resources across the university. He noted that a rate change would “affect our ability to pay for those services and that infrastructure.” A loss of overhead likely means tapping into reserves, making cuts, and rethinking priorities.
Given the scale of UPHS, and Penn’s vast research enterprise, the university’s exposure to financial risks is amplified. As Penn navigates a future of tighter federal funding, it must plan with these vulnerabilities squarely in view.
The Almanac
Kleinman Center appoints new vice provost for climate after Mann’s resignation
Provost John L. Jackson Jr. named Professor Sanya Carley as vice provost for climate science, following Michael Mann’s resignation early this month amid his concerns about upholding Penn’s administrative institutional neutrality policy.
Carley’s scholarship focuses on “energy justice and just transitions,” and she holds appointments across the Weitzman School of Design, Wharton, and the School of Social Policy and Practice. She also co-directs the Energy Justice Lab, a collaboration between Penn and Indiana University focused on “equity and justice” in the energy transition.
So what? A few weeks ago, we commended Mann for separating his research and advocacy from his administrative duties. With Carley’s appointment, Penn hopes for a leader who can uphold its commitment to neutrality. This is inherently challenging for a position focused on climate, a field deeply intertwined with politics. Carley’s position, and similar roles at the university, raise important questions on what administrative positions can, and should, exist at Penn while it furthers its commitment to administrative neutrality.
Increase in PhD admissions permitted for upcoming admissions cycle
The one-third cut last year came in response to federal funding threats in February, and faculty have warned of long-term challenges in teaching and grading capacity due to lower availability of graduate students as TAs.
So what? Due to a strong FY 2025 and some temporarily quelled funding concerns, Penn is able to expand admissions for SAS this year, reflecting a long-term perspective on academic needs. However, the medical school’s PhD program, which was cut 35% last year, will feel the negative impacts on teaching for years due to its multi-year structures. As Penn’s administration makes trade-offs, it must continue taking a thoughtful approach, upholding enduring academic excellence despite an uncertain future.
Appeal filed to reopen student antisemitism lawsuit against Penn
On Wednesday, The Louis D. Brandeis Center for Human Rights Under Law filed a brief in the Court of Appeals requesting reconsideration of the 2023 antisemitism lawsuit filed by undergraduates against the university. The new brief claims that the original dismissal of the case overlooked Penn’s “indifference to the hostile environment for Jews on its campus.”
The reopening of this suit, which the judge dismissed for insufficient evidence of violation of federal and state laws by Penn, comes as the conversation about campus antisemitism increased this week at Penn. The Penn chapter of the American Association of University Professors (AAUP) alleged that the Office for Religious and Ethnic Interests (the Title VI Office) is violating academic freedom through “unsubstantiated accusations of antisemitism.”
So what? The antisemitism conversation at Penn has calmed since its peak in the 2023-2024 school year, as the community carries out recommendations from the Antisemitism Task Force report, including by creating a Title VI Office. Events this week demonstrate that although conversation has been quieter, concerns over antisemitism on campus are not quelled. As Penn carries out its plan to reduce antisemitism, it will likely face further challenges from interest groups both internal and external to the university, like the AAUP, that disagree with its approach.
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