Academic Medicine Needs Business School Lessons - Statistical Data Included - Brief Article

Family Practice News, June 1, 2000 by Greg Borzo

CHICAGO -- Academic health centers face severe financial pressure that, at worst, threatens their existence and, at best, calls for profound changes in how they operate and position themselves in the increasingly competitive, market-driven health care environment.

That was the consensus reached by panelists at a press briefing sponsored by the American Medical Association. "Universities are coming to realize that an academic health center can be a jewel in their crown or bring them to their knees," said Jeffrey C. Miller, chief operating officer at Northwestern University Medical School.

The average operating margin at the nation's 125 academic health centers has fallen to 2%, and 35% of them operate in the red, according to Ralph Muller, chief executive officer of the University of Chicago Hospitals and Health System. Last year Moody's Investors Service downgraded the bonds of academic health centers five times more often than it upgraded them.

The University of Pennsylvania lost $200 million in 1999; the University of California, San Francisco, lost $50 million in the 10 months since its merger with Stanford University unraveled; and Ohio State University announced in May that it lost 535 million last year, the speakers reported. They primarily blamed declining reimbursements from managed care companies as well as government cutbacks affecting medical education. Indeed, the AMA's political action committee, MedPAC, has estimated that the 1997 Balanced Budget Act will cut hospital payments by $227 billion between 1998 and 2004, almost twice the amount intended by that legislation, Mr. Muller said.

To compensate for falling revenues, physicians in academic medical centers are doing less teaching and research and providing more patient care. Clinical services provided an average of 6% of medical school budgets in the 1960s; today they account for more than half, said Dr. Catherine D. DeAngelis, editor of the Journal of the American Medical Association.

Academic health centers got $8.4 billion in relief from the 1999 Balanced Budget Act but are seeking a rollback of the 1997 cuts and pushing for an all-payers fund that would be created by taxing health insurance companies 1.5% of their premiums.

Panelists conceded that neither proposal stands a strong chance of being enacted. Some even said that it's hard to portray academic health centers as downtrodden, especially when some are building new facilities.

Academic health centers need to try a variety of measures on their own behalf, including these:

* Embrace a Business Culture. The academic medical culture is out of synch with the real world, Mr. Miller said. It has to become more efficient, practical, and cost conscious. "Traditionally, academic health centers are where the rubber meets the blue sky, and that's got to change," he said.

Of course, research is inherently inefficient, and the effectiveness of teaching is hard to track on a profit-loss statement. Nevertheless, academic health centers could take many steps to operate more like a business. That could range from major changes, such as selling a hospital, as Georgetown University did, to simpler steps, such as charging researchers for their space, as Northwestern University plans to begin doing in September.

* Appeal to the Public. Academic health centers need to go beyond talking to one another and the elite, argued Rashi Fein, Ph.D., professor of the economics of medicine at Harvard Medical School, Boston. "Academic health centers have preferred to plead their case with the chairs of legislative committees rather than their strongest natural ally, the public," he said.

* Create a Clear Governance Structure. Firmer leadership, more active trustees, and joint boards for their medical schools and affiliated hospitals would help academic health centers to identify and focus their priorities.

"In some respects, no one is in charge" at academic health centers, Mr. Miller said. You can't expect 2,500 faculty to salute every morning, chairs of departments to voluntarily share power, or tenure to never be abused.

Speakers urged collective action between centers. "If we are unwilling to cut our own costs by rationalizing our productive capacity through working together, we'll have to deal with irrational cutbacks and irrational results," Dr. Fein said.

* Commercialize. Academic health centers are expanding efforts to profit from their research and development activities. "One of the fastest growing and most popular areas in academic medicine is the office of technology transfer," Dr. DeAngelis said.

At the same time, Dr. Fein cautioned, the potential for conflicts of interest is greater than ever. "If we want to mobilize public support, we have to come to the discourse purer than Caesar's wife," he said.

* Cut Costs Through Computerization. Information technology has the potential to streamline operations, improve education, and cut costs. At the University of Michigan Medical School, for instance, teaching once followed the traditional method of trying to prepare students for everything they might need to know to care for every patient they will see. Now the school is emphasizing the use of computers to teach students how to access information as needed. "We're replacing just-in-case education with just-in-time education," said Dr. Allen Lichter, the school's dean.