Marketplace medicine: Rx for disaster

Academe, Nov/Dec 1999 by Eisenberg, Leon

The pressure for profits is eroding the mission of academic health centers, forcing cutbacks in teaching and patient care. No wonder the morale of medical school professors is plummeting.

AMERICAN MEDICAL SCHOOLS ARE IN TROUble. One need only consult the newspapers to find out the details; recent headlines have proclaimed massive losses (tens of millions of dollars per quarter) at academic health centers in Boston, Philadelphia, Washington, -San- FranCisco, and other cities.

Academic health centers, or AHCs, are the institutions that support medical schools, and they are losing money at an umsustamable rate. An AHC is made tip of a medical school, its affiliated hospitals and outpatient centers, faculty practice plans, and (sometimes) other health-related professional schools.1 AFICs account for about 7 percent of all hospital beds but train 30 percent of all resident doctors in the United States. About a third of all AHCs are based in municipal or county hospitals and are jointly owned by the municipality or county and a state medical school. Another third are freestanding private not-for-profit systems. One in five are private and owned by a medical school; the remainder are public hospitals (state or county). This means that about half of all AHCs are not owned by the medical school with which they are affiliated.

Traditionally, AHCs have subsidized medical education (and to a lesser extent research) by redeploying excess income from patient care (the equivalent of "profit" in a business). But now that public and private insurers have reduced payments for medical services, funds for such subsidies have disappeared.

The AHC evolved the way it did because of a special characteristic of medical education, namely, that the delivery of service (patient care) is integrated intimately with the academic pursuits (teaching and research). In other professional schools, such as law, engineering, and business, faculty members may serve as consultants to outside enterprises, but the school as an institution does not provide services, The tic between service and teaching in medicine allows the education of students to take place in the context of actual practice; the risk is that service needs may displace academic functions.

Sources of Support

IN THE 1965-66 ACADEMIC YEAR, MEDICAL SCHOOLS REceived 54 percent of their funding from the federal government and only 17 percent from tuition, practice plans, and hospital subsidies. Ten years later, federal support had shrunk to 37 percent of the total; twenty years later, it had shrunk to 25 percent; today, it is only 20 percent. Conversely, the support derived from practice plans has grown to 58 percent (from 17 percent forty years ago). Tuition and fees remain a trivial source of revenues (a bit over 4 percent, about the same as they were thirty years ago), even though students incur enormous debts to attend medical school. In law schools, by contrast, tuition income makes up about 60 percent of operating income.

Over the same period, the size of medical faculties has grown enormously (from 17,000 in 1965-66, to 116,000 in 1975-76, to 185,000 in 1985-86, to about 255,000 today). First-year enrollments in medical schools almost doubted between 1965-66 and 1980-81, but they have remained level since that time, At first glance, this disparity between faculty and student numbers seems bizarre: a fifteen-fold increase in faculty size with no more than a doubling in the student population. But the reason for the disparity is no secret. More than half the appointments made during this period have been voluntary (part-time, unpaid) clinical faculty positions. Faculty status is granted to physicians who join faculty practice plans. Most of these physicians neither teach nor do research; they generate clinical income that contributes to the solvency of the AHC. AHCs are being transformed into service-providing giants with a bit of ivy for decoration.

Fiscal Trouble

THE CURRENT FISCAL CRISIS IN the AHC results from the conjunction of two forces: the ratcheting down of the amounts private insurers will pay for hospital care and the reduction of Medicare fees and teaching subsidies under the Balanced Budget Act of 1997. The Medicare reductions began in 1998 and are slated to continue through 2001. They have led to hugh losses in AHCs throughout the United States.

The impact of these losses on the parent university depends on the nature of the fiscal arrangement between the AHC and the university. Georgetown University, for example, owned its hospital. The loss of $65 million from the university endowment led to a board decision to sell the hospital to a multihospital chain, a tactic already pursued by Tulane, Duke, and George Washington Universities as well as other institutions. Where the hospital is a separate fiscal entity, as it is at Harvard's affiliated hospitals, the medical school stays out of financial jeopardy, but its clinical teaching programs are put at risk. The hospital asks its clinicians to produce more revenue, leaving them less time for teaching.