WASHINGTON—At a congressional briefing titled “The Crisis at Academic Health Centers,” Samuel O. Thier, MD, described the situation succinctly. “We are going through tough times,” said the president and chief executive officer of Partners Health Care Systems, Inc., which resulted from the merger of Massachusetts General and Brigham and Women’s hospitals.
In 1999, 34.2% of US hospitals operated in the red, and academic health centers are being hit particularly hard. The average profit margin at academic health centers has reached a historic low, dropping from 5.3% in 1996 to 2.6% last year.
For the first time ever, an academic center—the Allegheny Health Education and Research Foundation in Pennsylvania—went into bankruptcy proceedings.
A statement by the Congressional Biomedical Research Caucus reads, “Although many institutions, especially in less competitive markets, continue to have healthy bottom lines, there is no way to know with certainty whether the nation’s academic health centers as a group will emerge stronger or weaker from current stresses, or how their social missions will be affected in the process.” The caucus, which consists of members of Congress with a strong interest in biomedical issues, sponsored the briefing.
Academic health centers make up only 6% of US hospitals, Dr. Thier noted. Yet nationwide, they account for 20% of patients, 22% of outpatient care, 19% of surgical procedures, and 28% of health-related research, much of it translational. Dr. Thier said that Partners Health Care Systems provides more than $100 million a year in free services to uninsured patients and that, overall, US academic health centers provide “billons” in free services annually.
Declining profits have severely pinched the ability of academic health centers to carry out their traditional four-pronged role—clinical research, medical and health education, specialized care, and treating the indigent—said Dr. Thier, who is also professor of medicine and health care policy, Harvard Medical School.
Dr. Thier attributed reduced profits to several factors, including rising costs, declining revenues from private and public third-party payers, the gap between research grants and the cost of research, and miscalculations by academic health center managers.
“If we did not have NIH support, we would not be in business,” Dr. Thier said. Nonetheless, the National Institutes of Health pays only about 85% of the actual research costs, and declining payments from payers have reduced the flow of funds that once filled that gap and helped support care for indigent patients. Moreover, unfunded “seed research,” necessary for proposed research projects, is threatened.
Medical-related costs are rising, in part because of the fruits of research. “Knowledge is being generated that we could not imagine 15 or 20 years ago,” he said.
The Financial Squeeze
He cited several examples to show the variety of ways in which academic health centers are being squeezed financially.
• Patient costs rose 20% in constant dollars between 1993 and 1999.
• Drug price inflation is currently averaging 13% and growing 2.5 times faster than medical inflation as a whole.
• The use of stents has decreased the need for bypass operations, but increased the cost of angioplasty.
• Concerns about latex allergies have increased the use of more expensive nonlatex gloves.
• New privacy laws are adding to administrative costs.
• A shortage of nurses affects academic health centers’ ability to provide care and earn revenues.
“We are running out of nurses,” Dr. Thier said. Brigham and Women’s recently temporarily closed two hospital floors because it could not hire enough nursing staff during the summer vacation period.
