Academic Centers Must Change or Perish in Climate of Managed Care

March 1, 1996

BALTIMORE--Academic medical centers must now operate in a health-care environment that "has become increasingly unfriendly, even hostile economically," said former New England Journal of Medicine editor Arnold S. Relman, MD.

BALTIMORE--Academic medical centers must now operate in a health-careenvironment that "has become increasingly unfriendly, evenhostile economically," said former New England Journal ofMedicine editor Arnold S. Relman, MD.

Those institutions that do not respond with dramatic changes riskperishing, a panel of participants in the battle agreed at theannual meeting of the American Association for the Advancementof Science (AAAS).

Indeed, it appears that some financially weak institutions willfail, no matter what. Based on his studies, David Blumenthal,MD, suggested that early in the next century, a large majorityof the nation's 125 academic medical centers, through down-sizingand other changes, "will look more like medical schools of30 years ago, before Medicare."

Dr. Blumenthal, chief, Health Policy Research and DevelopmentUnit, Massachusetts General Hospital, believes that many centerswill survive, "but the question is, will they continue todo what academic health centers have done in the past." Headded: "I don't think it is unrealistic to expect that 10%of academic medical centers and medical schools will not be aroundin 15 years."

The main problem threatening academic medical centers and theiremployees is declining clinical revenues, largely the result ofmanaged care policies.

Private insurers and the Medicare and Medicaid programs are shiftingpatients to less expensive community hospitals, limiting hospitalstays, and demanding discounted fees for physicians', inpatient,and outpatient services.

This has cut clinical revenues, which academic centers have longused to help off-set the costs of fulfilling their teaching andresearch roles, and drastically reduced or eliminated their abilityto subsidize the care of indigent patients by shifting some oftheir costs to patients with private and government insurance.

"This loss of revenue is not being made up by public funds,"said Eugene Braunwald, MD, physician-in-chief, Brigham and Women'sHospital.

Some panelists also expressed concern that the current fundingfor medical research will drop significantly in the years ahead,further threatening the teaching and research roles of academiccenters. "We have not yet experienced the worst of pain,"said John D. Stobo, MD, chief executive officer, Johns HopkinsHealth-Care System.

Dr. Braunwald noted that medical research has fared well, at leastrelatively, during the on-going budget battle. But with both Democratsand Republicans committed to balancing the budget, the futuredoes not look as bright. "I think it is inevitable that NIHis going to be affected," he said.

Changes in medical practice brought about by managed care havealready adversely influenced the teaching of medical students,several panelists suggested.

Managed care dictates that restrict hospital stays represent oneglaring example. "Patients are in and out, often within aday, or two, or three," said Dr. Relman, now at Brigham andWomen's Hospital. "It's very difficult to teach studentsin that kind of environment."

Added Dr. Braunwald: "Increasingly, education is not doneat the bedside but in a conference room." How do medicalschools solve that dilemma? "I don't have an answer to thisquestion, much less a simple one," he said.

Academic medical centers have little choice but to join the competitivebattle for health-care dollars if they are to survive, panel membersagreed.

"In a straight face-off in the current economic system, thereis no way the academic model can prevail," said Ralph Snyderman,MD, Duke University's chancellor for health affairs and CEO ofthe Duke University Health System.

Dr. Snyderman said that academic centers must reposition theircore missions of education, research, and clinical care as academic"businesses" with clear understanding of the revenuesand expenses of each. Core academic missions must be refocusedand appropriately sized and organized to respond to market forces,he said. And that will mean change, change that will displeaseand disrupt faculty and staff at academic centers.

Panel members foresee fewer medical students, restrictions onthe number of residents entering high-paying specialties, cutsin foreign students and residents, an end to unconditional supportof medical schools by state legislatures, and smaller facultieswith less compensation for some members.

Aggressive Actions

Panel members mentioned a number of aggressive tactics being takenby academic medical centers to strengthen their financial status:

Merging or selling facilities. In Philadelphia,financial problems led to the 1994-1995 merger of Hahnemann UniversitySchool of Medicine and the Medical College of Pennsylvania.

John C. LaRosa, MD, chancellor of Tulane University Medical Center,said that the Medical Center and Columbia/HCA have formed a jointventure, called University Health Systems, Inc., to own and manageTulane University Hospital; Tulane sold 80% of the hospital toits for-profit partner.

At Harvard Medical School, Mass General and Brigham and Women'shave merged and begun forging a vast network of health-care providersthroughout the greater Boston area.

Building new partnerships. Duke UniversityMedical Center has developed a 50/50 joint venture with a nationalhealth insurer to deliver quality managed care in the Carolinas,Dr. Snyderman said. Duke will use the revenue to support its educationand research missions.

Building networks. This allows academic centersto form relationships with community hospitals, free-standingclinics and surgery centers, and private practitioners throughsuch arrangements as independent practice associations, contractualhirings, equity partnerships, or outright purchases of practices."You will probably have to do a little of each," Dr.Stobo said.

Developing such networks provides not only economic strength butalso the large patient base needed for training medical studentsand residents. "The hospital is no longer the epicenter forcare," Dr. Stobo noted.

Emphasizing tertiary care. Managed care almost makesthis a necessity, but promoting a center's specialties will becomeincreasingly important, panel experts said.

Aggressively seeking increased research support from industry.Dr. Blumenthal cited Columbia University, which "over a fewyears" increased its intake from such agreements from $3million to $27 million a year. In 1995, Duke was awarded morethan $35 million for industry-sponsored research.

Some researchers, ethicists, and consumers groups have expressedconcerns about such arrangements and their effects on opennessand the public's perception of researchers' integrity.

Dr. Braunwald suggested that these concerns have largely beenresolved over the last 5 years by provisions that allow researchersaccepting industry funds to publish openly and promptly. Dr. Blumenthal,however, was less sanguine. "Companies do expect a certainlevel of secrecy," he said.

Exploiting intellectual property rights.This includesgreater efforts to license the use of patented discoveries madeat an institution, tougher bargaining on terms, and even, in someinstances, entering into the manufacture and marketing of productsthrough joint-venture agreements.