Teaching Hospitals Pinched as Medicare, HMOs Clamp Down on Costs

The University of Pennsylvania Health System is laying off 20% of its workers after losing $300 million during the last two years.

The University of Oklahoma sold control of its hospitals in 1998 to Columbia/HCA Healthcare after losing $15 million in the seven months before the deal.

And the University of Texas Medical Branch at Galveston, which has lost more than $80 million since 1998, is rationing care to the poor by cutting off free doctor visits, prescription drugs and hospitalizations.

These steps are examples of how teaching hospitals, the crown jewels of America’s health system, are responding in businesslike fashion to a financial crisis that began in the late 1990s. The rising number of uninsured patients, increased cost pressures from managed care firms and a sharp drop in Medicare funding have forced these institutions to eliminate jobs and curtail some services.

The same hospitals where medical advances such as organ transplants and open-heart surgery were pioneered are now uncertain that they can keep clinical departments open, update equipment and recruit the best doctors and researchers. They’re also looking into eliminating community services such as vaccination programs for infants or the elderly.

“The concern is, we have shifted directions and the direction is not good for patients or the public, “ said Dr. Ken Ludmerer, an internist and medical historian at Washington University in St. Louis.

If current trends continue, 40% of the nation’s major teaching hospitals will be losing money within three years, up from 20% today, said Dr. Jordan Cohen, president of the Assn. of American Medical Colleges. Although it’s unlikely that any of the hospitals will go into bankruptcy, those losing money are more likely to cut services that jeopardize their mission.

“Our worry is, unless something is done to stabilize the financial condition of these institutions, we will lose a very valuable asset for our society,” Cohen said.

While some hospitals are in a stronger financial position than others, all teaching hospitals are being forced to act more like big corporations, slashing spending and finding more efficient ways to treat patients.

So far, it appears the pressures have not had a drastic effect on the care the institutions provide. But layoffs of support personnel such as dietary and housekeeping staff and a cut in programs and the number of beds at some hospitals have affected patients.

Last year, the University of Texas Medical Branch laid off 390 of its 13,000 employees, primarily clerical workers, therapists, technicians and other support staff. One impact the hospital reports is that it now can take longer for patients to be moved from the emergency room to a regular room.

Teaching hospitals “are cutting back labor and reducing nonemergency care to the uninsured by making them wait longer for care or denying it,” said Bob Baker, president of the University HealthSystem Consortium, which represents 81 academic medical centers.

It’s a situation that concerns hospital officials.

“I worry that we may lose the feeling in our community that we add value to their health,” said Dr. John Stobo, president of the University of Texas Medical Branch.

America’s teaching hospitals are renowned for training doctors, nurses and other health care professionals, conducting biomedical research and providing the most highly specialized patient care.

There are about 400 major U.S. teaching hospitals, all affiliated with at least one medical school. These institutions include such recognizable names as Massachusetts General and New York-Presbyterian, hospitals that attract patients from across the globe.

Teaching hospitals have pioneered the most significant medical advances in history. Among their many milestones: Wayne State University School of Medicine in Michigan conducted the first successful open-heart operation in 1952. Harvard Medical School did the first successful kidney transplant in 1954.

Most hospitals blame their financial problems on the Balanced Budget Act of 1997, which slashed Medicare payments to health care providers. Medicare is the largest purchaser of hospital care and in some hospitals accounts for nearly half of all revenues. It is also a big source of funding for medical education.

Under that act, teaching hospitals were projected to lose about $14.7 billion out of an expected $122 billion from Medicare between 1997 and 2002, according to the medical colleges association. A law enacted last year restored more than $2 billion of that money, according to the American Hospital Assn., but the teaching hospitals still face a huge deficit.

Another problem is the rising number of uninsured patients. While teaching hospitals own 6% of the nation’s hospital beds, they provide 39% of the care to the uninsured.

In the past, teaching hospitals charged higher fees to patients with insurance--either private or government--to raise money to treat the uninsured and supplement the cost of medical education and research. But in recent years, Medicare and the HMOs have been unwilling to provide such subsidies.

Penn is typical of how many large teaching hospitals have responded to financial distress. In May it cut 1,100 positions, mostly administrators. In October, Penn said it would eliminate another 1,700 jobs over the next eight months in finance, information systems, human resources, marketing and other departments not directly involved in patient care to complete a 20% reduction in positions.

But some patient care facilities, including a program that provides specialized care for patients with chronic diseases, have been closed.

The University of Texas Medical Branch has done more than cut positions. It has reduced the number of uninsured people showing up in its emergency room and clinics by requiring a small fee for doctor visits and prescription drugs.

Hospital officials acknowledge that their actions have meant some uninsured patients have no access to health care. And many patients, insured or not, must wait longer to get a bed or to have their rooms cleaned. But officials insist the quality of care has not been compromised.

The financial crisis means medical school faculties are under pressure to treat more patients as a way of raising revenues. That reduces the time the faculty can devote to research and teaching. And while the amount of research dollars the hospitals receive from government and corporations is growing, some hospitals have reduced money for research projects that don’t yet have funding from outside sources.

“I’ve never seen it worse, and we don’t see any light at the end of the tunnel,” said Baker, the University HealthSystem Consortium president.

Some teaching hospitals have contributed to their problems with failed ventures designed to attract more revenue.

For example, Vanderbilt University Medical Center in Nashville, Tenn., lost money trying to run its own managed care plan. Others, including Penn, thought they could make money by buying physician practices and smaller nearby hospitals; the acquisitions turned out to be a drain on their resources.

Despite the growing pessimism, some researchers contend the teaching-hospital industry is still relatively sound.

“Every academic medical center is concerned about its future, and rightfully so, as a lot of changes are threatening their existence at the same time,” said Gerard Anderson, director of the Johns Hopkins University Center for Hospital Finance and Management in Baltimore. “But for the most part, they’re financially healthy.”

Some teaching hospitals are strong enough to undertake major expansion projects.

The University of Colorado Health Sciences Center will spendmore than $1.5 billion over the next decade to build a campus on a former Air Force base in suburban Denver. In Chicago, Northwestern Memorial Hospital recently opened a $580-million building that includes private rooms for all patients.