New funding era brings changes for med school

by Melanie Evans

Editor’s note: This is the first in a series of five articles examining a national funding crunch in medical education and the Medical School’s efforts to grapple with the changes. Tuesday’s article will examine student debt.

Touting $110 million in reserves as evidence of the University of Minnesota Hospital’s financial health, its director assured a 1990 national accreditation team that the hospital was fully prepared for future rocky years.
Four years later, the venerated teaching hospital — now a financial liability to the University in an era of shrinking federal subsidies and an increasingly competitive health market — was slated for sale. Mounting uncertainty coupled with potential losses numbering in the tens of millions of dollars, spurred the decision to sell the facility in 1996.
Overlooking the Mississippi, the hospital — now called Fairview University Medical Center — remains a conspicuous reminder of the powerful market forces affecting medical education.
The struggle to tame soaring health care costs continues to add pressure on students who are already strapped with thousands of dollars in loans. Faculty are pulled between cost-cutting measures in the Twin Cities market and the expensive business of research and education.
Vying to keep pace with federal budget cuts and new demands on students and faculty, universities are overhauling medical curriculums and the clinics and hospitals where students and residents train.
“I don’t think anybody was aware of where the market and the government were going,” said Robert Dickler, former director of the teaching hospital.
And the future is no clearer today than it was in 1990, said Dickler, now senior vice president of the Association of American Medical Colleges.
Dickler said he sees less financial stability for medical schools today than five years ago.
Preparing for another year of uncertainty, University President Mark Yudof will approach the Board of Regents next month to request a $37 million Band-Aid for medical education.
The money, part of the University’s $1.2 billion biennial budget proposal, is intended to support a new medical curriculum and offset declining revenues, primarily in the Medical School.
Medical students — carrying an average post-graduation debt of $75,000 — contributed 4 percent of the Medical School’s annual $280 million budget with tuition. Federal grants and subsidies, endowments, faculty contributions from their private practices and state appropriations make up the remainder of the school’s income.
The expensive and lengthy training process for doctors — a minimum of seven years — relies on numerous sources to finance the costly business of training tomorrow’s physicians. For decades, insurers, patients and state and federal governments indirectly and directly contributed to physician training.
Deep federal cuts
Medical education has faced nearly a decade of losses from two sources of income considered the bedrock of funding, but 1998 marks the first full year of some anticipated federal cuts.
Federal subsidies and faculty contributions continue to diminish, cut in the national effort to trim health care costs. The costs soared in the early 1990s and absorbed 13 percent of the gross national product in 1995.
During the next five years, the University will lose nearly $90 million from federal cuts in Medicare funding.
Medicare — the federal insurance program for the nation’s elderly — has compensated hospitals for training residents since 1964.
The federal agency annually reimbursed hospitals for hiring residents to treat Medicare patients using a complex system of formulas to calculate costs. Without Medicare aid, a means of cost-cutting and an incentive to take on residents for hospitals is gone.
Faculty working overtime
In addition, the Medical School anticipates losing money from clinical faculty — physicians who double as professors.
For years University faculty incorporated teaching costs into their bills. Insurance companies accepted the price mark-up as the cost of gaining access to the highly-specialized University clinical faculty.
But the advent of Minnesota’s health maintenance organizations — associations that regulate medical care to control costs — changed this. Managed care was unwilling to pay the higher prices academic physicians charged. The clinical faculty had to accept pay cuts in order to compete and retain patients.
Nearly 25 percent of the school’s budget comes from faculty, who return a percentage of their income to the Medical School for salaries and research activities.
Due to declining revenue from their private practices, faculty must now work approximately 25 percent more, said Medical School dean Alfred Michael. The faculty must see a greater number of patients to make up the lost revenue stream, a pressure that compromises the amount of time faculty can dedicate to teaching and research, he said.
“Practice revenues can no longer bootleg the educational costs. That’s a stress and strain on the Medical School,” he said.
Market fluctuations continue to destabilize faculty contributions as insurers, wrestling with the return of rising health care inflation, look to carve excess costs out of the market.
Managed care’s impact extends beyond University budgets. The insurers ended an era of hospital-based, highly specialized medicine, turning instead to more affordable primary care, preventative medicine and walk-in clinics. Medical School training has followed suit.
Revolutions in managed care and technology have forced an evolution on every level of medical training, Michael said.
“This is an era of major changes in medical education. We need to have strong programs to support the mission of the Medical School,” he said.