The Eleventh Hour

Academic medicine’s financial climate has been diagnosed, and the news isn’t good for teaching hospitals. About half will be operating in the red within two years.

The New Physician, November 2000

You may remember the exact moment when you decided to enter medical school. Perhaps your mother or father took up the noble profession and taught you of its worthiness. Maybe you admired the bespectacled pediatrician who handed you a cherry swirl lollipop when you were sick and then sent you on your way, feeling a little better, feeling like you might like to give people a boost one day, too.

You might remember that happy flash in your life. But Sen. Daniel Patrick Moynihan (D-N.Y.) remembers a different moment: the exact hour when he realized your teaching hospital may one day be in grave danger.

It was Jan. 19, 1994, and, as chairman of the Senate Finance Committee, he was charged with leading the discussions surrounding President Clinton’s Health Security Act. He asked Paul Marks, then president of Memorial Sloan-Kettering Cancer Center, to arrange a “seminar” for him on health-care issues. Moynihan unassumingly entered the Laurance S. Rockefeller Boardroom at Sloan-Kettering at 10 a.m.

“At about a quarter past the hour, I was told that the University of Minnesota might have to close its medical school,” Moynihan’s oft-told story goes. “Whereupon my education in this began. Minnesota is where the Scandinavians settled. They don’t close medical schools; they open medical schools. What was going on? It was simple enough: Managed care had reached the high plains. The good folk of Lake Wobegon had dutifully signed on [to managed care], only to learn that market-based health plans do not send patients to teaching hospitals, because they cost too much. No teaching hospital; ergo no medical school.”

It’s a refrain that Moynihan has sung repeatedly since that day in 1994, and increasingly, thanks to a number of new factors putting teaching hospitals in a bind, people in the health-care business have begun to join him in song. But not enough people herald this cry, say those who have made it their business to worry about the teaching hospital crisis.

And so maybe you don’t know this. Maybe you’re like most medical students—too busy to eat or sleep, much less keep up with the news. Or maybe you’re of the rare number of students who are tuned in. Either way, experts say, there’s probably much more for you to learn about this issue than you know already.

It is not an easily diagnosed illness, this teaching hospital crisis. Perhaps most startling of all is how varied and far-reaching the predicaments are that teaching hospitals have faced or continue to struggle with. The very best you can do is listen to the experiences of others, and then keep a watchful eye on your own surroundings. So when did this all begin, and where will it lead the future of medicine during your career? Read on and find out.


It doesn’t take a scientist to know the growth of managed care has been among the wearisome propellers of health care’s gradual downward trajectory in many regions over the course of the past several years. Indeed, this growth is what sparked alarm in Moynihan, who’s been a leader in the Senate on the issue of medical education throughout his career. Yes, teaching hospitals are more expensive because they train medical students to become residents and employ residents to see patients. As Dr. Paul Jung, a Robert Wood Johnson Clinical Scholar at Johns Hopkins University, explains, wherever there are residents, there are bigger bills “because they are inexpensive labor, and we order extra tests that are sometimes unnecessary, make decisions that are not always cost-efficient to the hospital. That’s the argument, anyway.”

It’s an argument that has gradually taken procedures like appendectomies and the like out of the hands of teaching hospitals and into cheaper hospitals where students don’t train and life-saving research isn’t conducted. Or, in the case of common illnesses, medical care for these has moved to community clinics, because managed care’s entire foundation is built upon balancing sound medical decisions in the most thrifty method possible. And when more of those procedures and more of those patients are sent out of the teaching hospital system, the loss of revenue affects every aspect of its functioning—including your ability and opportunity for deepening your skill level as a medical student.

What follows in this opening act you may find to be about as delectable a read as cough syrup is to swallow. But stick with us.

Because they are often located in large metropolitan areas or areas of significant population, teaching hospitals also are more likely to see a greater number of the nation’s poorest patients—those who are among the nation’s 43 million uninsured. Academic medical centers and teaching hospitals provide nearly half of all indigent health care. The Medicaid program, which is funded at the discretion of state governments, provides some of the reimbursement for these services, but what it doesn’t cover gets eaten by the hospital’s budget. Teaching hospitals also treat a great number of the nation’s elderly, who rely on the federal government’s Medicare program to help pay for medical bills.

All of which leads us to what has become academic medicine’s Public Enemy No. 1: a little document called the Balanced Budget Act (BBA) of 1997. If you remember nothing else from this article, remember this figure: $43 million. That’s the amount of money the average teaching hospital will lose by 2002, thanks to the BBA’s prescription of a 29 percent cut to Medicare’s Indirect Medical Education (IME) payments to hospitals over a five-year period.

You see, in addition to covering health-care costs for the elderly, Medicare, since its inception, has also been the source of medical residents’ salaries and benefits through what is called Direct Medical Education funding. IME funding, which is extra money that was built into Medicare’s financing of medical education to reimburse a litany of other costs related to running an academic medical center, includes treatment for those who can’t pay and such hard-to-track expenses as up-to-date equipment. IME expenses, to use an analogy, are a lot like all those strange little extra charges that show up on your phone bill every month that no one but the phone company can account for.

One reason why the BBA targeted Medicare spending has to do with IME funding: Hospitals had long been receiving more than enough through this source to cover their basic costs, and the rest, legislators deemed, was fat worth trimming. Few observers—even those employed by teaching institutions—disagreed with that fact. Hospitals, it was roundly stated, need to become more efficient after the go-go ’80s, and for some that’s still a problem. But most everyone feeling the pain of the cuts agrees that Congress went too far in its pseudopunishment.

Thanks to a couple of legislative Band-Aids passed by Congress in recent sessions, the immediate impaling of teaching hospitals has been staved—for now. Still, about half of the nation’s major teaching hospitals are projected to post red ink in two years.

Money may be the root of all evil, but it is also the purveyor for advancement. And the more the green fades, the more the red ink stains the United States’ reputation for the finest medical education and the best medical treatment. Moynihan has recognized this for some time. Each year for the past three years, the retiring statesman has introduced legislation called the Medical Education Trust Fund Act, which would have required that both the public sector and managed-care organizations provide financing for graduate medical education. This would then lower medical education’s dependency on Medicare and would make HMOs more responsible for the future of the doctors without whom they would have no purpose. But each year, his act has languished in Capitol Hill committees. He leaves office this fall, taking his vivid memory of that first meeting at Sloan-Kettering with him.

“These institutions save far more lives than, for example, the Coast Guard,” said Moynihan in an opinion column, “and indeed, in many ways, they are transforming life itself.”


“I knew residents at Mt. Sinai [Cleveland] who were there when they shut down,” Johns Hopkins’ Jung says. “They showed up for Grand Rounds one day, and after they were finished, they were told, ‘Oh, and…by the way, your program is cancelled and you’ll have to find a new residency.’ They found positions in the hospital where I worked nearby. But they’re not willing to talk about it publicly—for fear of what—I don’t know. They lost their residency already. I encouraged them to [talk about their experiences]. Perhaps it was fear of retribution, because they are foreign medical students.”

And so, welcome to Cleveland, friends, where baseball may be back in business, but the city’s renowned reputation for first-rate health-care access was whiffing air last year. When the for-profit Primary Health Systems took over Mt. Sinai, all of its eyes were on expansion, and expansion is code for spend, spend, spend—putting the center’s long-term financial health at risk. In the new world of managed care and cutbacks, it’s become vogue for large hospitals to fan out and gobble up as many physicians as possible to expand its managed-care network. But that often leads to trouble. Following what one player called “a lot of lack of honesty in the way issues were presented” to residents and faculty, Mt. Sinai suddenly found itself a nonteaching hospital for the first time since 1970, forcing 60 to 70 Case Western Reserve medical students to kiss their clinical rotations goodbye—including the residents Jung knew. Eventually, the hospital was forced to shut its doors altogether.

“Mt. Sinai blamed the shutdown on not being able to fund residents,” Jung says, “which is proof enough to me that that [IME] money was used for general operations and not for its residencies. I mean, you could shut down your residency program and leave the hospital open, if that’s the case.”

Jung is skeptical of hospitals’ scapegoating residency programs and IME cutbacks as the main problem in struggling academic medical centers. He says some hospitals are endangering residency programs and patients by not wisely spending the extra dollars Medicare builds into IME.

“That money could be used for wallpaper, for extra X-ray machines, you name it,” he says. “It’s taken from general operations.” Hence, this indirect medical education funding is often used for things that are heavily indirectly related to medical education. And since the money is taken out of a hospital’s general operations budget—a large and nebulous part of a budget—the spending gets lost.

“They’ve got no requirements that hospitals keep track of extra money. So we don’t know where it goes. That’s why it’s so hard to track down hospitals that are in crisis,” Jung says. “That’s why the AAMC [Association of American Medical Colleges] and others are scrambling to use the argument that it’s vital to residency programs.”

In the long run, Jung says, IME money does help residency programs, because some of those extras are used to enhance a resident’s growth and experience, and when a hospital builds a reputation on those extras, and suddenly finds the money that paid for it cut by Congress…well, trouble lies ahead.

“Not all hospitals are created equal, and some are managed better than others,” Jung says.

Boston University economics professor Alan Sager, who has spent a great deal of time studying the issue of health-care costs, thinks Jung’s theory may have some merit.

“You hide [the money] where you can, you know?” Sager says. “That very well may be the case. We need to look very carefully at hospitals state by state to see what is happening. Part of the problem is that hospitals are very hard places to run efficiently, because doctors have no way to accurately diagnose every patient.

“Hospitals have been closing forever. But the pace of closings has accelerated in the last 20 years, partly because people think we have built too many hospitals with too many beds and won’t ever need them again. Others think it’s because hospitals have forced competitors out of business. And the BBA has hurt some hospitals substantially. But it’s hard to know how great an effect it’s had on all hospitals.

“Hospitals will tell you they don’t have enough revenue, but it’s hard to know if the real culprit is just excessive costs. Everybody has a way of trying to rationalize excessive costs.”

Rationalizing or not, at least one of Case Western Reserve’s medical faculty members says the financial problems of hospitals today are very real and very serious. Ohio ranks fourth in dollars received from Medicare’s IME. Dr. Jay Wish, a cardiologist and professor at Case, had the unenviable task of sorting out the aftermath of Mt. Sinai’s closing.

“It’s pretty ugly,” Wish says. “I’m a doctor. That’s my day job. But I’m also a clinical faculty member, and teaching is why I’m here. The things that are going on with academic medicine are fairly drastic. You can see that with what happened at Mt. Sinai. First it disbanded all of its residency and student teaching programs. Then it just went under, period. That’s bad for the medical school, and that’s bad for the patients.

“We begged and pleaded with other sites to take in the students who were originally assigned to Mt. Sinai,” Wish says. “The situation was less than ideal, but the other hospitals and clinics really didn’t have a choice but to accommodate the students as best as they could. We, as teachers and professionals, couldn’t just leave the students hanging.”

Wish says the changes didn’t have a great impact on incoming residents—it was the physicians who had already started their residencies who suffered the biggest strain in being uprooted.

In his 21 years in academic medicine, Wish says, he’s never seen the academic medicine climate in such tatters. “At Case Western, all the academic departments are under tremendous strain to make ends meet,” he says. “The result is that you’re torn between continuing to teach, which is what attracted us to enter academic medicine in the first place, and the demands of generating clinical revenues for our departments. If all I had wanted to do was practice medicine, I’d have gone into private practice.”

And he says medical students can sense medicine’s unstable current climate, especially how it affects their educational resources. “It doesn’t take much time to take a student on a ward team, but, on the other hand, if you ask me to teach a physiology class, and I have to leave the hospital and travel to another site, that’s going to be a bigger burden. It’s harder to have that kind of freedom or time, and that’s where it’s going to show the most to medical students.”

This is a fact that probably saddens him the most. “Our reputation for teaching at Case Western has been very strong, in part because we’ve always given the clinical faculty much of the responsibility for teaching in the first two years,” he says. “That’s what the students like. The clinical faculty give the students a perspective that can relate an abstract subject to real-life experiences, which makes students more excited and eager to advance into the clinical aspects of their curriculum. But you wonder how much longer the clinical faculty will be able to contribute at that level in the current climate.”

When you note that about three-quarters of the nation’s allopathic physicians are trained in the 125 university medical centers and 400 teaching hospitals in the United States, Wish’s heightened concern becomes all too palpable.

“It used to be that reimbursements for clinical services were sufficient enough to give you some freedom as a doctor to pursue interests outside the provision of direct patient care, whether that was teaching medical students and residents or the scholarly pursuit of an area of personal interest. That flexibility isn’t there anymore. That time you take away from the generation of clinical revenues to teach or to do research has to be made up somewhere, since each faculty member is responsible for generating sufficient revenue to cover his own salary and benefits. When I started here, I received toward my salary 55 cents on every clinical dollar that was collected after taxes imposed by my department. Now, it’s down to 25 cents. The taxes go to overhead and other expenses to keep the department afloat. I have to work twice as hard just to stay even as an academic faculty member.

“[So] where does that leave academic medicine?”

Where it leaves academic medicine is without the services of a large—and increasing—number of the profession’s best teachers and practitioners. Although most academic faculty are committed to both efforts, others are giving up on the ideal they fashioned years earlier.

“There’s no question about it,” Wish says. “I know of three members of cardiology who left this year to go into private practice.”

And academics like Wish worry that the students they teach aren’t worried enough. “They don’t understand the true implications,” Wish says. “They don’t have anything to compare it to. They didn’t see the good old days that we remember, so they’re used to what’s around them, the conditions. To some extent, you’re attracting a more dedicated medical student today as a result. In the ’60s, you went into medicine for three reasons: because of your genuine interest in medicine, because you wanted to make money and because you wanted to avoid the draft. Now, it’s just because you want to go into medicine. There is no draft, and I think the word is out that you’re not going to make a lot of money anymore. There are no ulterior motives or false illusions.

“What students need to be aware of, [however], is that most academic faculty go into it because they want to teach. If it looks [to students] like the faculty don’t seem to be as committed, it’s not necessarily a lack of interest that’s holding [the teachers] back. It is often a matter of making choices.”

In Massachusetts, they know all about making choices. Boston has become ground zero in many ways for the current teaching hospital debate. That’s partly because 88 percent of its population depends on teaching hospitals for care, according to numbers from PriceWaterhouseCoopers. That means, says Richard Averbuch, a senior director at the Massachusetts Hospital Association, that the city is a “bellwether for the rest of the country…. It’s happening here a little faster and maybe with a little more intensity, but it’s an indication of what’s going to happen elsewhere. People need to pay attention.”

And what they can expect is “a crisis of significant proportion,” Averbuch says. “I talk to a lot of people in health care in this state, from the top levels to the bottom, and nobody has seen anything like it. It’s unprecedented. We are the only state in the U.S. where all three major players in reimbursement—Medicare, Medicaid and the private sector—are paying less than the cost of medical care. Anybody will tell you that’s a major problem. Two-thirds of hospitals in Massachusetts are losing money. By 2002, when the full impact of the cuts is to be felt, a little more than 40 percent of all cuts are going to fall on IME payments.

“Everyone is hurt by cuts, but teaching hospitals in particular are hurt by them.”

In a town that used to be famous for the line, “Where everybody knows your name,” the more appropriate television theme song might be “Who’s the boss?” The shifts and mergers and maneuverings to patch the holes in the Boston-area hospitals run by Harvard, Tufts and Boston universities are nearly impossible to keep track of. But if you’re a medical student, it would behoove you to do so. This is where the most heated health-care debates seem to be happening—where the governor has formed a task force to analyze why the state’s largest insurer, Harvard Pilgrim Health Care, was forced into state receivership. While Averbuch says the problem is low Medicaid reimbursements, others, like Boston University economist Sager, say it has more to do with Massachusetts’ hospitals being among the most expensive for services in the nation.

“Winston Churchill always said you could count on the Americans to do the right thing when everything else has failed,” Sager says. “If we wait for a [national] crisis, we’re going to get swamped. We need to be doing contingency planning. And we need to look at several different models of dealing with this on a state-by-state basis and see what works. We need to think like the military, anticipate all the things that could happen, instead of believing there is only one way to do things. It’s stupid to entertain only one theory. We need to design and test and plan new ways of dealing with health care.”

But there is good evidence to suggest that the crisis is already here. While no Boston teaching hospitals have closed as they have in Cleveland, several residency programs have announced cutbacks in positions and as recently as late September, Beth-Israel Deaconess Medical Center eliminated residency programs in three specialties: psychiatry, dermatology and orthopedics.

“Everybody is talking about education, the environment, social security,” Averbuch says. “We have to make sure the same sense of urgency is brought to health care. We’ve shielded patients and politicians long enough from the realities. We can’t do that anymore.”


So what does all this mean for you? Plenty. It’s your future, and you can be proactive in protecting it.

“The fact is that most students don’t consider something like a hospital’s money situation; they’re only interested in its prestige,” Jung says. “But Mt. Sinai was part of Case Western, and I don’t think anyone would tell you that’s not a school of some prestige.

“Medical students should absolutely be concerned about these cuts as they evaluate residency programs. They can easily get financial information from their hospital—or they should be able to. If a hospital doesn’t provide papers with its financial health details on it to you, it sends a message that [it doesn’t] care about you as an employee. I mean, if Microsoft were to try to hire you and refused to give you an annual report or detailed information about where [it stands,] what would that say to you?

“When I signed on to my residency program four years ago, I got a memo from the CEO detailing our financial health,” Jung says. “At the time, I thought it was strange—this was back when all these cuts were starting—and I thought, ‘Why would a hospital want to tell me that it’s financially stable?’ Now, I think it’s critical that a hospital give residents that information.”

Jung says that hospitals should give you this financial information each year you’re a part of the staff, and that you should ask about methods of recourse, should something happen to affect your program during your residency. Make sure your contract has an explicit clause that spells this out, as well as your maximum working hours—which could become an issue if staff physicians are cut and you must pick up the slack. It’s not a common practice to ask for such specifics, he says, but it should be.

“This is three years of your life. You want to be sure,” Jung says.

Karen Fisher, associate vice president for the division of health affairs at the AAMC, recommends students keep their sensitivity antennae up and running during an interview. “Do you notice low morale? If you ask yourself, ‘Why is everyone here so down?’ the answer is usually because of financial reasons,” she says.

John Po, a fifth-year M.D.–Ph.D. Drexel University student currently working in research, survived with relative ease a shakeup in his own medical studies when MCP Hahnemann reached the brink of bankruptcy before being pulled back by Drexel. Even though he has weathered the storm, Po says students should be wary of joining programs with affiliations that seem to be overextending themselves, “where you see hospitals are gobbling other systems up. It’s hard to prepare for those things that people hide, but be [aware] of what’s going on in the background, not just in your immediate area, but within the entire institution. And always be on the ball with regard to the quality of your education. If you see something that seems substandard, make it known to superiors and instructors.”

Across the nation, there are numerous ways medical students can get involved from an advocacy standpoint, as well; the AAMC and other organizations have legislative task forces working to make Congress aware of academic medicine’s plight.

“Everyone, whether practicing medicine or studying medicine, should be cognizant of what’s going on with all health-care providers in this country,” Averbuch says. “They have a stake in the debate. The level of concern about delivering care to patients is extraordinary. ‘Crisis’ is definitely the right word here.”

 Copyright 2000 American Medical Student Association