Funding Crisis Looms For Teaching Hospitals

A critical piece of Harvard's top ranked medical education has been put in jeopardy by federal budget cuts, University officials say. And to head off what they call an impending crisis of teaching hospital funding, Harvard's lobbyists are taking drastic action.

The Balanced Budget Act, passed in 1997, placed caps on federal aid to teaching hospitals. These are hospitals affiliated with medical schools that allow students to get first-hand clinical experience.

Harvard Medical School has over a dozen such hospitals, which traditionally have also given charity care and do not operate at a profit.

The federal funding which makes up their losses was capped by the Balanced Budget Act-and as a result money is drying up for hospitals across the country and at Harvard.

According to President Neil L. Rudenstine, all of the key hospitals associated with Harvard are currently in deficit and having difficulty maintaining their teaching mission.

"I think it's a real crisis...I rarely use the word crisis," Rudenstine said. "Either they get some help from the federal government or they...will be taken over by a for profit hospital...or they just go out of business."

Enter the Harvard lobbying machine.

The University has gone to work to protect its own. For the short term, administrators are looking for a quick solution, such as a trust fund, to give hospitals ready cash to tide them over.

In the long run, Harvard is going to bat in Washington to try to reverse the budget amendment or at least lower the funding caps.

Anatomy of a Crisis

Medicare, the federal program that subsidizes health care for the elderly and disabled, has long been a crucial piece of 1America's medical education system.

Medicare's Graduate Medical Education (GME)program provides stipends for residents duringtheir study in hospitals.

In addition, Medicare has long paid whatamounts to a subsidy, providing reimbursements forcare for the elderly larger than the actualper-patient cost.

This was also true for private insures, anduntil recently their combined reimbursementshelped pay for the instruction and researchprovided by teaching hospital-effectively makingup for operating losses.

Teaching hospitals are more expensive to runbecause of their research and teaching work. Butthey also cost more because they treat patientswho are sicker, on average, as well as a higherproportion of the uninsured, who cannot pay fortheir own care.

However, in recent years insurance companiesusing "managed care"--a health-care managementbureaucracy designed to cut costs--have begunfunding a larger portion of all health care. Andthey do not provide subsides, putting additionalpressure on the funding received form Medicare.

But federal lawmakers are unwilling to keeppace with more Medicare funding.

The Balanced Budget Act, which immediatelyfroze Medicare payments, made the federalgovernment as unwilling to provide reimbursementsbeyond the cost of actual care as privatecommercial insurers.

Across the country, academic as well ascommunity hospitals have been cutting costs, butacademic hospitals have been unable to keep upwith the loss in federal money and preserve theirtraditional role in health care.

"We in America have led the world in healthcare. That's very much in jeopardy," says JosephB, Martin, dean of the Harvard's affiliatedhospitals.

The problem for Harvard's hospitals is acute,he says,

The Partners Group, which runs both Mass.General Hospital (MGH) and Brigham and Women'sHospital, estimates that five years of thebalanced budget amendment will cost $340 million.

In the first quarter of this fiscal year--lastOctober through December--Brigham and Women'sposted a $10 million deficit and MGH lost $11.6million.

Deficits are now a common denominator acrossHarvard's teaching hospitals.

Though cost-cutting is underway--Partners, forexample, managed to shrink their budget by $200million--they say they see more patients than everbefore.

Brigham and Woman's cut 110 positions withinthe last two weeks, according to spokesperson VinPetrini.

"Sixty to 70 percent of the costs are people,"Martin says, "Reducing the numbers of peopletaking care of the sick raises serious questionsabout the quality of care,"

And the situation is likely to get worse.Medicare cuts over the next five years areexpected to average 12 percent annually, but thusfar they have been significantly lower. This meansthat by 2002, reductions are expected to reach 18percent.

Harvard's hospitals have dipped into theirfinancial reserves to keep from going under, butthis won't work forever.

"This year we'll muddle through." Rudenstinesays, "but within 12 to 24 months, we'll belooking at disaster...it is not an abstractconcern."

At Stake...

The crisis facing Harvard's hospitals couldmean more than the loss of some treatmentfacilities. They are critical piece of theUniversity's medical education program, andindeed, of the nation's health care system.

"These are the hospitals in which new methodsof treatment are tested out," says HMS AssociateVice President for Government. Community andPublic Affairs Jane H. Corlette. "There's no waythat's going to go on if they have to cut costs."

Research and innovation are expensive, and muchof it takes place in academic medical centers.Moreover, these hospitals provide much of thenation's high-tech care, Martin says.

"Our patients are sicker [than at otherhospitals], we are developing new treatments, andall of that requires subsidization,” he says.

What is more, the teaching hospitals'traditional mission of providing charity careseems to also be in jeopardy.

"It's unclear to me how long they'll be able totake care of the poor," Corlette says.

But by for the biggest casualty of funding cutsfor academic medical centers is the education theyoffer medical students.

"We depend upon hospitals to subsidize theteaching of our medical students and to create anenvironment of research," Martin say.

Training in the academic hospitals includesthe residency that all medical students Pursueafter their actual education in medical school.Without more funding, teaching hospitals likeHarvard's may be forced to reduce or eveneliminate resident program.

What is To Be Done?

The best strategy for Harvard's teachinghospitals seems to be cutting costs, but they saythey are doing all they can and still can't breakeven.

According to Martin, HMS cannot afford to makeup the costs out of its own pockets, though theUniversity and its hospitals will make increasedappeals to donors.

The solution, if one is be found, lies inWashington, according to Harvard officials.

The University has kicked its lobbying officein the nation's capital into overdrive.

"I'll have to go to Washington soon,"Rudenstine says.

He says that many Washington lawmakers believethat hospitals have been over supported byMedicare. He says this is a conviction he wouldlike to change.

"We are looking for ways to see what can bedone," Rudenstine says. Martin is heading a smalltask force to look into the issue.

"We're talking to individuals, key people inthe House and Senate," Rudenstine says. "It'sCongressional budget problem."

Rudenstine says the bulk of the University'seffort will consist of making legislators aware ofthe situation. For now, the University isconcentrating on finding short-term remedies tothe situation.

Rudenstine says Harvard would like Congress toestablish a trust fund-a stream of money separatedfrom the Medicare funds and earmarked to bail outteaching hospitals.

Rep. Benjamin L. Cardin (D-Md.) has proposedone solution.

Earlier this month, he introduced a bill thatwould tax private health insurance premiums tocreate a trust find for graduate medicaleducation.

The bill would place a one-percent tax onprivate health-insurance premiums, giving teachinghospitals two-thirds of the revenue from the tax.

"It's the only workable solution that's outthere," Cardin says. We have reached a crisis."

Though he says relaxing Medicare cuts wouldprovide a possible short-term solution, in thelong run, Medicare cannot be called upon to fixthe problem.

"You're asking seniors and disabled to pay morethan their fair share," he say. "I don't thinkthat's right."

But Martin, who endorses such a plan, says itis unlikely to pass. Cardin concedes it willrequire "political courage," but is moreoptimistic, citing what be considers the loudvoice of benefactors of academic medical centers.

"I have heard directly from Harvard and theyare clearly one of the premier facilities and atarget of what we are trying to do," Carding say."Ultimately, it's going to happen. It may nothappen in 1999, but it will pass."

If Cardin's predication is correct, timing willbe crucial, because, as Rudenstine says, thehospitals cannot wait for more fundingindefinitely.

But, in whatever form, Harvard and hospitaladministrators say help must come soon.

"It's possible that the Congress could say forsome things we're going to allow ourselves tospend a bit more," Rudenstine says.CrimsonMichael S. PapishSHADOWED FROM ABOVE:Funding cuts inWashington have put resident programs like the onefor these neurosurgery students at Mass. GeneralHospital in jeopardy.

Medicare's Graduate Medical Education (GME)program provides stipends for residents duringtheir study in hospitals.

In addition, Medicare has long paid whatamounts to a subsidy, providing reimbursements forcare for the elderly larger than the actualper-patient cost.

This was also true for private insures, anduntil recently their combined reimbursementshelped pay for the instruction and researchprovided by teaching hospital-effectively makingup for operating losses.

Teaching hospitals are more expensive to runbecause of their research and teaching work. Butthey also cost more because they treat patientswho are sicker, on average, as well as a higherproportion of the uninsured, who cannot pay fortheir own care.

However, in recent years insurance companiesusing "managed care"--a health-care managementbureaucracy designed to cut costs--have begunfunding a larger portion of all health care. Andthey do not provide subsides, putting additionalpressure on the funding received form Medicare.

But federal lawmakers are unwilling to keeppace with more Medicare funding.

The Balanced Budget Act, which immediatelyfroze Medicare payments, made the federalgovernment as unwilling to provide reimbursementsbeyond the cost of actual care as privatecommercial insurers.

Across the country, academic as well ascommunity hospitals have been cutting costs, butacademic hospitals have been unable to keep upwith the loss in federal money and preserve theirtraditional role in health care.

"We in America have led the world in healthcare. That's very much in jeopardy," says JosephB, Martin, dean of the Harvard's affiliatedhospitals.

The problem for Harvard's hospitals is acute,he says,

The Partners Group, which runs both Mass.General Hospital (MGH) and Brigham and Women'sHospital, estimates that five years of thebalanced budget amendment will cost $340 million.

In the first quarter of this fiscal year--lastOctober through December--Brigham and Women'sposted a $10 million deficit and MGH lost $11.6million.

Deficits are now a common denominator acrossHarvard's teaching hospitals.

Though cost-cutting is underway--Partners, forexample, managed to shrink their budget by $200million--they say they see more patients than everbefore.

Brigham and Woman's cut 110 positions withinthe last two weeks, according to spokesperson VinPetrini.

"Sixty to 70 percent of the costs are people,"Martin says, "Reducing the numbers of peopletaking care of the sick raises serious questionsabout the quality of care,"

And the situation is likely to get worse.Medicare cuts over the next five years areexpected to average 12 percent annually, but thusfar they have been significantly lower. This meansthat by 2002, reductions are expected to reach 18percent.

Harvard's hospitals have dipped into theirfinancial reserves to keep from going under, butthis won't work forever.

"This year we'll muddle through." Rudenstinesays, "but within 12 to 24 months, we'll belooking at disaster...it is not an abstractconcern."

At Stake...

The crisis facing Harvard's hospitals couldmean more than the loss of some treatmentfacilities. They are critical piece of theUniversity's medical education program, andindeed, of the nation's health care system.

"These are the hospitals in which new methodsof treatment are tested out," says HMS AssociateVice President for Government. Community andPublic Affairs Jane H. Corlette. "There's no waythat's going to go on if they have to cut costs."

Research and innovation are expensive, and muchof it takes place in academic medical centers.Moreover, these hospitals provide much of thenation's high-tech care, Martin says.

"Our patients are sicker [than at otherhospitals], we are developing new treatments, andall of that requires subsidization,” he says.

What is more, the teaching hospitals'traditional mission of providing charity careseems to also be in jeopardy.

"It's unclear to me how long they'll be able totake care of the poor," Corlette says.

But by for the biggest casualty of funding cutsfor academic medical centers is the education theyoffer medical students.

"We depend upon hospitals to subsidize theteaching of our medical students and to create anenvironment of research," Martin say.

Training in the academic hospitals includesthe residency that all medical students Pursueafter their actual education in medical school.Without more funding, teaching hospitals likeHarvard's may be forced to reduce or eveneliminate resident program.

What is To Be Done?

The best strategy for Harvard's teachinghospitals seems to be cutting costs, but they saythey are doing all they can and still can't breakeven.

According to Martin, HMS cannot afford to makeup the costs out of its own pockets, though theUniversity and its hospitals will make increasedappeals to donors.

The solution, if one is be found, lies inWashington, according to Harvard officials.

The University has kicked its lobbying officein the nation's capital into overdrive.

"I'll have to go to Washington soon,"Rudenstine says.

He says that many Washington lawmakers believethat hospitals have been over supported byMedicare. He says this is a conviction he wouldlike to change.

"We are looking for ways to see what can bedone," Rudenstine says. Martin is heading a smalltask force to look into the issue.

"We're talking to individuals, key people inthe House and Senate," Rudenstine says. "It'sCongressional budget problem."

Rudenstine says the bulk of the University'seffort will consist of making legislators aware ofthe situation. For now, the University isconcentrating on finding short-term remedies tothe situation.

Rudenstine says Harvard would like Congress toestablish a trust fund-a stream of money separatedfrom the Medicare funds and earmarked to bail outteaching hospitals.

Rep. Benjamin L. Cardin (D-Md.) has proposedone solution.

Earlier this month, he introduced a bill thatwould tax private health insurance premiums tocreate a trust find for graduate medicaleducation.

The bill would place a one-percent tax onprivate health-insurance premiums, giving teachinghospitals two-thirds of the revenue from the tax.

"It's the only workable solution that's outthere," Cardin says. We have reached a crisis."

Though he says relaxing Medicare cuts wouldprovide a possible short-term solution, in thelong run, Medicare cannot be called upon to fixthe problem.

"You're asking seniors and disabled to pay morethan their fair share," he say. "I don't thinkthat's right."

But Martin, who endorses such a plan, says itis unlikely to pass. Cardin concedes it willrequire "political courage," but is moreoptimistic, citing what be considers the loudvoice of benefactors of academic medical centers.

"I have heard directly from Harvard and theyare clearly one of the premier facilities and atarget of what we are trying to do," Carding say."Ultimately, it's going to happen. It may nothappen in 1999, but it will pass."

If Cardin's predication is correct, timing willbe crucial, because, as Rudenstine says, thehospitals cannot wait for more fundingindefinitely.

But, in whatever form, Harvard and hospitaladministrators say help must come soon.

"It's possible that the Congress could say forsome things we're going to allow ourselves tospend a bit more," Rudenstine says.CrimsonMichael S. PapishSHADOWED FROM ABOVE:Funding cuts inWashington have put resident programs like the onefor these neurosurgery students at Mass. GeneralHospital in jeopardy.