SUSAN DENTZER: What's an academic health center? How do we decide that a collection of institutions is that, as opposed to something else?
DAVID BLUMENTHAL: Well, there's no one definition of an academic health center. But the Commonwealth Fund Task Force has arrived at what we think is a useful definition, and that is the 125 medical schools and their closely affiliated clinical facility--closely affiliated or owned clinical facilities. And we include the clinical facilities because that's where a lot of research, and teaching and care of the indigent takes place. And those are, we think, core missions of what we call an academic health center.
SUSAN DENTZER: So, in most cases, this will mean the hospital associated with the medical school?
DAVID BLUMENTHAL: Yes, a hospital. It often--it almost always includes a faculty group practice or its equivalent. And as academic health centers have grown and become more diverse in this age of competition and change, it sometimes includes an integrated delivery system, including primary care groups distributed in communities, sometimes nursing homes owned by the overarching clinical entity and so on. So it's actually a transforming entity right now. But it certainly, in all cases, includes the medical school and its closely affiliated or owned clinical facilities.
SUSAN DENTZER: And why do we value these institutions?
DAVID BLUMENTHAL: They do some things that other institutions in our society don't. They produce what we call social goods, things that are--have value, but are difficult to sell at their costs, to cover their costs in markets. And those things include basic and clinical research, as well as epidemiology and health services research; they include some components of the education of medical schools--of medical students and other health professions, as well as graduate physicians and graduate training.
And they include the provision of certainly--certain rare and costly high technology and specialized services, including the availability of standby capacity for rare illnesses that may not occur--that obviously don't occur often, but which we want to know can be treated in the rare instances that occur. And they also often include a disproportionate commitment to the care of the poor and the uninsured.
SUSAN DENTZER: So they are a provider for those populations?
DAVID BLUMENTHAL: That's right.
SUSAN DENTZER: Many of these institutions are now in crisis or approaching crisis. Let's talk about the dimensions of that problem.
DAVID BLUMENTHAL: Well, we've been studying this problem over a number of years, and we've been anticipating a great deal of financial pressure on academic health centers. In the past year; that is, in 1999, which is the year we have complete data on, in fact, it does seem as though a higher level of financial stress has occurred than is historically--than has historically occurred before. And that is best demonstrated, I think, by the fact that nationally the margins for these institutions; that is, the net income they have at the end of the year, has gone from about 5.5 percent to about 2.5 percent, which is about as low as it's ever been, and that includes their income not just from patient care, but from all of their investment endowment and so on.
We, also, have selectively looked at the most research-intensive institutions. Those are the sort of elite institutions that get the most NIH money, and do the most research and that arguably, at least for some of these social goods, are the high-end producers. And 14 of the 20 most research-intensive institutions are showing some evidence, some real evidence, of financial stress. They either had lost money in their operations, their clinical operations in 1999, or their bonds--bond ratings were downgraded by bond-rating agencies or their outlook as a potential customer for loans was put--was construed as negative in 1999.
So that's, of these top 20 institutions, and we're talking here of the Dukes, and the Harvard-affiliated institutions and a number of others, of those top 20, 14 had some evidence of financial stress during 1999.
SUSAN DENTZER: Let's talk about some examples of real-life problems some individual institutions are experiencing.
DAVID BLUMENTHAL: Well, institutions are really radically changing the way they're organized and their staffing levels. For example, the University of Pennsylvania has reduced its staff by about--is in the process of reducing its staff by about 20 percent to cover a deficit. The University of San--the University of California, San Diego, did that a couple of years ago.
There are a number of institutions like Georgetown University Medical Center that have sold their hospitals either to for-profit or nonprofit chains. Georgetown did that; the University of Minnesota did that; the Tulane University did that; the University of South Carolina has done that. So there are a lot of institutions that are getting out--academic health centers that are essentially saying I have--in order to run these clinical facilities, I have to do so much differently that I can't manage it any more. I don't want the liability of having--being involved in clinical care. I'm going to transfer that liability to somebody else.
And others are really changing the staffing levels and the way they run their institutions. There was, actually, in 1998, I believe, the first bankruptcy in our history of an academic health center, with the Allegheny General chain in Philadelphia.
SUSAN DENTZER: If we really wanted to draw a line and not let the situation deteriorate any further, what would be the most important steps that would need to be taken in order to arrest that trend and basically ensure the research and clinical capability that we say we think we want?
DAVID BLUMENTHAL: I think the ideal way to do it, putting on my sort of "policy wonk cap," if you will, the ideal way to do it would be to isolate these special missions--research, and teaching, and care of the indigent, rare and specialized services--and pay these institutions to deliver each of those goods in precise proportion to an amount that it increases their costs above and beyond what nonteaching hospitals have to pay. So you might have a packet of money for extra research costs, and a packet of money for extra teaching costs, and a packet of money for extra specialized care costs. And that, the ideal way would enable you to hold them accountable. You could then say, "Report to me back on what you're doing with the research money, and with the teaching money, and with the indigent care money." That would be ideal.
It's very difficult to do that in practice. That accountability is hard to assure in practice. And that, to a large degree, is why I think the federal government, in the past, has resorted to giving pretty unmarked and general kinds of support to academic health centers, at least for the Medicare part of their--of the care they provide.
So, though I would ideally like to increase support on a mission-by-mission basis, my sense is that if we were to say, let's preserve academic health centers, let's keep them financially whole, let's relieve them of the stress they're under, and if we thought that was a good idea, the chances are that in the short term, we would need to give kind of general subsidies with a general, with attempts to ask for increased accountability and demonstrate an evidence of improvements in efficiency and improvements in quality, which I think are possible to achieve. So that would be a sort of platform.
There are some other things we can do. For example, the National Institutes of Health, which of course has gotten big increases in its budgets recently, and it's going to be giving more money out to everybody, including academic health centers, has historically required that these institutions contribute directly or indirectly some of their own funds to complete, to do the research. They don't fully fund the research that they pay for. It's not well-known, but they usually require a 10- to 20-percent contribution from the recipient institution. The NIH could pay a larger portion of the true costs of the research it funds. And, in fact, it's begun to do that, though, in a very small way.
Another thing that the Congress could do would be to cover the uninsured or some part of the uninsured. To the extent that academic health centers, like everybody else, cares for those institution--those kinds of patients, having their care paid for would be helpful to them. And since they pay for more than is average, more than they would normally do, they would benefit more than other institutions.
There are some specific payments that the federal government already makes for institutions that have, that deliver a lot of care to the poor, these are so-called disproportionate share payments, both the Medicaid and the Medicare program make them. Right now they are not well targeted to the institutions that actually provide the care, and that could be--that could be done better.
SUSAN DENTZER: How would they do a better job targeting those monies to institutions truly taking care of more of the uninsured?
DAVID BLUMENTHAL: Well, right now the Medicaid program leaves states a lot of discretion about who receives disproportionate share payments. And those--a lot of those payments, therefore, aren't targeted really at all to the care of the poor, and we could do something about that. The Medicaid program could do something about that.
Medicare also, in the way it calculates the formula for giving away these monies, doesn't take into account sufficiently the amount, the number of uninsured patients, true charity care patients, that receive care at institutions. They weight too heavily the proportion of patients who are served by Medicaid which, in some cases, is not a bad payer. So that it doesn't--the current formulas don't really help, always help the institutions that carry the biggest burden of caring for the uninsured.
SUSAN DENTZER: So there would be a way to make that funding more effective.
DAVID BLUMENTHAL: Right.
SUSAN DENTZER: And more--
DAVID BLUMENTHAL: Targeted better to the institutions that are providing this special service--the service that's not provided to the same extent elsewhere.
SUSAN DENTZER: Perhaps the most salient idea about creating a separate funding stream to take care of some of these social goods, these social missions, is the proposal Senator Moynihan and others have endorsed to create a task force to support the teaching activities at academic health centers. Is that a good idea?
DAVID BLUMENTHAL: I think it makes a lot of policy sense to have a trust fund to support these social goods, teaching, the extra costs of research, the--actually, the extra costs associated with the sicker patients at academic health centers, presumably some extra costs associated with a marginal improvement or a better quality of care that some of these institutions provide. Because we do have some evidence that the quality of care they provide is better and may be worth more, even though it's hard to measure that.
So, yes, I think it makes a great deal of sense. There are a number of people who are concerned, especially now that Senator Moynihan is retiring, that once you make all of these costs explicit, that the support, the political support for them, won't be there and that sometimes making things clear in American politics isn't always good for the purposes that advocates pursue.
It's hard to argue against surfacing the real costs of an endeavor that the public supports, against surfacing it and then letting people decide how much they want to pay. I don't think academic health centers or others have a very strong or are on strong ground in arguing against that, that point of view. But I do think there's risks associated with it. We will be trusting the American people to provide--to value these extra goods appropriately and to support them appropriately.
SUSAN DENTZER: The commission, as I understand it, concluded that if one could find a way to subsidize all of these social costs, that, in fact, academic health centers then would be able to compete very effectively--
DAVID BLUMENTHAL: Uh-huh.
SUSAN DENTZER: And charging rates very comparable to other community-based providers.
DAVID BLUMENTHAL: I think that's true up to a point. If we could meas--or it ought to be true. There would be no reason to exempt them from competition because the rationale for exempting them has to do with the fact that they provide these extra goods, and so far, in the past, they haven't been paid for explicitly by the people who benefit from them; that is, the public.
So the task force has definitely decided and recommended that we should try, to the extent possible, to separate these goods off, pay for them directly, decide how much we want, put the necessary funds into them, and then for the routine provision of clinical care, let academic health centers compete on price with the community hospitals and other big nonacademic providers. And in that sense, the task force has embraced the idea of competition, but competition on a level playing field.