SUSAN DENTZER: You've written that these institutions collectively are in jeopardy.
DR. PARDES: Right.
SUSAN DENTZER: Why?
DR. PARDES: They're in jeopardy for several reasons. One is that, in 1997, when the country balanced its budget, it reduced by very substantial amounts the revenue streams going to teaching hospitals. In fact, the estimate by Larry Lewin, who is a highly regarded economist, was that it was a reduction of $118 billion and some have said it may even be higher.
That was compounded by the fact that a legitimate attempt to restrain the rather aggressive movement of health care costs going up, managed care was introduced and managed care has held very tightly, perhaps sometimes a little too tightly, on to the health care revenue streams to those institutions as well. And so, the combined efforts have dramatically challenged teaching hospitals' ability to maintain itself fiscally and, as a result, programmatically.
Lewin estimates that something between 59 to 68 percent of the hospitals in the United States will be in red ink, if they're not already there, over the next several years. My understanding is, that a couple of smaller hospitals in Portland, just within the last couple of weeks went bankrupt, in Portland, Oregon.
A hospital as diverse as the Children's Hospital in Boston, which reported something in the neighborhood of a $40 to $60 million deficit for the last two years, the Deaconess, Beth Israel-Deaconess combination also reported a major deficit, the University of Pennsylvania, the Stanford University of California, San Francisco and without going on to all the others, Detroit, Alabama, Cleveland, etc., that there are widespread, very serious situations in which these teaching hospitals find themselves.
To compound the situation further, the healthy move, in my opinion, toward care being delivered in the ambulatory setting, means that that patient who may be in a little bit better shape is able to be treated on an outpatient basis. The residual people in the hospital are, as a result, on the average more acutely ill and require more services.
In order to deal with the successive cuts from these economic squeezes I mentioned earlier, one of the only mechanisms hospitals have, after they try to re-engineer, is to reduce numbers of people working in the institution. And so, you have got the ironic situation of patients more acutely ill, going to hospitals who by virtue of the economic challenge, are reducing their staffing. If anything, there should be increased staffing for people with more acute illness. There is decreased staffing.
Add one more thing on to that and that is, in order to prepare oneself for managed care, the health care institutions have had to make very healthy investments, not the least of which is the excitement of information systems and what it could do. And it could dramatically help streamline and make health care that much better. But the cost is formidable and the very same institutions, depleted, as I said before, are faced with the challenge of finding those revenue streams.
And one final point--there's much to this story--is that the availability of capital for refurbishing the physical plant, for buying the new technology whether it's MRI machines or any other kind of physical fix up of boards, clinics, hospitals, building new ambulatory care centers, there is really very few places to go to find that money.
SUSAN DENTZER: Let's talk specifically about the Balanced Budget Act impact on this institution. Obviously, some of those cuts were ameliorated last year with the Balanced Budget Refinement Act. I'm speaking specifically of the direct graduate medical assistance--
DR. PARDES: Right.
SUSAN DENTZER: --payments. But in terms of the cuts that were actually put in place in the hospital, payment update, the specific cuts that were undertaken in terms of the disproportionate share, can you quantify what the impact of all of that has been on this institution?
DR. PARDES: Our financial people tell us that a rough estimate is that, we face something in the neighborhood of a $40 million deficit in a recurring fashion each year. Since the cuts were made over a period of six years, each year there is a new cut. And a rough figure to have in mind is about $40 million.
SUSAN DENTZER: And that's off of a revenue base of--
DR. PARDES: We have a revenue base of about $1.6 billion here. But you see, when you're taking a cut, when you've got necessary increased expenditures, either simply in the fact that people working should be entitled to some kind of increase in order to keep up with rising inflation and second, the cost of some assets in medicine, such as medications, have climbed substantially, you have a disparity between what additional revenues you can anticipate and what expenditures you can anticipate that simple has to be met by constantly contracting the personnel or some aspects of the nature of the system.
Now, I want to emphasize that, the medical system, as we've entered this phase, had excess capacity. There have been reductions. There have been reductions in the number of hospital beds in the city, in the state, in the country. There have been many attempts by administrative heads, to re-engineer in order to streamline and be as cost-effective as possible.
I have to tip my hat to my predecessor, David Skinner, and his colleague, Bill Speck here, who had the courage to merge two institutions which were rivals. They're two massive institutions unto themselves, but one of the intentions was to try to make a larger institution who could get some economic benefit as a result. So, it's not as if people have been reluctant to undertake solutions, which might make them more viable and reduce the cost of health care.
SUSAN DENTZER: In terms of the 800 positions that were eliminated, who got cut?
DR. PARDES: All kinds of people, although the protection was given to people in direct clinical care. We did not want to cut nursing positions or people who were--we really focused on wherever we could find cuts in administrative positions.
SUSAN DENTZER: And that was largely successful in confining it to administrative?
DR. PARDES: Yes, I think so. We are also now undertaking an effort to benchmarks, use benchmarks against our personnel distribution to see if there are places where we still have some excess. I mean, it's hard to talk of excess these days, but we're looking at any and every... in which we can, as I said, to make a leaner organization.
SUSAN DENTZER: We spoke a moment ago about the pressures brought about by managed care. From the standpoint of the managed care companies, what they say, in effect, is, look, all of these social goods are nice, but our job is to get the best possible deal on health care for the premium dollar. We look at institutions such as academic medical centers that are doing this education, doing this research, but they're not necessarily doing it all for the benefit of clinical care directly. It's a much more abstract thing.
Why should we pay for that and why should our customers be asked for that when, in fact, what they come to us for is good clinical care and we can purchase that at a cheaper price elsewhere?
DR. PARDES: That's a very, very good question.
Let me kind of say, first of all, that I don't agree with managed care leaders on all issues. But I think that it isn't entirely fair to place all of the burdens for these issues on them. They are expressing a view felt by the body politic over the last number of years, a view that said we had to do something to rein in health care costs.
With regard to the comment that they are there to pay for clinical care, I would say that, in any system, if you don't have a research and development effort, you have a system destined for becoming antiquated. Any industry knows that you've got to have an R and D effort to move forward. You've got to train people. You've got to do the research that produce the next treatments which make illness less problematic, causing less symptoms, causing less dysfunction. Somebody's got to pay for it.
Now, the federal government has responded and the American people have been very vocal on one issue and that is the support of medical research. We are currently in the middle of a process hopefully destined to double the National Institute of Health budget, which means to double the research in medicine in this country.
I think that's extraordinary. I think it takes cognizance of the fact that medical research has never been more exciting and the promise that we can offer the American people is that, the way it's going over the next several decades, we may be able to say that there is no illness for which we don't have something for you. Maybe we can't cure everything, treat everything definitively, but we're going to have something for almost everything and we're going to reduce the burden of illness and dysfunction.
That's a tremendous promise. There's research that is being supported. In order to completely fulfill that potential and promise, you've got to have the teaching hospitals and medical schools where much of this work is done, be supported as well. You can't simply have the research grant supported without the needs of the clinical system where many of these research discoveries will be converted, implemented, tried out, what have you, being impoverished.
My hope is that, there will be a [unintelligible] and spin off from the nation's conviction about seeing Alzheimer's disease, cancer, heart disease brought under greater control and the realization that in order to do that, you have to have physicians, nurses, health care staffs, hospitals, but you also have to have the scientists, the educators that make that process roll forward.
So, managed care might say, we don't necessarily think it's our burden. I would say to them, I think it's their burden to help find, as it's our burden, all of us our burden, to figure out where the resources will come from to pay for those social goods.
And if I can persist in one other aspect which is, I think, particularly critical. It is also important to make sure that no individual goes without health care because of no coverage in this country. The phenomenon of 44 million people and going up being uncovered is, in my mind, a national disgrace. We are very prosperous in this country. We ought to be able to figure it out.
What happens by virtue of a large number of people, uncovered by health care insurance is that, they're in trouble and then the institutions who will not morally, ethically or compassionately turn away from them, are also in trouble because they take care of them and don't receive the dollars in adequate numbers to cover those costs.
So, if managed care were to say, we are narrowly concerned only about clinical care, I would find that a disappointingly myopic view. That doesn't mean that they necessarily have to put the dollars up themselves, but they should be insisting that the dollars be put up and maybe they should band together with the health care providers, the academics, the patients and families.
I think all of us are, in a sense, on the same side of this issue. Nobody escapes illness unfortunately, and for us to ensure that our ability to move our capacity to a point where really can treat even more effectively and definitively all conditions for people and to make sure that everybody can benefit from that, I think, is the kind of lofty goal that should be one of the preeminent goals of a country like ours.
SUSAN DENTZER: How much do the combined institutions now deliver in terms of care of those we might think of as the medically indigent, strictly speaking, those without health insurance.
DR. PARDES: Let me tell you one anecdote and you tell me what to do.
About three weeks ago, I received a call to the effect that a family had liquidated all of its resources and come to the United States because their baby would die if the baby did not receive a liver transplant. They came to us because they knew that Johnny [Munn,] our liver transplant surgeon, has been the pioneer in doing liver related transplants. They had no resources. They wind up on the New York Presbyterian doorstep.
What would you do?
People talk about wanting to have the health care system conform to the market. A market does not take a non-paying patient. A health care system does. And I guess that's why my feeling is that, health care cannot simply be seen as a market phenomenon. There's much more than that. And whether the baby came from the Philippines or from some other part of the country, they baby should be taken care of and we took care of the baby.
But that means there's another hole in the budget of this institution. I find it even distressing to have to even talk in those terms. The focus should be on saving that baby.
SUSAN DENTZER: The baby went on to have a living liver transplant?
DR. PARDES: Given by New York Presbyterian Hospital system and they and many other systems, many of our sister institutions across the country, do this everyday, sometimes in less dramatic form, but to try to provide health care to this very large population of people who need health care and don't have resources.
SUSAN DENTZER: What was the cost of that procedure...?
DR. PARDES: I don't have it exactly, but I would estimate it probably to be in the $200,000 to $250,000 range. But just multiply that. Of course, that's an expensive procedure. If you have tens of thousands of people coming in with no health care coverage, then you can understand that that will leave a big hole.
That's why my feeling is that, some effort to provide coverage really ultimately to all citizens will both be very valuable to the citizen, because the citizens themselves should not walk into an institution with a sense of embarrassment that they don't have the same capacity. They should walk in, head held high as any other individual and say, I say do have the resources and I'm asking to be taken care of. I'm able to--I have the capacity to have them covered.
SUSAN DENTZER: Let's talk just briefly about what you've [unintelligible] doing in that regard in the future and also what questions that might raise about additional proprietary conflicts of interest that could arise from that and other things that academic centers are increasingly concerned about.
DR. PARDES: Well, this academic center has pretty strict conflict of interest rules, by which people who conduct research are governed, with which they have to comply. What we've done is--it's very early in the game and we have simply launched this effort to try to figure out, are there useful products which we are able to produce. It could be some of consultitative expertise. It could be an ability to develop new devices. It could be new information systems or new ways of going about the practice of health care.
What those specific ideas are will await--an outstanding leader I've asked to undertake that, to bring us back those suggestions for where we might be able to find the most promises, opportunities. But all of that will be conducted with a strict sense of separation as to personal interest versus institutional interest.
The intent here is very simple. And that is, in light of what I said before, about the gap between what revenues come in and health care and what expenses we have, if we find some other ways, while we hope for Washington to bring help which will mitigate the pain on this institution and allow it to continue to give comprehensive services.
SUSAN DENTZER: This institution derives about $100 million a year. I'm speaking broadly now--from a patent held on a glaucoma medication, which patent is soon to expire. So, there has been an active effort to extend the patent. Some people point to that and say, see, this is where universities get into a situation where, of necessity, they are trying to derive a proprietary interest from proprietary research, but they many not always be operating, quote-unquote, in the public interest.
DR. PARDES: Let me just correct a couple of things that you've said. On the present to the hospital, those monies have come to the university. Number two, they have benefited the medical school. The patent that is expiring is a genetics patent related to a medication for dissolving or heart attacks and strokes and the glaucoma drug is a different effort.
The still, the point you are making is as follows. One source of revenue that has been made available to research institutions is the possibility to participate in the benefit from intellectual property. That was a national decision. It was made as one step to try to facilitate research institutes and medical schools. The hospitals do not benefit in the same way. There may be some possibility, but to this point, this hospital has received nothing in the way of intellectual properties revenues to my knowledge.
SUSAN DENTZER: No and I want to make clear when I was using the phrase institution, it was the broad--
DR. PARDES: Okay, institutions in general. I think it was a wise move. It both incentivizes institutions to do research which is productive, because if it's not productive, it doesn't have a value. No resource will come back. And the institution has very--the institutions who do this have very precise rules for allocating those resources. Some of them are returned to the investigator. Some of them are returned to the department. The investigator works in some to the university, some to the school and the facilitate the academic process.
What has come out of it, in Columbia's instance, for example, is the fact that one scientific experiment led to the development of TPA, which has offered us a possibility to interrupt coronaries in their early development and now strokes as well. And the second is ostensibly one of the best drugs for glaucoma.
So, a good result was had for the American public and I think it's not unreasonable to offer the institutions to derive some benefit. All they're doing is taking that money and plowing it back into more research, education and care. I think it's a very helpful way of proceeding. The problem is, it doesn't quite do enough. On the clinical side, there's not enough of a resource there. At least, I don't see yet where we are exploring it. But we have to find some way to get analogous revenues in there.
SUSAN DENTZER: Where do you think this nation will come out five, ten years from now, as it continues to look at the issue of the importance of funding academic health centers? Do you think that we will stumble our way to the type of solution [unintelligible] has been talking about now for the better part of a decade, an all payer trust fund? How do you think we will grope our way through this?
DR. PARDES: I think if you were a betting person that you would probably answer in the affirmative to what you said; that we will probably incrementally get to something like that. I believe that the nation is going to face another crisis which will come about because managed care has found the savings it can find easily. It figure it was start to see a rise in premiums and the question will be raised again, what do we do about the health care system.
I think that's already in there to some degree. Will we come around to some solution such as Senator Moynihan? I hope so and I will tell you, I will do everything I can to try to see that that happens, but I can't assure it. And I'll tell you why I feel that way.
This is the field in which I've lived for my entire professional life. There's something enormously attractive about being of even the slightest help to relieving pain in people, finding better answers to disease and developing fine health care practitioners. I think it's an extraordinary mission. I think it's one of the greatest successes of this country.
And at the end of the day when you figure out what you have done with your life, to have said you have advanced this cause, as far as I'm concerned, is as noble an achievement as one can have. I don't demean any other professions or fields, but if one as a result can diminish the pain and increase the function of individuals in this country and divert from people's lives and experiences the extraordinary negative aspects of illness and its devastating effects, that's terrific.
We happen to do it sensationally. What I'm trying to do is see that we sustain ourselves at that level and while I wish I could tell you we will definitely find the kinds of economic solutions to allow us to do that, I can't be sure. I can only be sure that I and many of my colleagues will be taking every effort we can to try to make it happen.
SUSAN DENTZER: Great, thank you. That was great.