Study questions future of academic medical centers

High expenses hurt market competitiveness

Market pressures imposed by managed care are magnifying various factors that make teaching hospitals look like an endangered species, says a study released Sept. 14 by the Fairfax, VA-based Lewin Group.

The report, titled Teaching Hospital Costs: Implications for Academic Missions in a Competitive Market, concludes that teaching hospitals associated with academic medical centers — hospitals designed to train medical students, conduct research, and provide specialized medical services to some of the nation’s sickest patients — may be in particular trouble. The study was funded by the Commonwealth Fund, the U.S. Public Health Service, and the Association of American Medical Colleges.

The study reached the following conclusions:

• In 1993, unadjusted costs per patient for academic medical centers — which combine medical schools, teaching hospitals, and physician groups — were 83% more per patient ($9,900) than for the average urban non-teaching community hospital ($5,412).

• Unadjusted costs per case for other teaching hospitals (those without medical schools but with residency programs) were 22% more than those of non-teaching institutions.

• After adjusting for case mix, wage levels, and direct graduate medical education costs, academic medical centers still were 44% more expensive than non-teaching hospitals, and other teaching hospitals were 14% more expensive.

These higher costs are mainly related to the teaching hospital’s social missions, such as instruction, biomedical research, highly specialized services, and indigent care, says the study.

"These higher costs put academic medical centers at a disadvantage in the competition for managed care contracts and patients," which can spell disaster for their cash flow, says Allen Dobson, a Lewin senior vice president who co-wrote the study.

Having documented the cost disadvantage facing academic medical centers, Dobson expects to release future studies outlining a variety of new funding formulas that will take the specialized mission of academic teaching hospitals into consideration when negotiating future compensation agreements with managed care organizations and other payers.

"It is our feeling these initial findings will serve an important purpose in providing a starting point for developing new payment solutions that go beyond historic methods, " he adds.