Academic medical centers long have been known as the Cadillacs of healthcare providers.
They offer medical research, graduate medical education and the ability to provide a realm of specialized patient care.
But these expensive features, needed in educating aspiring physicians and caring for the sickest of patients, also have made them healthcare's equivalent of a gas guzzler. That won't be acceptable on the futuristic highway of managed competition.
"Academic medical centers cannot view themselves as ivory towers," said Farah Walters, president and chief executive officer of University Hospitals Health System and University Hospitals of Cleveland. "We can't think that we are so wonderful that others will send us patients."
Payers' views of teaching hospitals haven't been all that flattering lately, as managed-care pressures force providers to strive for less expensive ways to treat patients.
Academic medical centers are wrong if they believe "community-based physicians will refer their patients to us because we provide what they don't," Ms. Walters said.
Eventually, it will be difficult to tell where the teaching hospital starts and the community hospital ends, said Robert Dickler, vice president of clinical services at the Washington-based Association of American Medical Colleges.
"The unique identification of the teaching hospital will blur," Mr. Dickler said. "The teaching mission will still be there and the teaching entity will still be there, but almost every model that you or I can conceive of will be out there."
About 18% of the nation's hospitals-some 1,300 institutions-now participate in at least one residency program. Teaching hospitals are engaging in managed competition, but at least one study shows there's still more work to be done.
According to a 1992 survey by the Association of Academic Health Centers, only 43% of the nation's 102 academic health centers own or operate an HMO, PPO or independent practice association. Academic health centers typically comprise a medical school, other health professions schools or programs and one or more teaching hospitals.
Cost disadvantage.If their services are purchased on a long-term basis, teaching hospitals can be successful, Ms. Walters said. For example, University Hospitals in Cleveland signed 25 contracts in the past three years, including exclusive tertiary contracts with Aetna Healthplans of Northeast Ohio.
"As long as healthcare is purchased on a unit-cost basis, whether it is a patient day or DRG, academic medical centers are going to be disadvantaged because they have a higher cost structure," Ms. Walters said.
Teaching hospitals' costs can be from 28% to 41% higher, on an average per-case cost, than their community hospital counterparts, according to an analysis by the federal Prospective Payment Assessment Commission (See chart, p. 40).
In addition, teaching hospitals face provisions in the Clinton administration's healthcare reform proposal that gradually would wean them from their current level of indirect medical education payments. The administration's formula cuts the Medicare IME adjustment from 7.7% for every 0.1 increase in the ratio of interns and residents to beds to 5.65% in fiscal 1996 and 3% in fiscal 1997 (Nov. 15, 1993, p. 56). For the University of Minnesota Health System, for example, that would mean a loss of about $4 million during that period. Others stand to lose more.
But academic medical centers, the leaders in medical research and educating residents and other healthcare providers, have inherent advantages because they can manage care better, Ms. Walters said.
"(Academic medical centers) can do it by reducing admissions, treating patients better and by better diagnosis, and doing it right the first time," Ms. Walters said.
Making it work in Minnesota.In the intense Minneapolis-St. Paul market, contracting with payers helped the University of Minnesota Health System onto the comeback trail.
Teaching hospital executives at last November's AAMC annual meeting in Washington whispered about the University of Minnesota Hospitals and Clinics being left badly wounded because of the rapidly changing Twin Cities market.
But that rumor was squelched by Greg Hart, president of UMHS, which also includes the University of Minnesota medical school physicians' organization. "Our story is certainly one of challenge, but it's also one of success," he said.
Admissions totaled about 17,600 in 1993, down from an average of 18,600 in the previous four years, Mr. Hart said. To remain competitive, UMHS set a goal two years ago to cut $45 million from its annual $300 million cost of running the hospital and clinic. Mr. Hart said they're almost there, having slashed more than $35 million.
Full-time equivalent employees were reduced in the past 21/2 years to 3,400 from 4,100. About 90% of those 700 employees took early retirement packages.
"We also cut our employee benefit package, and that met with a lot of resistance," Mr. Hart said.
Employees were afraid of change, UMHS executives said. But employees, depending on how they use their "sick" time, could be benefiting. New employees used to get 13 vacation days, 13 sick days and two personal days for a total of 28 days off. Now they get 20 days off to be used for vacation, personal and sick time.
"We moved from a public-sector benefit package to a private-sector benefit package," Mr. Hart said. "Whatever matched the market."
Overall, the cost reductions in the work force were more than $20 million. Another $15 million has been cut through such actions as refinancing debt, restructuring the hospital malpractice program and changing the use of medical supplies, Mr. Hart said.
The leaner UMHS budget began in 1993 to look more attractive to payers.
The University of Minnesota Hospitals and Clinics last summer signed a provider contract with Medica, the state's largest HMO, which now helps the system tap into as many as 750,000 patients as a result of the $2 billion Medica-Healthspan merger that formed Allina Health System (Dec. 13, 1993, p. 3).
Last month, the University of Minnesota and Fairview Health System signed a deal that will allow them to tap into 1.2 million patients through Minnesota's latest integrated service network (Jan. 24, p. 16). The university, Fairview and Fairview Physician Associates signed letters of intent to join Blue Cross and Blue Shield of Minnesota and Aspen Medical Group in the ISN. The Blues and Aspen announced last year that they would form a network.
Allina Health System and the Blues-UMHS venture are, in large part, a response to Minnesota's own healthcare reform plan, MinnesotaCare, which requires providers to join one of a few integrated service networks-also known as "super HMOs"-by July 1.
Many academic medical centers see contracting as just the tip of the reform iceberg, according to the University Hospital Consortium, a not-for-profit alliance of 65 academic medical centers.
"With contracting, you keep getting asked to offer more for less money," said Christine Malcolm, the UHC's vice president for managed care. "It's an end-game strategy. It all depends on the market, because it works for some and not others."
In Boston, a merger appears to be the best approach to reform as two of the nation's most prestigious teaching hospitals agreed to do just that. Massachusetts General Hospital and Brigham and Women's Hospital will control nearly 1,800 beds and more than 18,000 employees (Dec. 13, 1993, p. 3).
But it was the cost-cutting benefits that positioned UMHS to become competitive. Mr. Hart said his system's DRG costs were 15% less on average in September 1993 than they were for the same month in 1990.
"In many cases, we have fewer management, nursing staff and support staff," Mr. Hart said of the 17% reduction in employees at UMHS.
Playing new roles.Medical schools are likely to train more physicians to meet new, non-traditional hospital roles. One GME expert predicted a transformation of medical care into primary healthcare teams.
"A physician will not be a boss but a quarterback, a specialist-generalist," said Gerard N. Burrow, M.D., dean at Yale University School of Medicine. In that scenario, physicians' assistants, nurse practitioners and nurses would get more authority.
With their GME missions in mind, teaching hospitals will have to direct even more of their resources toward primary care. And they're doing it in creative ways while keeping costs down.
"The best strategy we found is to partner with group practices rather than (shouldering) the cost of building our own," said Michael Stringer, director of hospitals and clinics for 412-bed University of California-San Diego Medical Center.
UCSD targeted Southern California's underserved ethnic population while bolstering its expanding primary-care mission.
Last November, UCSD formed an alliance with 30 physicians who earlier in the year had established the Multicultural Primary Care Medical Group in San Diego to provide managed medical care to underserved ethnic communities (June 28, 1993. p. 86). The group has aggressive plans to reach 5,000 patients this year and 50,000 patients by the end of 1995, as more primary-care physicians are added to the alliance.
UCSD will benefit through referrals to its hospital in San Diego's downtown and by a reduction in the number of cases that reach the point at which they need expensive hospital care. This will be accomplished through increased preventive and primary-care services.
Urban primary-care relationships like UCSD's also are the answer to problems faced by teaching hospitals in downtown locations.
"Downtown locations are a problem because there is no parking or park-like setting that appeals to people," said Robert Heyssel, M.D., president emeritus at Johns Hopkins Health System in Baltimore.
Other analysts say patients are afraid to seek care at downtown teaching hospitals because of crime.
Downtown academic medical centers that don't form partnerships, networks or develop other relationships with physician groups could evolve into a new type of hospital.
A new but smaller teaching hospital is likely to emerge out of those that don't devise their own managed-care system, Dr. Heyssel said.
But academic medical centers are working to remain competitive.
An $87 million project within the UCSD Healthcare Network emphasizes primary and ambulatory care. The new 120-bed Thornton Hospital and Perlman Ambulatory Care Center opened in La Jolla, 13 miles away from UCSD's downtown hub but adjacent to UCSD's medical school.
"It provides a clinical setting for faculty and private patients," Mr. Stringer said of the La Jolla facility. "We were isolated downtown. We needed a venue to enhance our marketing image and provide us with more geographical coverage."
With expansions into the suburbs, the formation of alliances, networking and continuing efforts to control their markets, academic medical centers are changing their old ways.
"It doesn't do any good to wish the world wouldn't change," Mr. Hart said. "Teaching hospitals have had the long-held belief that our quality will make a difference over time. That type of thinking may have pulled us through in the past, but it won't any more."