Some sacred cows may be gored at the nation's 125 medical schools as managed care threatens to push some academic institutions to the brink of a financial crisis.
If medical schools follow recommendations of a new report designed to help them cope with payer demand for less-costly patient care, the number of tenured faculty physicians, their salaries and creation of new programs could be greatly diminished.
The report, The Financing of Medical Schools, comes from a task force comprising a dozen medical school deans and teaching hospital executives. The findings were presented to the Washington-based Association of American Medical Colleges, which represents the nation's 125 accredited medical schools and some 400 teaching hospitals. Data from 89, or 71%, of the nation's medical schools were analyzed for the report.
While most medical schools and their faculty physicians are doing well financially, the report's overall conclusion is that the spread of managed care, which pressures provider prices and leads to consolidation of services, could undo the traditional financial base of medical schools. Patient care by faculty physicians is typically more expensive because it includes costs associated with research and teaching residents.
"The ability of medical schools to sustain the current level of clinical support for academic programs is widely perceived to be in jeopardy," the task force report states.
Managed care is considered a threat to medical schools' clinical patient-care revenues, which account for almost half the budget at a typical medical school. Between 45% and 48% of medical school revenues come from clinical patient care through teaching hospital revenues and faculty practice plans (See chart).
"The sources of revenue are being constrained or restricted by managed care," said David Korn, M.D., former dean of Stanford University School of Medicine and chairman of the AAMC task force.
Statistics showed overall average faculty practice plan profit margins dipping to 12% last year from 15% in 1989.
In areas where HMO penetration is high, margins at faculty practice plans plummeted to 9% in 1995 from 20% in 1991. High managed-care penetration is considered to be between 10% and 40% of the population. However, the practice plans continue to enjoy double-digit margins where HMO penetration is less than 10%. In those markets, faculty practice plan margins rose to 12.8% in 1995 from 10.1% in 1993.
Because faculty practice plans can expect to see further erosion of margins as managed care continues to expand, medical schools are going to have to reduce costs in order to remain competitive and keep margins stable, observers say.
"The schools are going to have to size their programs against a set of resources that are available to them in a safe and dependable fashion," Korn said.
The most likely method of cost reduction will come at the expense of faculty and departmental management, the report states.
"Full-time clinical faculties at medical schools continue to increase in size*.*.*.*despite the fact that medical student enrollment has been relatively constant for more than a decade," according to the report.
At private medical schools, the number of full-time clinical science faculty has jumped 64% to 752 per school in 1995 compared with 457.5 per school in 1986, the report said. At public medical schools, the average number of faculty climbed 53% to 473.9 per medical school last year from 310.1 in 1986.
Meanwhile, salaries for clinical science faculty at private medical schools rose 60% to $140,600 in 1995 from $88,100 in 1986, and faculty salaries at public medical schools rose 54% to $131,800 last year from $85,400 in 1986.
In recognition of the growth of managed care, which emphasizes primary care, the task force recommends medical school faculties be reconfigured to focus on programs fostering less-costly generalist care rather than specialist programs.
But many faculty members have tenure, making it next to impossible to eliminate those positions. And proposals to eliminate tenure have been highly controversial.
At the University of Minnesota, the Board of Regents threatened to eliminate tenure earlier this year as a way to reduce costs. Some of the most prestigious-and most expensive-faculty were medical school physicians who succeeded in having the effort scuttled when they threatened to form a union.
The tenure flap in Minnesota has had national repercussions in academic circles. Since managed-care plans are so prevalent in Minnesota, particularly the Minneapolis-St. Paul area where penetration is more than 40%, some medical school deans are concerned the tenure issue could be a harbinger of change for the rest of the country. Observers say cutting physician salaries and eliminating positions are two of the easiest ways to reduce costs at medical schools and their faculty practice plans. That's not easily done when physicians have tenure.
The least painful way to trim faculty positions would be through incentive retirement programs and attrition, the report said.
Salary freezes are also recommended. Some medical schools have reduced salaries selectively or more uniformly--for example, by changing the basis of faculty appointment from 12 months to nine months, the task force said.
The financial guarantees that usually come with tenure also may change.
"Although medical schools must and will honor contractual obligations to currently tenured faculty, they may, in accordance with faculty governance procedures, redefine these obligations for faculty receiving tenure in the future," the task force said. "A redefined tenure system will likely include more explicit and limited financial guarantees and procedures for ongoing periodic review of faculty performance."
The task force acknowledged the medical school isn't likely to be the same entity five years from now.
The AAMC believes mergers and consolidations in some form are a possibility, although officials don't believe closing medical schools is necessary. The task force took issue with a 1995 Pew Commission report that recommended 20% of the nation's medical schools close because of "the prediction of a growing physician surplus."
Said the AAMC's Korn: "Medical schools are restructuring or reshaping themselves. It's a challenging task that all of these schools are going to confront in the next five to 10 years."