University of Minnesota Academic Health Center is getting $70 million to spend as it pleases, but that's not enough.
Despite the sale of its health system, the center must find new funding and cut expenses, says Frank Cerra, its provost.
Other academic medical centers in heavy managed-care markets are caught on the same thorn: They're subsidizing research and teaching with the profits of faculty practices and hospitals, but now the surplus is shrinking rapidly.
The result for many is sales, joint ventures and other grabs at system membership. That's supposed to increase patient flow and lead to new economic efficiencies.
Some critics contend medical schools are harming themselves more. Separating hospitals and faculty practices from the school is a crippling move, they suggest.
The state-owned University of Minnesota academic medical center includes a medical school and six smaller schools educating most of Minnesota's physicians and other healthcare professionals. Until January, it also included 554-bed University of Minnesota Hospital and Clinic and several associated facilities. They were sold to Minneapolis-based Fairview Health System, but AHC retains influence in their governance and a financial interest in their performance.
Fairview gave the university a six-month note for $87.5 million for the assets, and the university kept about $200 million from the fund balance. It will net $70 million after retiring debt and paying costs of the transaction.
AHC also will get a minimum annual grant of $1 million from Fairview, more if the system's operating margin exceeds certain levels.
Even so, Cerra expects to tap AHC reserves to support operations for the next two years.
Spyrous Andropoulous, director emeritus of communications at Stanford (Calif.) University Medical Center, is a fierce critic of teaching hospital sales and mergers. In a Jan. 2 article in the New England Journal of Medicine, he wrote that medical schools that put their teaching hospitals in separate organizations are giving up control of education and research.
Other academics also believe a better solution would be tying hospitals, faculty practices and schools more closely together.
"You can run educational, research and clinical businesses as separate enterprises. But ultimately, any structure you put into place has to recognize all this comes together at the faculty member," says Mike Geheb, M.D., chief executive officer of University of Alabama at Birmingham Health System, a joint operating organization of the university and its 700-physician foundation.
"Unless the enterprises are financially independent, and they're not, you can't separate them," Geheb says.
The University of Minnesota solution, which splits those enterprises, depends on a clear accounting of the associated revenue sources and costs, Cerra says.
Cerra is redesigning faculty pay over the next two years to tie each aspect of their work-clinical care, teaching, research and administration-to different revenue and performance criteria.
Meanwhile, Fairview is developing a system to track research and education costs at Fairview-University Medical Center, the name for the merged community-university entity. It will pay half of all unfunded costs after a 32-month transition period. During that time, the university is contributing $1 million to a segregated account for those costs. Any remaining unfunded costs, estimated at $13 million this year, will be split with Fairview.
Before the end of the 32 months, Cerra hopes to cut research and teaching expenses at Fairview-University by $13 million, leaving each organization with an annual commitment of about $6 million.
"There's a lot of work to do," he says. "But it is all doable."