The American Medical Association suffered its largest operating deficit of the decade in 1998, stoked by rising expenses and a dip in membership dues revenues.
Membership fell by 2,669 to 290,958, down nearly 1%, despite a midyear pledge by Executive Vice President E. Ratcliffe Anderson Jr., M.D., to make boosting membership a priority.
The AMA's $5.4 million after-tax loss exceeded a $1.7 million operating shortfall in 1997, according to an auditor's report released in advance of the AMA's annual House of Delegates meeting last month in Chicago. The negative margins followed two years of gains.
The membership drop wasn't as steep as some had feared in the wake of the AMA's controversial 1997 endorsement deal with Sunbeam Corp. The aborted deal embarrassed the physician lobby and led to a $9.9 million payout to settle litigation with the appliance-maker. Some critics had predicted a mass exodus.
AMA officials dismiss any notion that the drop could be attributed to Sunbeam. AMA Treasurer and Secretary Timothy Flaherty, M.D., cites weakening participation in all medical societies. "It's a question of perceived value," he says.
To try to expand market share, the AMA implemented pilot packages of reduced benefits at lower rates, which resulted in less revenues per member. Total dues revenues fell 3.8%, continuing to erode as a funding source. Dues represented 27.8% of operating revenues, compared with 35% in 1993. Advertising revenues also were down, which was attributed in part to pharmaceutical companies' shift to consumer ads (see chart).
Operating revenues were $240 million, up 1.7%, while operating expenses rose by 4.5%, with the biggest increases for salaries and employee benefits, professional services and computer costs.
Flaherty blames much of the operating loss on the year-2000 computer bug, which he says cost at least $4 million to fix. Salaries and benefits rose as the Anderson administration filled empty positions, he says.
Development of the American Medical Accreditation Program increased spending by $4.5 million. The AMA has spent $11.8 million to create the seal of approval for physicians, and costs continue to mount.
But Flaherty denies a financial motivation for a proposal under consideration to spin off AMAP into a separate body with multiple sponsors. "(The funding is) important for the credibility of the program," he says.
For nonoperating items, the $9.9 million paid to Sunbeam was offset by $18.4 million in gains on the sale of real estate in Chicago and Washington. Total AMA equity at the end of 1998 stood at $130.1 million, up nearly 8% from $120.8 million.
According to a separate report, total trustee compensation was $2.3 million, little changed from 1997. Top earners were President Nancy Dickey, M.D.; President-elect Thomas Reardon, M.D.; and immediate past President Percy Wootton, M.D., who took home $221,980 each. Chairman Randolph Smoak Jr., M.D., earned $201,120.
Anderson, who earned a base salary of $259,621 and benefits worth $18,290, had an annualized total compensation of $496,269, 4.6% higher than that of his predecessor, P. John Seward, M.D. His was the only executive compensation data the AMA made public.
At their meeting, delegates were slated to vote on a bylaws change to bar officers and trustees from the post of executive vice president until three years after their terms end.
--Crain News Service