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Resident Physician Forum
October 27, 1999

Teaching Hospitals in Trouble: Defining the Problem

Author Affiliations

Prepared by Ashish Bajaj, Department of Resident and Fellow Services, American Medical Association.

JAMA. 1999;282(16):1592A. doi:10.1001/jama.282.16.1592

The nation's teaching hospitals are facing financial shortfalls brought on by the growth of managed care and government efforts to cut costs in its health care programs. As many as 100 teaching hospitals could be in the red by 2002.1 Others face a bleak and uncertain future. Congress can help by restoring some of the cuts made to Medicare in the Balanced Budget Act of 1997. But the long-term financial health of teaching hospitals will depend on finding new ways to finance their special missions and requiring that they operate under reasonable cost controls.

All hospitals are facing the same pressures—cuts in government payments and managed care's demand for lower hospital fees and shorter hospital stays. Many have responded by reducing staff and merging with other institutions.

Some teaching hospitals have taken these steps, but their problems are compounded by the extra obligations that they have long assumed, which include training new physicians and other health care personnel, conducting medical research, and providing free care for the poor. Teaching hospitals shape the future of medicine by providing most of the clinical research in new procedures, technology, treatments, and medications. They are the major providers of indigent care in the United States. Managed care has changed that by making it much more difficult for hospitals to cover the costs of charity care and medical education by charging higher fees. At the same time, these hospitals have been especially hard hit by government cuts because they derive much of their revenues from Medicaid and Medicare patients. These pressures are especially severe in large cities such as New York, NY and Los Angeles, Calif, which have the nation's largest concentrations of teaching hospitals.

Many government funding cuts to hospitals came from the Balanced Budget Act of 1997. While the Act had the welcome result of cutting Medicare expenditures in the first half of this fiscal year, it also had a disproportionate impact on teaching hospitals. Among other cost controls, the law sharply cut the Direct Medical Education payment, the federal subsidy for graduate medical education that is financed as part of Medicare. The law also froze the number of funded residency and fellowship positions at the 1996 level. Some Medicare patients were encouraged to switch to Medicare health maintenance organizations, which have paid hospitals significantly less than normal Medicare providers pay for the same services.

In the public's mind, no clear distinction exists between academic medical centers and community hospitals. We need to promote the message that academic medical centers are different and a national resource. Next week's Resident Forum column will explore some of the suggestions for protecting this resource.

Association of American Medical Colleges.  AAMC calls for restoration of BBA Medicare cuts to teaching Hospitals. Available at: http://www.aamc.org/newsroom/pressrel/990428.htm. Accessed September 20, 1999.