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JAMA Forum Archive, 2012-2019: Health policy commentary from leaders in the field
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Use of Public University Health System Revenues Presents Complex Choices

The size of the US health care industry is increasing rapidly, and the cost of health care now exceeds 18% of the gross domestic product. State governments play a major role in paying for health care through their Medicaid programs and health insurance for their employees. As health care expenses grow, these health care programs compete with public investment in other social programs, such as higher education delivered through public universities and, in many cases, contribute to reduced investment in other social programs.

Image: artisteer/Thinkstock

In an ironic twist, to maintain their educational mission, the same public universities that are being threatened with a decline in state general fund support because of rising health care costs might themselves be turning to health care to compensate for this decline in state funding.

The vast majority of people who obtain a college education in the United States do so at public, state-supported institutions. Last year, an estimated $82 billion was spent across all states on public universities. But state funding for universities has been on a mostly downward trajectory over the past 2 decades, with economic recessions creating the tipping points for the steepest declines. The amount states invested in public universities (per full-time student equivalent) declined 15% after the 2001 recession and declined an additional 20% following the 2007 recession. Even as the economy has recovered, there has been only a partial return in recent years toward prior state funding levels for higher education.

Addressing State Funding Shortfalls

To maintain the capacity to meet the demand for an education at public universities, many states have increased tuition and fees to make up for a reduction in state support derived from general funds. Although there has been an associated expansion in federal funding to help students and veterans obtain low-cost loans, the number of students with debt burden is growing over time, as is the average size of their debt.

Some state universities have attempted to reduce the financial burden on students by admitting a greater proportion of out-of-state and foreign students, who are charged more than those who qualify to pay in-state tuition. Although this strategy has helped state universities’ financial bottom line, there has been pushback by those who believe that it results in less availability to enroll qualified in-state students. In California, this concern has led the state to set caps on the number of nonresident students that the University of California will admit on an annual basis.

Another strategy that has received much less attention is increasing the amount of income generated from the delivery of health care by health systems affiliated with public universities. Many state public institutions operate health systems, as California does at the University of California campuses in Davis, Irvine, Los Angeles, San Diego, and San Francisco. Nationwide, physicians are consolidating into larger medical groups, and in many states, including California, many of these large groups are affiliated with public universities. While this may be in part to support the education of health professional students, the pace of change suggests it may be something more than that. Health care delivery generates substantial revenue that could be used to replace declines in state general funds for public education.

At the University of California, income derived from its 5 health systems represents approximately half of the university’s budget. In addition, almost all of the growth of the University of California’s budget from $25 billion in 2009-2010 to $31 billion in 2015-2016 was the result of an increase in clinical revenue.

The ability of state universities to generate clinical revenue could potentially be a win for higher education, but this is by no means guaranteed. Higher education wins if clinical revenue is used to supplement the funds available for teaching activities. However, health system leaders and clinicians who generate the clinical revenue may have other goals in mind for these additional resources, whether it be to enlarge the clinical enterprise, enhance educational opportunities for health professional students only, or increase salaries of the involved health professionals.

Transparency and Accountability

Given the alternatives of higher taxes or cuts to other state programs, the public may support the practice of state universities’ increasing their capacity to generate revenue through the delivery of care if the result is lower tuition costs or additional educational benefits outside of the clinical context. But the public also deserves to have transparency and accountability in these arrangements so that they can understand how the growth of their state university’s health system contributes to lowering the cost of education. They also should be informed about how the public brand of their university is being used and the compromises that are being made to generate funds for the educational mission.

Leaders of nonprofit organizations are fond of saying, “no money, no mission,” but there is a risk of subverting the public university’s service mission in the pursuit of clinical revenue. These tensions are on display at the University of California. Some of its campus health systems, which like other public state systems receive tax benefits as a nonprofit institution, have reduced their commitment to provide services to Medicaid patients in favor of patient populations that provide higher levels of reimbursement. To grow its clinical operations, the University of California has also entered into financial arrangements with a number of community hospitals; these include a Catholic hospital chain (Dignity Health) that imposes limitations, on religious grounds, the availability of reproductive health care options (such as contraception) and care of dying patients. This could create an appearance that a public institution condones limits on practices that are legal in the state. It also runs counter to the state constitution, which prohibits the state or any of its subdivisions to pay or grant aid to a religious hospital.

Those in oversight roles for public universities will face increasingly complicated choices and potential tradeoffs between what is best for the educational, research, and service missions versus what is best for the university’s health care system. With public investment for higher education on the decline, clinical revenue has become an attractive option. Given this reality, it is important to assess how the money generated from this expanding role is being used and the impact of this expansion on health care costs, population health, and educational outcomes.

About the author: Andrew Bindman, MD, is professor of medicine and epidemiology & biostatistics based within the Philip R. Lee Institute for Health Policy Studies at the University of California, San Francisco (UCSF). He is a former Director of the Agency for Healthcare Research and Quality and a member of the National Academy of Medicine. (Image: Ted Grudzinski/AMA)
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