Academic Medicine's Financial Accountability and Responsibility

In his recent review of Ludmerer's Time to Heal,¹ Steven Schroeder, MD, concludes that Ludmerer's book "presents a powerful case that academic medicine's self-serving behavior has jeopardized its unique public trust."² Remarkably, Schroeder, a distinguished medical educator and current president and chief executive officer of The Robert Wood Johnson Foundation, does not take exception to this harsh indictment. One suspects that he may concur.

A permanent loss of public trust in academic medicine would be tragic. As Schroeder notes, "for most of the twentieth century academic medicine was the jewel in the crown of the US health care system."² Most students of US health care, and certainly I, would agree. Fortunately, the past tense used in Schroeder's sentence may be premature. The many contributions of academic medicine are the reason that the US health care delivery system (as distinct from its health insurance system) is still widely regarded as unrivaled anywhere on the globe. It will be difficult, however, to maintain that lofty position without trust on the part of the public that the leaders of academic medicine will use the resources entrusted to them effectively.

It may be asked how the leaders of academic medicine, surely among the most intelligent members of society, could have lost something as precious as public trust in the first place. For the most part, it was not these leaders' fault. They have become victims of rapid changes for which no one in society had prepared them. Indeed, it can be argued that the leaders of academic medicine continue to be victims of an utterly confused US public that simply cannot decide what the social role of health care should be in this country. From academic medicine, that confused public now demands the impossible, namely, that academic medicine pursue its traditional, altruistic mission of providing cutting-edge patient care, performing world-class basic and clinical research, and educating the physicians of the future after having been thrust into a harsh, price-competitive marketplace. Academic medicine is expected to play nicely in an environment where nice folks finish last.

Until the early 1990s, no one actually had ever asked academic medicine to be accountable for the resources it claimed from society. There were at least 3 reasons for this arrangement. First, private insurers passively paid whatever charges for health care were billed to them by academic medicine, blindly trusting that "one gets what one pays for" and, in any event, it was expected that whatever profits academic medicine might extract would be redeployed in the public interest. Private insurers had nothing to lose by their generous posture because their sources of revenue—private employers—evidently were willing to absorb annual premium increases in the high double digits, year after year. Private employers, in turn, stood ready to absorb these premium increases, because they knew what every economist knows: that, in the long run, the cost of fringe benefits comes out of workers' paychecks rather than out of profits.³

Second, Congress stood ready to grant academic medicine generous support through the budget of the National Institutes of Health and through sundry subsidies built into Medicare's payments to teaching hospitals. This period coincided with academic medicine's increasingly well-developed skills at public lobbying. Few members of Congress ever actually questioned academic medicine's questionable assertion that undergraduate and graduate medical education are inherently public goods, the production of which warrants generous public subsidies.

Third, Congress also asked academic medicine to help cover up one of Congress's glaring moral shortcomings: its failure to ensure equitable access to timely health care to millions of uninsured Americans. Unwilling to legislate universal health insurance up front, Congress preferred to funnel indirect subsidies to institutions willing to treat the uninsured. In the process, academic medicine has become a major source of catastrophic health insurance for the nation's uninsured. This is why leaders of academic medicine have successfully argued that the same graduate medical education of a resident warrants as much as 5 times the public subsidy in one place (eg, New York) than in another (eg, North Carolina).

Given this genteel budgeting environment, one cannot really blame academic medicine for developing certain irresponsible managerial habits of mind. What incentive did the leaders of academic medicine have in such an unconstrained environment to demand fiscal discipline and accountability from their colleagues? It is similarly unsurprising that academic medicine failed to put in place complex and expensive management information systems capable of linking dollar flows to distinct activities. Indeed, it is difficult to imagine what practical purpose these systems might have served. Fein⁴ recently pointed out that "The long-run advantages of transparent bookkeeping [for academic medical centers] were ignored, even though those connected with the enterprise understood that the financing system made little sense and, therefore, was vulnerable to actions that might be taken without recognizing potential adverse effects."

As Fein suggests, this cozy arrangement was vulnerable to several external threats. Sometime in the late 1980s, the ever larger share that the US health system in general took from the treasuries of private employers made it impossible for them to raise their employees' take-home pay, even though total payroll costs continued to climb. At that point, private employers embraced in earnest an idea put to them decades earlier^{5 - 7} : fierce price-competition among insurers who then imposed externally "managed care" on physicians and hospitals. Thrust into this harsh new market environment, academic medicine was also forced to compete for patients on the basis of price and to justify its use of resources to external monitors. Inevitably, these pressures moved the behavior of academic medicine ever closer to those of purely commercial entities.

Ludmerer¹ deplores this development as an abandonment of academic medicine's traditional altruism and social mission for the sake of self-interest. For better or for worse, however, that is exactly what society has ordered the (academic) physician to do. As I have argued elsewhere,⁸ after being shoved into the pressure-cooker of this new market, academic medicine's only sensible recourse was to delineate clearly its several distinct "product lines" (eg, undergraduate and graduate medical education, basic research, applied clinical research, medical care, and health care of last resort). Next, academic medicine had to put in place sophisticated cost-accounting systems capable of linking money flows to these distinct product lines. With that information in hand, academic medicine could then compete vigorously, on commercial principles, in the markets for those products that are in the nature of private goods. At the same time, it would have to demand public subsidies for product lines (eg, research and health care for the uninsured) that are clearly in the nature of public goods. (In making the latter case, it would be particularly wholesome if the leaders of academic medicine put policy makers on notice that, henceforth, they will no longer drive their clinical colleagues to exhaustion and disillusionment to fund a catastrophic health insurance system for which the financing is properly the responsibility of the Congress.)

If, in retrospect, society does not like academic medicine's diversion from its erstwhile pursuit of a social mission to this seemingly self-interested commercial behavior, there is always time to negotiate a more congenial social contract. Whatever such a new, improved social contract might turn out to be, however, it is a safe bet that society would expect from academic medicine more open accountability, at least for the resources it claims from the public sector.

In this issue of THE JOURNAL, Krakower and colleagues⁹ present annual data from the Association of American Medical Colleges (AAMC) of total revenue flows, by source of funding, for all 125 US medical schools combined. As in previous years, these authors make no attempt to relate these revenue flows to any measure of medical school activities, such as the number of medical students taught or the number of full-time clinical or basic faculty. This, as I have argued, is the way that leaders of academic medicine have traditionally approached budgeting in their discourse with society. The underlying assumption is that it would be catastrophic for any institution's budget not to experience a constant and sustained growth in each succeeding year. As long as this line of entreaty was successful, displays of revenues supporting medical school activities (such as those in Table 2 of the article by Krakower et al) might be expected to trigger a sympathetic reaction from the media and from public and private payers if the actual increase in revenues fell below the desired target, let alone if they actually decreased.

Alas, this approach is rapidly becoming anachronistic, as society will increasingly demand that budgets be defended not simply in terms of dollar flows per unit of time, but rather in terms of dollars spent per unit of activity. Thus, the leaders of academic medicine, perhaps through the research arm of the AAMC, should develop and publish normative standards on what the education and training of a US physician ought to cost in an efficiently operated system. Fein⁴ argues that "In the absence of a fit between the activities of the AHCs [academic health centers] and the sources and patterns of funding (including federal funding), AHCs rest on a weak foundation whose fragility has long-term implications." Granted, standard costing for medical education is not quite as straightforward as it is for industrial products like automobiles. Nevertheless, the argument that medical education is too complex for capture by standard costing is no longer convincing, and in fact, never was. After all, the entire diagnosis related group system for hospital care is nothing other than standard costing.

Next, academic medicine must steel itself to defend, through more than repetition, the mantra that undergraduate and graduate medical education is inherently a public good ipso facto entitled to public subsidies. Although, so far, the mantra has convinced Congress, few economists would vouch for its validity. Equipped with persuasive theory and empirical support, policy makers sooner or later will drag academic medicine into the public forum to debate the issue openly. To prevail in that debate, academic medicine would have to do more than offer the claim that the validity of its proposition is self-evident. In fact, the debate may be unwinnable.

Finally, academic medicine will have to come to terms with the idea that in a dynamic market environment, revenue flows will ebb and rise. It means, for example, that the data on declining salaries for certain departments of medical faculty reported by Studer-Ellis and colleagues¹⁰ in this issue of THE JOURNAL are to be expected from time to time. Furthermore, academic medicine must come to terms with the possibility that not every academic health center will survive in the years ahead. Although I remain unconvinced that the nation suffers from a huge physician surplus,¹¹ that thesis remains the conventional wisdom in the policy arena. If it were truly so, then it would be difficult to argue before Congress that all of the producers of this surplus human capital should survive. It would be equally difficult to argue that the production of this surplus human capital warrants continued, generous public subsidies. Getting the story straight on the physician surplus therefore should have a high place on academic medicine's research agenda.