'The Perfect Storm'

AAMC Study: Recession Forced U.S. Medical Schools to Take New Tack

September 20, 2010 05:10 pm Barbara Bein

If it can be said that one good thing came out of the economic recession that began in 2008 and continues to have repercussions today, it is that the crisis has forced many U.S. medical schools to make hard decisions, cut costs, consolidate, reorganize and, in some instances, change their cultures for a more secure future. That's the key conclusion of a recent study from the Association of American Medical Colleges, or AAMC.

In the study(www.aamc.org), "Impact of the 2008 Economic Recession on U.S. Medical Schools and Related Organizations," the authors contend that the financial crisis brought about changes in academic medicine that would not otherwise have been possible.

According to the study, the collapse of the investment sector in 2008 had a major impact on the sources of revenue used to support U.S. medical schools and teaching hospitals. By early 2009, some schools and hospitals were instituting furloughs and staff layoffs.

To learn about the impact of the crisis and the steps taken to address it, AAMC staff conducted 30-minute telephone interviews with the principal business officers of 23 medical schools. Those interviews revealed a wide range of losses, the authors said.

At some schools, steep losses were expected but never materialized. Other schools had losses ranging from less than $1 million to more than $80 million. At one school, losses approaching $200 million were anticipated during a three-year period.

Reductions in state support were the most common source of revenue losses for public schools; for private schools, the most frequent losses were in investment earnings from endowments and other sources. Endowment losses at all 23 schools ranged from 20 percent to 30 percent.

Several schools experienced severe losses from multiple sources at the same time they had committed to recruiting new faculty for research and clinical programs and to constructing research buildings. Such a scenario, which occurred at both large and small schools, created "the 'perfect storm,'" the authors said.

Tactical Versus Strategic Responses

Faced with the losses, the schools had to look to other funding sources or slash expenses. All schools took a number of "tactical steps" -- or short-term actions -- to staunch their losses. Those steps included

  • consolidating basic sciences departments;
  • consolidating administrative functions across departments;
  • consolidating administrative functions between the medical school, clinical practices and affiliated hospitals;
  • increasing tuition and student fees;
  • delaying capital projects;
  • changing benefit plans, including retirement contributions;
  • changing faculty compensation, such as limiting guaranteed salary for tenured faculty;
  • delaying implementation of strategic priorities, such as increasing class size or instituting electronic health records; and
  • implementing voluntary retirement programs or buyouts for senior faculty.

A few schools also took long-term, "strategic" approaches to the revenue reductions that included both changes to and cuts in their operations.

The authors quoted the principal business officer at one such school as saying, "Our overall intention was to change the culture of how people operate at the institution and to have their response be long term and sustainable, even as times got better."

The dean of that school and the CEO of the affiliated hospital collaborated on new business practices -- including reorganizing redundant hospital and medical school services in purchasing, housekeeping and capital planning -- and took steps to make cuts in energy consumption and other areas.

An FP's Perspective

According to family physician Jeffrey Susman, M.D., of Akron, Ohio, who recently was named dean of the Northeastern Ohio Universities College of Medicine, or NEOUCOM, in Rootstown, the reductions and losses have meant there is less "seed corn" to facilitate new program development, provide pilot funds and spur community engagement.

Medical Education Can Improve Despite Financial Setbacks

The Mayo Medical School in Rochester, Minn., has made a number of improvements, including adopting a new curriculum, despite fiscal constraints.

In a commentary in the August(journals.lww.com) Academic Medicine, the authors said the current economic climate is affecting many aspects of academic institutions, but medical education must continue to improve and change as one part of transforming the U.S. system of health care delivery.

"From our experience, we concluded that quality improvement in education can proceed even during a time of financial constraints," said the commentary's authors, who include Keith Lindor, M.D., dean of the medical school.

"In fact, the financial constraints may push for even more far-reaching innovations in medical education because of the need to do more with less," they said.

As an example, Mayo Medical School transformed its curriculum from overlapping, subject-based courses to multidisciplinary, integrated blocks. The redesigned curriculum placed the responsibility for learning primarily on the students. Students' time with faculty was reduced, but their learning outcomes actually were enhanced, said the authors.

In fact, the block-based curriculum reduced the number of contact hours for faculty by 30 percent, lowering costs.

According to the authors, the improvements resulted from "careful alignment among the institutional mission of serving the needs of the patient, communication with the faculty, involvement of the students and streamlining of multiple processes throughout the school."

But, he added, there's also opportunity to create new partnerships, such as the one NEOUCOM is developing with Cleveland State University, which is focused on creating a diverse primary care workforce.

"I personally believe a downturn is a great time to redouble our efforts in taking strategic stock of our mission, recruiting faculty who might be less satisfied in a more constrained environment and laying the groundwork for successful philanthropic efforts in the long run," Susman told AAFP News Now.

Susman, who previously was chair of the department of family and community medicine at the University of Cincinnati College of Medicine, said his department there chose to take a new tack in dealing with the 2008 financial crisis. The new course included having clear expectations for the budget and reserves, crafting strategic plans that aligned resources and priorities, and making realistic assumptions about returns on investments and state funding.

The downturn also spurred a focus on grants, contracts and development as core tactics to achieve financial security.

"For me, that means learning new skills, such as fundraising, and making sure we carefully plan for fiscal accountability," said Susman.

"At NEOUCOM, as a community-based medical school, we have neither the benefits nor the risks of a single teaching hospital. In many ways, I find the ability to work with a range of community health systems and university partners to be a strength.

"In the long term, we must make sure we are not overleveraged and we do not count on endowments, grants and future state funds to sustain core operations -- but aggressively pursue new resources to fund strategic programs," he added.

According to the AAMC study, the medical schools' principal business officers offered similar advice on dealing with financial uncertainty. That advice included having open and frequent communications among the dean, department chairs, health system personnel, faculty and staff. The officers also advised engaging chairs, faculty and students in the decision-making process and using the crisis to change the entire organization.

"Even as the national economy shows signs of recovery, the impact of financial crisis on medical schools, particularly those that rely heavily on state funds, will likely extend well into (fiscal year) 2011."