A case of market failure

Abstract

Over the past decade academic medical centres in the USA have been struggling to adapt to an increasingly competitive, market-driven health-care system. To cut costs, they have reduced staff and streamlined operations, while developing new services to increase revenues. Nevertheless, it now seems clear that some of the country's 125 academic medical centres are destined to go out of business. Many have been running in the red for years. And others, whilst surviving, are finding it increasingly difficult to fulfil their traditional missions of training young doctors, nurses, and other health workers, conducting basic and clinical research, and providing care to the patient.At a press briefing last week (May 4) in Chicago, Illinois, sponsored by the Journal of the American Medical Association, representatives from several leading US health centres blamed the crisis on the rise of managed-care insurance plans and on overzealous budget-cutting by the federal government. Managed-care organisations force doctors and hospitals to compete for patients on the basis of price and service—when service is roughly equal, price wins out. As a result, many insured patients who in the past have provided crucial income for academic centres have now been shifted by their managed-care organisation to lower-cost private and community hospitals and to “boutique” outpatient surgical centres, which thrive by siphoning off low-cost, low-risk elective-surgery patients.To stay in business, academic health centres have no choice but to lower the price of their services. But try as they might, as the market is currently structured, teaching hospitals have a hard time beating non-academic centres on the basis of price. Why? Because of the high cost of running training programmes, conducting research, and providing uncompensated care. Managed-care organisations and non-academic medical centres do not help pay for these services provided by academic centres even though they clearly benefit, staffing their clinics and wards with men and women trained by the academic centres, using research from the academic programmes to improve their care and efficiency, and avoiding the cost of uncompensated care that is so often shouldered by academic centres.The consensus among the experts speaking at the Chicago briefing was that some US academic medical centres will have to close. Yet the experts agreed that this was not necessarily a bad thing. The USA is oversupplied with doctors and specialists, and redundant academic medical centres should be closed. But essential centres need more support before these institutions are seriously undermined. Financial pressures are already forcing faculty to spend more time seeing paying patients and less time teaching, while established researchers are leaving for corporate research jobs. The quality of medical education is also suffering because patients are rushed through the hospitals so quickly that students and residents have little time to work-up and get to know their ward patients. The crisis is also having a ripple effect in many communities as layoffs threaten to destabilise the economies of some cities where academic medical centres are major employers, particularly of minority workers.Clearly, to remain competitive, academic medical centres must continue to tighten up their operation where they can. They also need to draw up a rational and fair mechanism to help decide which centres are redundant and should be closed so that money can be invested in essential programmes. But advocates rightly argue that managed-care organisations and other non-academic centres should be required to help cover the cost of the medical training, research, and uncompensated care provided by academic medical centres. The federal government should also reconsider budget cuts that have hit academic centres hard and which, considering the soaring US budget surpluses, seem unnecessarily draconian. Academic medical centres in the USA provide services from which everyone in the country benefits directly or indirectly. Over the past decade academic medical centres in the USA have been struggling to adapt to an increasingly competitive, market-driven health-care system. To cut costs, they have reduced staff and streamlined operations, while developing new services to increase revenues. Nevertheless, it now seems clear that some of the country's 125 academic medical centres are destined to go out of business. Many have been running in the red for years. And others, whilst surviving, are finding it increasingly difficult to fulfil their traditional missions of training young doctors, nurses, and other health workers, conducting basic and clinical research, and providing care to the patient. At a press briefing last week (May 4) in Chicago, Illinois, sponsored by the Journal of the American Medical Association, representatives from several leading US health centres blamed the crisis on the rise of managed-care insurance plans and on overzealous budget-cutting by the federal government. Managed-care organisations force doctors and hospitals to compete for patients on the basis of price and service—when service is roughly equal, price wins out. As a result, many insured patients who in the past have provided crucial income for academic centres have now been shifted by their managed-care organisation to lower-cost private and community hospitals and to “boutique” outpatient surgical centres, which thrive by siphoning off low-cost, low-risk elective-surgery patients. To stay in business, academic health centres have no choice but to lower the price of their services. But try as they might, as the market is currently structured, teaching hospitals have a hard time beating non-academic centres on the basis of price. Why? Because of the high cost of running training programmes, conducting research, and providing uncompensated care. Managed-care organisations and non-academic medical centres do not help pay for these services provided by academic centres even though they clearly benefit, staffing their clinics and wards with men and women trained by the academic centres, using research from the academic programmes to improve their care and efficiency, and avoiding the cost of uncompensated care that is so often shouldered by academic centres. The consensus among the experts speaking at the Chicago briefing was that some US academic medical centres will have to close. Yet the experts agreed that this was not necessarily a bad thing. The USA is oversupplied with doctors and specialists, and redundant academic medical centres should be closed. But essential centres need more support before these institutions are seriously undermined. Financial pressures are already forcing faculty to spend more time seeing paying patients and less time teaching, while established researchers are leaving for corporate research jobs. The quality of medical education is also suffering because patients are rushed through the hospitals so quickly that students and residents have little time to work-up and get to know their ward patients. The crisis is also having a ripple effect in many communities as layoffs threaten to destabilise the economies of some cities where academic medical centres are major employers, particularly of minority workers. Clearly, to remain competitive, academic medical centres must continue to tighten up their operation where they can. They also need to draw up a rational and fair mechanism to help decide which centres are redundant and should be closed so that money can be invested in essential programmes. But advocates rightly argue that managed-care organisations and other non-academic centres should be required to help cover the cost of the medical training, research, and uncompensated care provided by academic medical centres. The federal government should also reconsider budget cuts that have hit academic centres hard and which, considering the soaring US budget surpluses, seem unnecessarily draconian. Academic medical centres in the USA provide services from which everyone in the country benefits directly or indirectly.