Academic medicine: A bubble about to burst?

Dr. Lockwood, editor in chief, is Dean of the College of Medicine and Vice President for Health Sciences at The Ohio State University, Columbus. He invites feedback to: DrLockwood@advanstar.com.

Remember the dot com frenzy? How about the subprime mortgage crisis? Market bubbles occur when asset prices surge to levels far above their intrinsic value.¹ Bubbles burst when there are too few buyers for such over-valued assets to sustain their prices. The result can be catastrophic for the last group of purchasers and large enough bubbles can damage entire economies.

All 3 missions of US medical schools-education, research, and clinical care-have characteristics of market bubbles about to burst.

The medical education bubble

Asch and associates argue that rising medical school tuition costs have unmistakable “bubble” characteristics.² They point out that rising tuition and fees have steadily driven up the debt load of medical school graduates over the past decade. Between 1992 and 2012 medical student debt increased at a compound annual growth rate of 6.3% while the consumer price index, a measure of inflation, rose only 2.5% per year.³ Thus, by 2012, the median debt of US medical school graduates was $170,000 ($160,000 for public schools and $190,000 for private schools).

How can such escalating debt levels be sustained? Asch and colleagues contend that in the past, prospective medical students were willing to accept ever-higher tuitions because they were convinced that future earnings would more than make up for their “investment.” The rapid rise in the ratio of medical student debt to physician annual income between 1996 and 2010, the authors say, indicates that such future earnings expectations may be unrealistic.

The prospect of lower future earnings has already deterred students from entering primary care.⁴ Unfortunately, ob/gyn isn’t far behind primary care in its rising tuition-debt-to-earnings curve.³ So how will we know when the bubble has finally burst? Just look at law school applications. Law school students have far higher tuition-debt-to-future-income ratios than medical students and the number of law school applicants is falling steeply.⁵ (Please wipe the smiles from your faces!)

Has the academic medicine research bubble already burst?

The Asch et al. article should be sobering to medical school deans, but medical education is only the tip of the iceberg. In 1997 the Senate voted unanimously to double the National Institutes of Health’s (NIH) budget between 1998 and 2003.⁶ The resultant influx of federal funding fueled dramatic increases in university laboratory construction and hiring of new faculty, technicians, post-docs, and graduate students to scoop up all the new federal dollars.⁶

In the late 1990s, when I worked in New York City, medical schools were racing to construct research facilities in one of the most expensive real estate markets on earth. Well-funded National Academy of Sciences members were the rock stars of academia and academic medicine engaged in its own version of free agency. Predictably there was a massive increase in grant applications to NIH. Then the funding increase stopped.

Since 2004, NIH funding has dropped (corrected for inflation) and grant application success rates have plum meted from 31% to 17%, with many institutes now reporting pay lines of 8% for new grant applications.6 Worse, desperate faculty have increased their grant applications even as the average age of first-time R01 recipients has reached 42 years, and newly minted PhDs increasingly cannot find jobs.⁶ Moreover, the true costs of research are virtually never covered by external grant funding. Estimates indicate that 40 cents of university funds are required for each $1 of external grant funding (including direct and indirect costs) received.⁷

Thus, even at the height of NIH funding, before each successful grant’s budget was cut by institutes in a vain attempt to maintain success rates, NIH grants never really fully paid for the research they supported. We are truly losing money on every grant and not making it up in volume. The research bubble has already burst.

The academic medicine clinical bubble is the greatest threat to sustainability

In 2012, according to the Association of American Medical Colleges (AAMC), 42.6% of private medical school revenues were derived from faculty practices while 15.2% came from affiliated or owned hospitals.⁸ For publically funded medical schools the numbers were 34.4% and 17.9%, respectively. Thus, clinical faculty directly and indirectly (via hospital admissions) cover half the costs of medical schools. This level of cost-subsidization is unsustainable. The accounting firm of PricewaterhouseCoopers (PwC) estimates that 10% of academic medical center revenue will be at risk because of expected reductions in federal indirect medical education funds, disproportionate share hospital payments, and grant revenue, as well as unfavorable changes in payer mix.⁹

I believe this PwC number is a significant underestimation of the potential fall in medical school revenues. My argument is based on evolving healthcare payment strategies. We are entering an era in which employers are leaving the healthcare business by converting their workers’ health insurance from a defined benefit to a defined contribution. This leaves employees to find high-deductible, high-coinsurance plans on public and private exchanges.

Moreover, poorer workers in small companies may have their commercial insurance replaced by Medicaid as employers drop traditional bare-bones health plans suddenly made more expensive by new federal mandates. Thus, physician fees and hospital margins will come under intense competitive pressures and could drop further as we move to bundled payments and capitation.

Admissions to Chicago-area hospitals have fallen 5% overall and 8% to 9% among patients over 65 years since 2010, mostly through avoidance of unnecessary inpatient care.¹⁰ Interestingly, gynecology led the list of declining admissions at -16%. Because academic medical centers are more expensive than their community hospital competitors, they will be at an increasing competitive disadvantage. Thus, the primary revenue source for medical schools is at significant risk.

How to deflate the bubble before it bursts?

It is time for academic medical centers and their medical schools to end the irrational cross-subsidization of their tripartite mission and ensure that each part is self-sustaining. That calls for bold innovations, among them:

Three-year medical schools

An optional 3-year curriculum should be considered to reduce medical student indebtedness while preserving revenue to pay teachers and provide curricular elements required for LCME accreditation. For example, in-depth exposure to various clinical disciplines could be embedded in a condensed 18-month fundamental science curriculum, followed by 18 months of clerkships and sub-internships that track directly into residency.

Some medical schools are now offering this alternative.¹¹ Abramson and colleagues from New York University report that the advantages of a 3-year medical school include a 25% reduction in debt coupled with a 1-year gain in earnings, better linkage of undergraduate with graduate medical education, and an increased supply of physicians.

By contrast, Goldfarb and Morrison from the University of Pennsylvania contend that this experiment was tried in the 1970s with combined BA-MD programs, but the rate of students graduating in 6 or 7 years from such programs has been declining.¹² They also argue that the extra year of medical school enhances professional maturity and provides more time for career selection and interviewing for residency programs. They contend that popular 4th-year electives in research, public policy, business, and global health would be lost.¹²

These arguments resonate with me, but some students may not want these options. Students from underprivileged backgrounds may not have the luxury of paying an extra $50,000 to study the macroeconomics of healthcare policy decisions. When I was a student we were expected to master vast amounts of medical knowledge. Now such knowledge is increasing at a logarithmic rate each decade and up-to-date information is almost instantly accessible online. Thus, I believe that 3-year medical schools should be an option for certain students.

Restructuring the research enterprise

I am passionately committed to research, but in an era of shrinking grant funding, are the increasing time and resources poured into research by faculty and schools really worth the cost? Could such intense focus ironically be impairing our primary mission: to train the next generation of physicians?

Tenure is still preferentially given to NIH-funded researchers over inspiring teachers who enrich their students’ lives. Moreover, community-based medical schools with far smaller research operations do an excellent job of training their students. And while the economic benefit of medical research is undeniable (each dollar of NIH funding adds $2.60 to local economies),¹³ not all research will improve patient care.

On the other hand, I believe that faculty research creates a culture of inquiry that encourages evidence-based care while research by students better prepares them to critically interpret new discoveries once they are in practice. The challenge, then, is to ensure that medical school research is both effective and financially sustainable. Tough choices will be required about in whom to invest dwindling school resources. Conversely, researchers simply must do a far better job of increasing their salary recovery from direct grant dollars and covering laboratory space costs from indirect grant dollars.

More public-private commercialization should be encouraged through government investment in university biotech parks to speed dissemination of discoveries from bench to bedside and spur local economies. Our obsession with faculty conflicts of interest must be tempered by the need to commercialize discoveries. Finally, philanthropy is needed to generate endowments to support researchers’ unfunded salary components rather than depending on cross-subsidizing them with clinicians’ income. In short, the whole edifice of academic research needs to be rendered self-sufficient.

Expanding the academic clinical enterprise

Medical schools can no longer depend on clinical enterprises to supply half their revenue. Hospitals will simply not have the margins and faculty will not have the excess clinical income. Obviously waste and inefficiency must be wrung out of the clinical enterprise but no one shrinks to greatness.

In my opinion, the solution, to paraphrase President Reagan, is not to re-slice the pie but to produce a bigger pie.¹⁴ The clinical pie should be expanded by increasing the size of faculty group practices through partnership with community specialty and primary care practices. Academic medical centers can offer support to community practices including facilitated access to electronic health records and subspecialists, telemedicine, leasing their practices, and leveraging size to optimize purchasing and contracting. Partnerships also must be established with low-cost community hospitals.

The ultimate goal is to create an integrated health care delivery system capable of managing an entire population cost-effectively. This will allow acceptance of bundled payments and capitated contracts and, ultimately, the development of a robust set of insurance products. Such consolidation is already occurring throughout the nation.¹⁵ In this way a smaller slice of a larger pie can help sustain the academic mission of medical schools.

Take-home message

American medical schools are the envy of the world. Our curricula are innovative yet, thanks to rigorous accreditation standards, uniformly excellent. So prestigious are our medical schools that other countries now try to “import” them. Our biomedical research enterprise has produced more Nobel prizes and blockbuster medications than the rest of the world combined. And patients travel from around the globe to be treated at our academic medical centers.

However, for the past 2 decades US academic medicine has been sustained by a triad of market bubbles fed by escalating tuitions, an unsustainable period of accelerated NIH funding, and intensifying cost transfers from clinical enterprises whose surplus incomes are sustained by ever-higher prices. We need to take immediate steps to deflate these bubbles before they collapse and we lose one of this nation’s most precious assets.

References

1. Economic bubble. http://www.nasdaq.com/investing/glossary/e/economic-bubble#ixzz2qtsaOoqh. Accessed January 22, 2014.

2. Asch DA, Nicholson S, Vujicic M. Are we in a medical education bubble market? N Engl J Med. 2013;369(21):1973–1975.

3. Association of American Medical Colleges. Physician education debt and the cost to attend medical school. www.aamc.org/download/328322/data/statedebtreport.pdf. Accessed January 22, 2014.

4. Grayson MS, Newton DA, Thompson LF. Payback time: the associations of debt and income with medical student career choice. Med Educ. 2012;46(10):983-991.

5. Luzer D. 56,000: The magical law school number. www.washingtonmonthly.com/college_guide/blog/56000_the_magical_law_school_n.php. Accessed January 22, 2014.

6. Gomez Diaz M. Unintended effects of changes in NIH appropriations: Challenges for biomedical research workforce development. www.iseesystems.com/community/connector/Zine/2012_Summer/UnintendedEffectsofChanges.pdf. Accessed January 22, 2014.

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8. AAMC. Revenues supporting programs and activities at 126 fully accredited U.S. medical schools FY2012 ($ in millions). https://www.aamc.org/download/344948/data/fy2012_medical_school_financial_tables.pdf. Accessed January 22, 2014.

9. Health Research Institute. The future of the academic medical center: Strategies to avoid a margin meltdown. http://pwchealth.com/cgi-local/hregister.cgi/reg/the-future-of-academic-medical-centers.pdf. Accessed January 22, 2014.

10. York R, Kaufman K, Grube M. Where have all the inpatients gone? A regional study with national implications. http://healthaffairs.org/blog/2014/01/06/where-have-all-the-inpatients-gone-a-regional-study-with-national-implications/. Accessed January 22, 2014.

11. Abramson SB, Jacob D, Rosenfeld M, et al. A 3-year M.D.--accelerating careers, diminishing debt. N Engl J Med. 2013;369(12):1085-1087.

12.  Goldfarb S, Morrison G. The 3-year medical school--change or shortchange? N Engl J Med. 2013;369(12):1087-1089.

13. Umbach T. The Economic impact of publically funded research conducted by AAMC-member medical schools and teaching hospitals. https://www.aamc.org/download/265994/data/tripp-umbach-research.pdf. Accessed January 22, 2014.

14. Ronald Reagan on budget & economy. www.ontheissues.org/celeb/Ronald_Reagan_Budget_+_Economy.htm. Accessed January 22, 2014.

15. Cutler DM, Scott Morton F. Hospitals, market share, and consolidation. JAMA. 2013;310(18):1964–1970.