Recession Forcing Medical Schools to Get Strategic

Here’s a new take on the recession.

A new study from the Association of American Medical Colleges (AAMC) suggests that the economic downturn has forced many US medical schools to make difficult decisions, cut costs, consolidate, reorganize and, in some cases, “change their cultures for a more secure future.”

According to Jack Krakower, PhD, senior director, Medical School Financial and Administrative Affairs, and colleagues, the financial crisis had a major impact on the sources of revenue used to support US medical schools and teaching hospitals—and in doing so, “brought about changes in academic medicine that would not otherwise have been possible.”

For the study, AAMC researchers conducted 30-minute phone interviews with the principal business officers of 23 medical schools. The interviews, they said, revealed a wide range of damages; at some schools, steep losses were expected but never materialized, while 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% to 30%.

Faced with the losses, the schools were forced to look to other funding sources or slash expenses. Some of the tactical steps taken included the following:

• 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.
• In one case, a school and its 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.

"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," said Jeffrey Susman, MD, of Northeastern Ohio Universities College of Medicine.

According to the AAMC study, the medical schools' principal business officers offered advice on dealing with financial uncertainty that 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.

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• Area Hospital Systems Bounce Back from Recession
• Hospitals Not Recession-Proof Tennessee Hospital Survey Reveals