Volume 16 Number 3, SPRING 1999

LETTER FROM THE DEAN

Dear Friends,

THIS ISSUE OF STANFORD MEDICINE CARRIES A PROFILE OF YOURS TRULY. If you read it, you will learn that I am by nature an optimist. * Certainly, that optimism can explain, at least in part, my conviction that our clinical enterprise, UCSF Stanford Health Care, will triumph over its current financial difficulties -- an operating loss leading UCSF Stanford CEO Peter Van Etten to announce plans to cut expenses by $170 million and to eliminate 2,000 jobs by September 2000. * But my positive expectations are based on more than just optimism. The financial pressures leading to our losses are the same as those that squeeze academic medical centers nationwide. And with the help of the Association of American Medical Colleges we are starting to get the message to our nation's policymakers that unless they address the problem, the future of medical education is in jeopardy.

In particular, I am hopeful that federal policymakers will reform the Balanced Budget Act of 1997 -- legislation that has sharply reduced Medicare payments to hospitals. This reduction hits hardest at teaching hospitals, which care for more Medicare patients and rely on supplemental Medicare payments to offset the higher costs of providing specialized care and training medical students.

In recognition of these higher costs, special federal funding to help train new doctors was established as part of the legislation creating Medicare and Medicaid. Now, 30 years later, that commitment is rapidly eroding. With Medicare serving as health coverage for over 30 percent of the patients at UCSF Stanford, this is a very big deal for us. Medicare payments to UCSF Stanford will be reduced by $10 million this year and will drop by another $36 million by 2002.

In April, the AAMC released an analysis of the Balanced Budget Act's current and future impact on academic medical centers -- basing its study on data from the roughly 260 members of the Council of Teaching Hospitals. Among the AAMC's findings: Thirty-eight percent of the hospitals (about 100 institutions) could face negative total margins -- that is, could be losing money -- by 2002. Through media outreach and lobbying efforts, the AAMC is bringing this finding, along with other compelling data, to the attention of journalists and federal policymakers. Recent coverage of the issue by the media, including the New York Times and the Wall Street Journal, is getting the message to the public.

Our society must recognize and address the problem of providing fair and consistent financial support for teaching hospitals. One solution that I and many of the nation's foremost health policy experts favor would funnel resources from private health plans, Medicare and other federal support into a single, "all-payer" fund to ensure our ability to train the next generation of health professionals. Maybe I am a foolish optimist, but I am hoping for this.

In the long run, the UCSF Stanford merger promises to provide the financial stability needed to support the two schools of medicine. The survival of each school rides on the success of the merger. Last fiscal year, both Stanford and UCSF medical schools received $2.5 million in unrestricted funds from UCSF Stanford. Losses this year would affect the financial performance of the clinical departments and hinder the ability to support the academic programs. Such an outcome would be devastating to our school and to our students, residents and postdoctoral fellows.

UCSF Stanford is reducing costs to ensure a healthy future and quality of care. The decision to merge the hospitals at Stanford and UCSF remains a good one. During the next five years, I expect to see Stanford, UCSF and UCSF Stanford Health Care evolve into a model of organizational ingenuity in academic medicine. But without fundamental changes in health care financing, all teaching hospitals will remain vulnerable.

As I write this letter, the Senate Finance Committee is in the midst of a series of five hearings examining the financing of Medicare. Let us expect the outcome to be an enlightened one.

Cordially yours,

EUGENE A. BAUER, MD

Vice President for Medical Affairs

Dean, Stanford University School of Medicine