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    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: [email protected].


    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.

    Charles J. Lockwood, MD, MHCM
    Dr. Lockwood, Editor-in-Chief, is Dean of the Morsani College of Medicine and Senior Vice President of USF Health, University of South ...


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