Hospitals struggle for Medicare solution

Even as federal spending rises for basic university research, the hospitals where America’s future doctors are trained are hoping to see federal reimbursements frozen for the second year in a row.

While the flat funding is preferable to budget cuts, the unresolved issue of teaching-hospital funding hangs over Congress and the nation. At stake is how America pays to teach its future doctors and develop new medical treatments.

The issue would be thorny enough on its own, but the extra expense of running a teaching hospital in America is paid for through Medicare, the government-run health care plan for the elderly. Medicare gobbles up such a large portion of the federal budget – about 12 percent, totaling $22 billion this year – that even a small percentage increase can mean much less money for other programs.

What that means is that any changes to Medicare are politically sensitive and subject to repeated and ongoing negotiation.

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“The AAU has a task force looking at funding options in the future to support teaching hospitals.”

Nils Hasselmo, Association of American Universities president

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The two years of flat funding would give hospitals a break from deep cuts that were approved as part of the Balanced Budget Act of 1997. Left unchanged the Act would have cut Medicare payments to Massachusetts hospitals by about $1.7 billion by 2002.

Last year, Congress ordered Medicare funding frozen for one year, leaving the Balanced Budget Act cuts to take effect this year. Despite the beginning of the federal government’s fiscal year on Oct. 1, legislation that would spare Medicare from those planned cuts this year is still pending approval.

Medicare funding is important to teaching hospitals because it reimburses them for the extra costs of training new doctors.

Those costs come from a variety of sources. Most of those hospitals carry out clinical research to develop and test cutting-edge treatments. Those treatments tend to cost more initially and attract sicker patients who seek to take advantage of these new treatments and the hospital’s highly trained staff. In addition, teaching hospitals are often located in urban centers, where they also treat poorer patients than do suburban hospitals.

And, finally, not only does teaching take time away from staff physicians who otherwise would be seeing patients, new doctors often order more tests than an experienced doctor would and take more time to do routine procedures, driving up the cost of treatment for those patients.

The crisis in teaching hospital funding led both Harvard President Neil L. Rudenstine and Harvard Medical School Dean Joseph Martin to take outspoken stands on the issue, framing it as a critical question the country has to answer: How will we pay to train our new doctors?

Harvard is in a somewhat unusual position, because unlike universities that own their teaching hospitals, Harvard has a looser affiliation with several independent institutions.

The Association of American Universities (AAU) is among those looking for a permanent solution to the problem of teaching-hospital funding.

“The AAU has a task force looking at funding options in the future to support teaching hospitals,” said AAU President Nils Hasselmo. “The effort (so far) has been very much toward getting relief from reductions in the Balanced Budget Act.”

Another looming problem for hospitals is the fact that Medicare now pays hospitals more than many other insurers. Gains from Medicare patients often offset losses from treatment of private HMO patients. In an ominous note for the future, the federal government is starting to wonder why Medicare is paying more than others are, raising the specter of more lean times and a continued battle for funding for teaching hospitals.