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Contact: Media Relations Officer, (202) 828-0975.
AAMC Media Briefing on the Impact of the BBA on U.S. Teaching Hospitals
April 28, 1999
Remarks by Jordan J. Cohen, M.D., President
Association of American Medical Colleges
I am sure all of you have been hearing and reading about the impact that the Balanced Budget Act of 1997 (BBA) has had on the health-care provider community, especially the hospital community. First, in our discussion today about teaching hospitals, it is important to recognize that they are subject to all of the changes that the BBA imposes on hospitals in general. We are in complete accord with the AHA in their efforts to ensure that the hospital community at large remains strongly positioned to serve the public.
Today, however, we do want to shine the spotlight on teaching hospitals and on their specific concerns. Mounting evidence from across the country and from the analysis the AAMC has just concluded clearly indicates that the long-term financial stability of teaching hospitals is seriously threatened. It is for this reason that today the AAMC is asking Congress for relief from the Medicare-related provider payment cuts called for in the BBA.
During this briefing, I will touch on several key findings from the Association's just-completed analysis of the BBA. That analysis foretells a pronounced negative effect on the education and service-related missions of teaching hospitals and justifies the action steps we believe are needed to avert irreparable damage and to ensure the future viability of these institutions. Further BBA cuts must be halted.
The AAMC's Dr. Ernie Valente, who prepared the analysis, is here and can answer any specific questions you might have. In addition, Jeffrey Otten, president of Brigham and Women's Hospital in Boston, and Harry Jacobson, M.D., vice chancellor for health at Vanderbilt Medical Center, are here to provide you with perspectives from two of our nation's leading teaching hospitals.
Teaching hospitals are a national resource. Some of you may not know that teaching hospitals provide over 44% of the nation's indigent care, train more than 75% of all new physicians -- also known as residents -- and perform the vast majority of the clinical research that advances our medical know-how. Education, research and quality care -- these are the three missions that form the backbone of our country's health care system. And these are the missions that are currently in jeopardy, and in some places are threatened with extinction.
From our public opinion research, we know that people identify with and support these critical missions. According to a recent AAMC survey, 81% of the public is "concerned" or "very concerned" about federal cutbacks forcing teaching hospitals to reduce the scope of care to uninsured Americans. In addition, a similar percentage of people are worried that the funding needed to provide special services, such as burn, trauma and cardiac care, may also be lost.
Over the past several weeks, the Association has accumulated a packet of press clips -- known as the "packet of pain" -- that documents budget deficits and staff downsizing at some of the most venerable teaching hospitals in the nation. In addition, in just the last week the New York Times, Washington Post, and Roll Call all have published editorials highlighting the precarious nature of teaching hospital finances.
These stories are not isolated to one city or one institution. Hospitals in Providence, Detroit, San Francisco, Boston, New York, Philadelphia, Dayton and Chicago, all are experiencing unprecedented difficulties.
What do they have in common? What is it that threatens their ability to fulfill their societal missions; to deliver high quality care, to train the next generation of doctors and other health care professionals, and to advance medial science?
Among the most identifiable threats today are those emanating from the Balanced Budget Act of 1997. As you know, one of the principal aims of the BBA was to cut Medicare spending by tens of billions of dollars over the course of the Act's five-year implementation (1998-2002). It now turns out that the magnitude of the Medicare spending cuts produced by the BBA may vastly exceed what Congress intended. No wonder hospitals are experiencing such a rapid and dramatic turn of fortune.
BBA Data
When the AAMC analyzed the BBA's current and projected impact on its members, what did we find? Recall that the Association's Council of Teaching Hospitals and Health Systems (COTH) comprises our nation's largest and most comprehensive teaching hospitals.
1) By 2002, the provisions of the BBA will have cost the typical general, acute, non-federal COTH hospital some $45.8 million in reduced Medicare payments. Half of such hospitals are slated to lose even more. As you will hear in a moment from Mr. Otten, the larger teaching hospitals like his are in store for a hit of over $150 million.
2) These reductions in payments are sufficiently large that the typical COTH hospital will barely break even, having suffered a contraction in total margin to a level of 1% or less by 2002.
3) Fully thirty-eight percent (38%) of COTH hospitals, or nearly 100 institutions, are projected to be operating in the red - actually losing money.
4) Teaching hospitals with substantial numbers of residents, those with IRB ratios of .25 or greater, could see their total margins drop from 3% in 1996 to 0.3% in 2002; at least 47% of these so-called major teaching hospitals could face negative total margins by 2002.
5) Cumulative BBA losses for all COTH hospitals across the country could reach levels totaling as high as $14.7 billion by 2002.
In summary, the BBA is already cutting our nation's teaching hospitals to the financial bone, and our analysis indicates that the cuts will only intensify in the outer years of the BBA's five-year implementation period.
Left unchecked, the BBA cuts could force some of the nation's leading teaching hospitals to reduce the scope of their special community services such as burn, cardiac care and trauma centers, as well as care for the uninsured.
In a health care marketplace driven by cost containment, the BBA-imposed reductions are making a tough situation even tougher. Given the need to fund their special missions of education, research and charity care, teaching hospitals are feeling the impact of the BBA cuts much more harshly than other hospitals are.
What Should Congress Do?
We are calling on Congress and federal policymakers to make immediate and substantive corrections to the BBA before it is too late, before the damage is irreversible. Specifically, the AAMC is calling for a halt to the BBA cuts and for a restoration of the special payments aimed at funding our unique societal missions.
The AAMC calls for the return of the indirect medical education (IME) ($4.5-$4.7 billion) and disproportionate share (DSH) payments ($500-$637 million) to their pre-BBA levels.
The AAMC also asks that the direct medical education and IME (combined $800 million) payments associated with Medicare managed care enrollees, which are being paid in 20% increments over the course of the BBA, be paid in their entirety directly to teaching hospitals beginning in 2000. Likewise, we are asking that the DSH payments associated with Medicare managed care enrollees be directed to teaching hospitals.
Overall, the package of restorations we are seeking for U.S. teaching hospitals amounts to roughly $6-$7 billion.
I will now turn it over to Mr. Otten and Dr. Jacobson, and then we will open it up for questions.
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