Tight State Budgets Put Medical Schools in a Bind

By Suria Santana

To compensate for state budget shortfalls nationwide, medical schools have been forced to be creative in raising revenue, relying on strategies that include increasing tuition, reallocating clinical funds, and freezing faculty salaries.

Partly as a result of the budget crisis, median tuition and fees increased by almost 12 percent in public medical schools from 2002 to 2003, according to a recent AAMC study. Tuition rose again by nearly 18 percent from 2003 to the current academic year.

Reacting to the state's higher education cuts, the University of Florida - which has the authority to implement selective tuition hikes among its schools - decided to raise its professional students' tuition far higher than the undergraduate tuition, according to Robert Watson, M.D., University of Florida College of Medicine's (UFLCOM) senior associate dean for educational affairs.

"We are a public medical school and the university decided that out-of-state tuition would cost $43,000 a year," Dr. Watson said. "That's more than any private tuition in the country."

In-state UFLCOM students witnessed a 15 percent hike in their tuition, which is now $16,000 a year. These tuition increases had a negative effect on the student applicant pool, according to Dr. Watson.

"In terms of being able to recruit minority students and M.D./Ph.D. candidates, it has hurt," Dr. Watson explained. "If you're trying to recruit African-American students or MD/PhD candidates, the pool has to be more than regional."

The University of Colorado School of Medicine (UCSOM) also had to rely on tuition increases to help offset diminished state funding. It raised students' tuition for fiscal year 2003-2004 by 14 percent, according to Lilly Marks, UCSOM senior associate dean for administration and finance.

"We saw a 15 percent reduction in our state general fund in fiscal year 2002-2003, another 15 percent in fiscal year 2003-2004, and we are hearing again that there are potential reductions for the 2005 fiscal year," Marks said.

As a result of these steep cuts, her institution had to examine a variety of strategies to increase its revenue.

"We looked hard at tuition, and what strategies we can pursue in enhancing our tuition revenue to offset the lack of state support," Marks said. "We looked at significant tuition increases, a potential increase in class size, and possible changes in the enrollment mix between instate and out-of-state students."

However, since increases in tuition and students' fees need to be approved by the university, the Colorado Commission on Higher Education, and the governor, the medical school has been restricted on how much to raise such charges.

Students aren't the only ones whose pockets are being hit by the recession. Many medical schools have opted to curb faculty salary raises and even delay or cancel faculty hiring. In 2001, when the general state budget crisis had just begun, the University of Mississippi School of Medicine (UMSOM) had to eliminate some faculty positions, said Marjorie Solomon, the school's director of budget and institutional resources.

UCSOM also had to implement similar policies. "We had faculty raises in FY 2004, but they were more selective than in the past and dependent upon available resources," Marks said. "In general, we were very careful about them. Not all faculty got raises; some of them stayed flat, and there were a few reductions. There are a few vacant positions that have not been filled. Since most of the school of medicine's revenues are segregated by department, the impact of general fund cuts was varied. A few departments had small reductions in faculty."

A policy addressing the school's compensation system that was first implemented in 1996 has been helpful in addressing the current budget crisis. "Our current compensation system has a productivity component in it and allows us to make changes in salaries up and down based on productivity and availability of resources. We used to have 100 percent guaranteed salary, and now only a base component is guaranteed and a supplemental component is negotiated year to year," Marks said.

Besides the direct effect on faculty and medical students' finances, school officials said that budget woes are affecting some of their educational programs.

"We are trying to develop a cancer institute, and it takes a lot of seed money to do that," said UMSOM's Solomon. "The state has not been in the position to help us with start-up funds so we've had to delay the program."

UCSOM is still trying to figure a way to both balance its budget and improve its educational programs. "Our school is focusing its investment on education, reorganizing the curriculum, making a number of changes and improvements. At the same time that we have been trying to deal with the budget cuts, we have actually tried to earmark additional funding for education," Marks said.

So what's an institution to do when faced with such dilemmas? Many schools have chosen to transfer the extra revenue from the clinical practice to the medical department, a practice called "cost shifting." "Fortunately, our practice plan has continued to be very successful while still increasing revenue," Marks said. "We had a double digit increase last year, and clinical departments were able to absorb the cuts in funding by shifting some of those expenses to the margin on their clinical revenue."

Although the clinical revenue has been a major mitigating factor, depending on it to offset other funding losses is not a sustainable policy, according to Marks.

"You can't use the clinical dollars to replace your base budget dollars over the long term," she said.

Colorado passed an amendment that limits the state's ability to raise taxes and also sets a cap on the amount of tax revenue that can be held in state coffers each year. As a result, even if Colorado's economy rebounds next year, its budget cannot revert to where it was before the crisis, because of the amendment's growth limitations.

Moving clinical revenues to the medical school was also part of UMSOM's financial solvency plan. "In the hospital, we put a lot of effort in collecting accounts receivable," Solomon said. "We hired more people to do that, and we have a new program for account collection."

In addition, the institution has tried to tap into other sources of funding. "We haven't just sat back and waited for the state to take care of our problems," Solomon said. "We try to be very energetic and take care of any of the funding problems ourselves. We've done some of that by trying to reduce expenditures where there's least harm and also trying to generate more revenue."

One way UMSOM has attempted to increase revenue is by encouraging faculty to both develop and give more grants.

Such policies are not news to Florida's Dr. Watson, an experienced educational fundraiser. "For 14 years I have been working with foundation people to find donors interested in donating for education," Dr. Watson said. "I have always been a proponent of this, so [the current budget crisis] hasn't changed my behavior. It has changed the behavior of other schools, however, as I'm convinced they are now focusing on gifts a lot more. During tough times, it's better to get out there and work."

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