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Leveling the Playing Field: Financing the Missions of Academic Health Centers

The nation's 125 academic health centers (AHCs) play a vital role in the health care system: training highly qualified physicians and other health professionals, conducting cutting-edge biomedical research, providing specialized services, and putting technological innovations into medical practice.

AHCs are in large part responsible for the reputation for excellence in U.S. medicine. In today's competitive market, however, with the shift from fee-for-service insurers to managed care plans, the continued ability of these university-affiliated teaching centers to carry out their missions is threatened.

In Leveling the Playing Field: Financing the Missions of Academic Health Centers, The Commonwealth Fund Task Force on Academic Health Centers reviews current analysis and makes policy recommendations that would enable AHCs to continue to provide graduate medical education and perform other social missions while competing in a managed care environment for patient care.

Due to the expenses of their special missions, AHC costs have historically run 30 percent or more higher than those of community hospitals. Recently, health maintenance organizations and other types of managed care, however, have been directing enrollees to less expensive health care providers and seeking lower payment rates.

Medicare, and in some states, Medicaid, have made explicit payments—roughly $8.5 billion in 1997—to support graduate medical education and other mission-related activities. Recently suggested changes in the Medicare program could further threaten the financial stability of these centers, and results of upcoming policy decisions could have a profound influence on the future of all AHC missions.

The Task Force recommendations would provic provide explicit financing for the mission-related activities of AHCs and other teaching hospitals, thereby removing the necessity to finance these activities from extra patient care revenues. They could then compete in the managed care market on a price and quality basis. The Task Force also believes that AHCs must become more efficient and effective in conducting activities related not only to patient care, but also to their broader social missions.

The Task Force recommends the creation of an ""Academic Health Services Trust Fund,"" which would pay for the higher costs associated with education, research, specialized services, and innovation. It would be financed through contributions from Medicare, Medicaid, and all private payers, or from general revenues.

The report also recommends that the level of trust fund support for the training mission of AHCs and teaching hospitals reflect the understanding that the nation's future requirements for new physicians is less than the number currently being trained. The amount of funds distributed from the trust fund would be updated annually to reflect inflation.

An independent Academic Services Payment Review Commission would be established to provide long-term advice on the amount and distribution of trust fund dollars.

Facts and Figures
  • The added cost of carrying out special AHC missions is estimated to be $18 billion in 1997.

  • Medicare and Medicaid payments to support AHC mission-related activities will be roughly $8.5 billion in 1997.

  • In 1993, education and other mission-related activities cost AHCs $2,681 per case.

Publication Details



Leveling the Playing Field: Financing the Missions of Academic Health Centers, Brian Biles, M.D., The Commonwealth Fund, May 1997