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The Financing of Academic Health Centers: A Chartbook

Academic health centers (AHCs)—the preeminent institutions in the American health care system—are interrelated entities comprising a medical school, its affiliated hospitals and outpatient centers, and a faculty practice plan (FPP). Their unique missions are to provide undergraduate and graduate medical education and training, conduct basic science and clinical research on new medical practices and technologies, furnish state-of-the-art medical care for patients with complex illnesses, and care for the poor and medically indigent. Traditionally, AHCs have been leaders in their communities and the health care delivery system.

Historically, AHCs have funded a significant portion of their missions through crosssubsidies from patient care revenues; that is, the affiliated hospitals and FPPs help support these activities through income from patient care. In some cases, support is explicit, in the form of payments for salaries and fringe benefits of residents and faculty. In other instances, support is not monetary, but takes forms such as providing space for teaching or for research laboratories.

Recent changes in the market for health care services may threaten the ability of AHCs to continue financing their missions using these traditional cross-subsidies. Insurers, both public and private, are reducing the rate of growth in payments for services. Doctors and hospitals that fail to respond to these pressures are losing patients as insurers begin to direct their enrollees to lower-cost institutions.

As a consequence, AHC hospitals—whose costs are generally higher than those of other providers—are beginning to lose market share. Faced with a slowdown in the growth of patient care revenues, AHCs are curbing their costs. Although current data do not allow linking reductions in costs directly to cutbacks in mission-related activities, these reductions may take a toll.

This chart book provides information about various aspects of AHC financing. Section 1 gives an overview of AHCs, focusing on general patterns of transfers among their components—AHC hospitals, the medical school, and FPPs. Sections 2 through 4 present financial and other data related to these three major components. Although these data reflect the latest available information, they cannot be used for an exact accounting of the crosssubsidies and transfers among entities. Thus, there may be some duplication in the amounts reported by the various components of an AHC. Efforts are under way to gather more information so that transfers and cross-subsidies can be studied more closely.


Publication Details



The Financing of Academic Health Centers: A Chartbook, James A. Reuter, Georgetown University, The Commonwealth Fund, April 1997