When I was growing up, there was a popular television show called Marcus Welby, MD. It was about a small-town doctor who made house calls, treated minor scrapes as well as life-threatening illnesses and dispensed avuncular advice along with his medical prescriptions. Most of the undergraduates now attending Stanford grew up watching a very different show about doctors: ER. This brave new world of medicine includes incessant trauma, miraculous lifesaving procedures, malpractice suits and doctors torn by the conflict between serving patients and withstanding the financial exigencies of a modern teaching hospital.
The cultural differences between these two shows speak to the colossal changes in medicine and health care over the last 25 years. Perhaps nowhere have those changes been more acutely felt than in teaching hospitals and academic medical centers. The Medical Center's hospitals and clinics keep Stanford on the cutting edge in health care and medicine and provide a hands-on learning environment for the next generation of doctors and medical researchers.
That mission is now in danger, and the long-term survival of our hospitals and clinics is in jeopardy because of mounting financial losses. This fiscal year, the adult hospital--Stanford Hospital and Clinics--is projected to lose $40 million; unless we make changes soon, our losses could total $70 million in 2002.
In March, Eugene Bauer, vice president for medical affairs, announced that the Medical Center would have to undertake a critical program of cost-cutting to reverse this trend and address long-standing structural and fiscal problems. To achieve this, Medical Center administrators are reviewing various options and will announce what will be difficult decisions over the spring and early summer. Options include renegotiating or discontinuing health-plan contracts that do not pay a fair price, transferring some services to other providers and curtailing some programs.
The reasons for this situation are complex. They range from inadequate compensation for patient care from the government and health insurance companies, to fundamental conflicts between our research and academic missions, to demands to provide low-cost health care to the uninsured or underinsured. Our challenge in this difficult environment is to ensure that we have a hospital that serves both the local community and the educational and research needs of the Medical School. Stanford is not alone in facing these mounting challenges. Hospitals throughout the country--especially teaching hospitals--are all facing increased financial pressures.
Academic medical centers provide nearly 40 percent of the care for the nation's 44 million people without health-care insurance. The State of California continues to expect academic medical centers, including Stanford, to bear much of the cost of providing care for the poor. Stanford has a strong record of public service in this regard and will not back away from its responsibility now.
We are being asked to provide those services, however, at the same time we are absorbing the impact of the 1997 Balanced Budget Act and other funding cuts that have reduced the amount the federal government pays academic medical centers. At Stanford Hospital, implementation of the federal reductions has meant an $80 million drop in revenue in the past four years. Vice President Bauer noted that the fiscal challenges are not unique to Stanford. PriceWaterhouseCoopers predicts that as many as one-quarter of the nation's 125 teaching hospitals may merge or declare bankruptcy in the next five years. In California, two-thirds of all hospitals are losing money, according to California Healthcare Association figures.
Bay Area hospitals have been particularly hard-hit because intense local competition in managed care has driven down reimbursement to historically low levels, incompatible with the high cost of doing business in the Bay Area. Stanford Hospital is reimbursed on average about 15 percent below our bare costs and about 25 percent below a sustainable amount that includes reinvestment in infrastructure and program development.
And yet, despite the rough road ahead, I am optimistic. Both Stanford Hospital and Packard Children's Hospital are operating at full capacity. In March, the adult hospital opened 22 new intensive-care and intermediate-care beds to accommodate the influx of patients. In April, Philip A. Pizzo, former physician-in-chief of Children's Hospital in Boston and chair of pediatrics at Harvard Medical School, started work as the new dean of the School of Medicine. The school continues to be rated among the best in the country. We have much to build on.
One reason for my optimism is the critical importance of the task. Our commitment to medical research and education and their role in serving the public go to the very core of what the University is about. I am confident that with the creative vision and entrepreneurial spirit that have been hallmarks of Stanford from its founding, we will rise to the challenge.
