The recession has hit many of us very hard. Some publicly funded institutions are really struggling under the recession. As states entered severe budget deficits, all of a sudden the ground was yanked out from under these institutions. The five University of California medical centers, for example, are going through salary cuts, reductions in staff and involuntary furloughs.
Privately run AHCs such as my own Washington University Medical Center also haven’t been spared. Endowments got hammered in the decline of the stock market. An endowment can be a significant funding source; it makes up 8-10 percent of the operating budget at Washington University School of Medicine. This year, we have reduced the distribution from our endowment.
Uncompensated care has risen at Washington University Medical Center, though not as much as we had anticipated. This may be because loss of insurance lags behind unemployment. Laid off workers initially have access to COBRA coverage, and then they may drop insurance. Also, while the market appears to be recovering, jobs are not.
For these reasons, I expect next year will probably be worse for AHCs than this year. Washington University Medical Center did all right last fiscal year, but we are tightening up on expenses and pulling back on capital commitments as we go into next year.
Health reform could knock us out. The uncertainty of the healthcare reform debate makes it hard to predict what will happen. There are proposals to cut disproportionate share funding for hospitals to cover uncompensated care. This will greatly impact AHCs because they are among the largest providers of uncompensated care. Washington University Medical Center would be in the red without DSH (disproportionate share hospital) funding. The thinking behind cutting back DSH is that if all uninsured patients are required to have coverage, hospitals won’t need subsidies to treat them. But AHCs will need a transition period. It’s is not clear yet whether the health reform legislation would give us the transition we need or that the extra insurance payments would fill the gap when the transition is complete.
Huge NIH grants might be too much of a good thing. AHCs are starting to receive a massive outlay of research funding as part of the stimulus package, but the money would run out in two years. We’ve seen this situation before. At the beginning of the decade, the NIH budget doubled, then for the next six years it declined. This boom-and-bust cycle wreaks havoc on research operations. What we need is sustainable growth — a predictable amount of NIH funding every year.
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