The Future of Publicly-Funded University Hospitals (Dahn Shaulis and Glen McGhee)

There are more than 200 active university medical centers (UMCs) and 1,700 teaching hospitals in the United States. These institutions, tied to America's major universities, employ large numbers of medical professionals, administrators, and laborers. While UMCs have grown in size, dominating areas in major cities, locating facilities that are financially well, well-staffed, and adequately resourced has become more difficult. 

Also known as academic medical centers or AMCs, UMCs feel the financial strain of a number of social issues: a growing elderly population, drug overdoses, mental health problems, gunshot wounds, victims of car crashes, children with severe illnesses, and numerous medical problems related to poverty.  Some UMCs are trying to grow out of their financial problems by expanding their networks and buying up other facilities that may provide more profitability.  

Private equity is also taking over hundreds of hospitals and clinics across the US, finding value where they can, however they can. Private for-profit hospitals, for example, will steer their most vulnerable patients to UMCs. And they will cut out programs they cannot profit from. Publicly funded university hospitals often cannot turn people away or dump patients if they cannot pay their medical bills--or if they are not covered by premium insurance.  

While nurses and other medical laborers may be overworked and short-staffed, CEO pay is often $1M-$3M a year at larger institutions. And many medical centers, both public and private, are run with administrators focused more on cost containment rather than patient care and preventive care. 

 

Simply adding money to these institutions without transparency, accountability, and reform not only makes the situation no better, it means less money for other areas of need, such as public health, K-12 education, safe and affordable housing, clean air and water, public transportation, and infrastructure.

Critical Condition   

While the covid epidemic was horrifying for hospitals, the underlying conditions for many UMC's are a slow-motion disaster. University medical centers are facing financial challenges due to several key factors:

1. Rising costs outpacing revenue growth: Operating expenses, particularly for staff, facilities, and technology investments, are increasing faster than patient care revenue. 

2. Reduced government funding: State support for academic health centers has been shrinking since the early 1990s. Federal and state funding for medical research and education has also stagnated or declined.

3. Lower reimbursement rates: UMCs are facing low reimbursement rates from Medicaid, Medicare, and commercial insurance. Cost-control measures introduced by the Affordable Care Act have also impacted revenues.

4. Legacy pension costs: Some UMCs are burdened with high fringe benefit costs inherited from state systems.

5. Increased competition: Many UMCs are too small to compete effectively in the current healthcare market against monopolies like HCA and Keiser. Their lack of scale gives them little leverage in negotiations for services and supplies.

6. Balancing multiple missions: UMCs must juggle patient care, research, and education. This can lead to inefficiencies, as physician time spent on research and teaching is less profitable than pure clinical care.

7. Infrastructure investments: UMCs need to make large investments in infrastructure and technology to maintain top-tier diagnostic and research capabilities

The main problem seems to be that the traditional financial model for academic medical centers is no longer sustainable in the current healthcare environment. Their operating costs are rising faster than their revenue sources can keep up, and they are struggling to maintain financial viability while fulfilling their multiple missions of patient care, research, and education.

Saving Lives is Unprofitable 

 

Burn Units: Treating burn victims requires specialized staff and facilities, leading to high costs, while insurance reimbursements may not fully cover them.

Neonatal Intensive Care Units (NICUs): While essential, NICU care for premature or critically ill newborns is expensive due to the high level of support needed.

Trauma Centers: Trauma care often involves a high volume of resources and unpredictable patient conditions, making it difficult to predict or control costs.

Mental Health Services: Mental healthcare reimbursement rates tend to be lower compared to other specialties, making these programs less profitable.

The Bigger (Unhealthy) Picture 

This strain at UMCs is under-girded by a dysfunctional and expensive healthcare system serving a population that is violent and unequal, and increasingly sedentary, unhealthy, disabled, elderly, and under psychological strain.

 

Around 40% of US hospitals are operating at a loss according to Kaufman Hall. And about half of all rural hospitals are running in the red. Obstetrics and delivery services are big money losers in these hospitals. Hundreds of these units, and their hospitals, are at risk of closing, leaving folks with longer travel times to get medical care. 

 

In 2022, U.S. healthcare spending reached $4.5 trillion, or $13,493 per person. The cost of healthcare per person in other wealthy countries is less than half as much. Despite this enormous spending, US life expectancy is 3 to 4 years less than other OECD nations. For those with means, though, the US offers some of the best medical care in the world. 

Zooming In

Financial problems and/understaffing and safety issues have been noted at:

University of Vermont Health Network (VM)

Nassau University Medical Center (NY)

CarePoint Health and Hoboken University Medical Center (NJ)
Rutgers Robert Wood Johnson Medical School (NJ)

George Washington University Hospital (DC)

Penn Medicine-University of Pennsylvania (PA)
University of Pittsburgh Medical Center (PA)

University Hospitals-Case Western Reserve (OH)
West Virginia University Medicine (WV)
University of Miami Health System (FL)

University Medical Center-LSU and Tulane (LA)
Detroit Medical Center-Wayne State University (MI)
Marquette University Health Care (WI)
Cook County Health-Rush University (IL)
University of Chicago Medical Center (IL)
Oregon Health & Science University (OR)

University of New Mexico Hospital (NM)
UCLA Health (CA)

University of California, including UC Davis (CA)

We expect to see more headlines about the declining finances at some university hospitals--and the downsizing that will follow. Fierce Healthcare has created a layoff tracker to monitor these events.

Related links:

Baby Boomers Turning 80: The Flip Side of the 2026 Enrollment Cliff

State Universities and the College Meltdown

American Hospital Association (AHA) Report: New AHA Report Finds Financial Challenges Mount for Hospitals & Health Systems Putting Access to Care at Risk (April 2023)

McKinsey & Company: Ensuring the financial sustainability of academic medical centers (July 2023)

 

PESP Private Equity Hospital Tracker