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03/08/94

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Medical School dean reports on budget plan

STANFORD -- School of Medicine administrators propose to freeze tenure-line faculty growth and to establish a new tenure-line pay plan that would not guarantee the full salaries of faculty in clinical departments, Dr. David Korn, university vice president and dean of the medical school, told the Faculty Senate on Thursday, March 3.

During his hour-long presentation, Korn gave the university senate the same message he had given the roughly 100 who attended a medical school faculty forum in November (Campus Report, Dec. 8, 1993).

The medical school administration plans to virtually eliminate by the end of the decade the structural deficit that has beset the school's operating budget since the spring of 1991, he said. The plan calls for reducing the projected shortfall for fiscal year 1998 from $14.6 million to $2.4 million. The medical school's operating budget stands at roughly $61 million.

The need to limit spending springs in part from heightened competition in the health care market and in part from diminished federal reimbursement for the overhead, or "indirect," costs of research, Korn said.

"We have, like most of our peers, grown rich in a very bullish five decades of public trust, on two good streams of revenue, both of which are now under constraint," Korn said.

"As all of you know, we entered the decade of the 1990s with a collapse of the indirect cost [reimbursement] rate. . . . At the School of Medicine, because of features that I'll explain to you in a moment, that collapse had an impact that was . . . very profound. It precipitated for us pretty much a financial crisis, which we have been working very hard to try to manage ever since," Korn said.

"As if that weren't enough, we are in the throes of one of the most convulsive changes in the American health care delivery and [academic medical centers] market that certainly any of us has ever experienced in our lifetimes. And it matters not, to a great extent, what happens in Washington or whether anything happens in Washington.

"The fact of the matter is that the state of California, certainly Northern California, is at the very front edge of those changes, being driven by market forces . . . that I'll call competitive managed care," Korn said.

Growth plan altered

The medical school administration expects to reap significant savings by holding the size of the tenure-line faculty close to its current level of 285, he said. The plan caps tenure-line faculty at 295. A prior long-range plan had called for 400 tenure-line positions. Other budget measures to be taken include further savings in administrative expenses.

"The dean has been engaging in extensive and detailed discussions with each department chair about the planned roster, taking into account existing commitments. This has led to tempered expectations about recruitments in many departments," said Richard Jacob, Korn's executive assistant, the day after the senate meeting.

Korn said it's likely that the size of the faculty still will grow to about 400, but that most of the additional appointments will be in the Medical Center Line, in which faculty salaries are not guaranteed by the medical school's operating budget. Unlike most tenure-line faculty, medical center-line faculty are not expected to engage in fundamental biomedical research. Instead, they focus on clinical scholarship, care and teaching.

To further ease the strain on its operating budget, the medical school's administration will no longer guarantee the full salaries of tenure-line faculty within clinical departments, Korn said. Instead, a portion of these salaries will be contingent on revenue from the practice of medicine, he said.

'Rivers of soft money'

During the senate meeting, Korn explained in detail why Stanford and other academic medical centers are under such budgetary strain.

"We've built these entities [academic medical centers] into enormous industries based on two big rivers of soft money. One river is research dollars - largely federal. And the other river has been patient- care revenues. Both streams were bullish and we took full advantage of them. Stanford medical school since 1960 has thrived in this bullish environment," he said.

"The research budget . . . has not kept up with demand, which we have created because of our enormous success in training our students and putting them out there to compete with us. So the demand for those dollars outstrips their supply, even though the supply is not meager.

"But even more alarming right now in terms of the medical school's funding is the fact that the changing market of health care is unraveling the intricate cross-subsidies that evolved over decades. The cost-plus-reimbursement system we were used to has been translated into prepaid, fixed-price or capitated arrangements.

"The opportunity to generate overage that you can then invest in your educational programs is essentially being wrung out of the system drop by drop. And that is exactly the challenge to academic medicine which has grown in an extraordinarily rapid way and is now a central issue in the public policy debate in Washington," Korn said.

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