Stanford Report Online

Stanford Report, March 29, 2001
Bauer announces a review of cost-cutting options for Stanford Hospital and Clinics

Statement from Eugene Bauer, MD, Vice President for Medical Affairs, regarding restructuring of Stanford Hospital and Clinics

The Stanford University School of Medicine and the Stanford hospitals have been dedicated to providing high-quality healthcare for more than a century, conducting groundbreaking research and teaching successive generations of doctors and researchers. That mission is now in danger and the hospitals' long-term survival is at risk because of the financial losses they are suffering. This fiscal year our adult hospital, Stanford Hospital and Clinics (SHC), is projected to lose $40 million, and unless we make changes soon our losses could total $70 million in 2002.

In order to reverse this trend and address long-standing, structural fiscal problems, we are reviewing various cost-cutting options. We plan to complete the review process and announce what will be difficult decisions over the next 60 to 90 days. We cannot continue to provide healthcare and services for which we are not fairly compensated. Among the options we are considering are renegotiating or exiting health plan contracts that do not pay us a fair price, transferring some services to other providers and curtailing some programs.

Throughout this review process, we remain committed to our employees and dedicated to providing the highest quality patient care and services to the community.

Stanford Hospital and Clinics is being forced to take these steps for a simple reason: the healthcare reimbursement system is broken. Consider these facts:

  • Under managed care contracts, SHC is currently being paid as little as 23 cents on the dollar for services we provide. Contracts that pay us on a capitated basis, that is, on a flat monthly fee regardless of the service we provide, are especially onerous.
  • SHC provides more than $25 million of unreimbursed care, largely to indigent patients, each year.
  • Reimbursement by state and federal government covers less than 50% of our costs.
  • The 1997 Balanced Budget Act cut the amounts that the federal government paid to academic health centers like Stanford by $115 billion. This resulted in an $80 million drop in revenue to SHC over the last four years.

While the reimbursement situation is more severe in Northern California than anywhere else in the country -- the Bay Area is one of the most under-funded healthcare markets in America -- we are not alone. This is a national problem.

  • All of the country's 125 academic teaching hospitals are affected and as many as one-quarter of them will merge or declare bankruptcy in the next five years, according to a PriceWaterhouse study.
  • Two-thirds of all hospitals in California are losing money.
  • Life-threatening financial challenges similar to ours have forced Georgetown University, Tulane and George Washington University, among others, to sell their teaching hospitals.

Stanford does not want to join that list. We plan to honor our commitment to meet the needs of our patients, our employees and our community and provide the high-quality healthcare that prompted U.S. News & World Report to recognize us as among the Top 10 Medical Schools and Hospitals in the United States for the past five years. No less important, we intend to maintain our commitment to medical education and its role in serving the public. Last year alone, we trained more than 2,000 medical students, graduate students and post-doctoral trainees, and handled approximately 25,000 inpatient admissions and over 600,000 clinical visits.

In order to survive and continue our mission of providing quality medical care, research and teaching, we must address what has been called "the trauma in academic medicine." Simply put, academic medical centers are not being paid the fair cost of the valuable services we are delivering to the communities we serve.

Addressing a fundamental problem in the healthcare reimbursement system will mean making tough decisions. We will rely on equal measures of good judgment, high-quality medicine and compassion to do what we must so that we will be here in the long term to serve the healthcare needs of our community and the nation.