Vital Signs

Repercussions of the global financial collapse at DMS and DHMC

By Amos Esty

Academic medical centers all across the country, including Dartmouth Medical School and Dartmouth-Hitchcock Medical Center, are taking steps to maintain their fiscal health in light of the global financial collapse.

Margin: According to Dr. Joanne Conroy, chief health officer of the Association of American Medical Colleges, patient volumes are rising at teaching hospitals, especially in the Northeast, but there hasn't been a corresponding increase in revenue. "Hospitals are really struggling to maintain their operating margin," she says. As a result, many institutions have had to impose layoffs, hiring freezes, or employee furloughs, and almost all have put some capital investments-such as the construction of new buildings-on hold.

"In many respects, DHMC has been very lucky in comparison with many institutions," says Medical Center spokesperson Jason Aldous. He notes, for example, that DHMC has been able to avoid laying off any of its approximately 6,500 employees.

Value: "That said, we have not escaped unscathed," Aldous continues. Over about a six-month period as the stock market tumbled, DHMC's investment portfolio lost about 25% in value. This caused a number of capital projects to be scaled back or deferred. But DHMC is continuing as planned with some projects, including the construction of an outpatient surgery center that is scheduled to open in 2010.

Cuts in the New Hampshire state budget are also affecting DHMC. In a plan submitted by Governor John Lynch, funding for Medicaid would be cut to below current reimbursement rates, which already fail to cover the cost of services provided to Medicaid patients. The budget passed by the House of Representatives would restore some of those cuts. But, Aldous explains, "that only gets us back to the status quo. . . . It remains a critical issue." In fiscal year 2008, he adds, DHMC lost $47 million on care provided to Medicaid patients.

School: The economic situation is also posing problems for the Medical School. Dr. William Green, the dean of DMS, says the economic downturn compounded the effect of several years of declining federal funding for the National Institutes of Health (NIH).

Grants and contracts income dropped 11% at DMS from FY07 to FY08. And the Dartmouth College endowment, of which the Medical School endowment is a part, dropped 18% in value during the first half of FY09. In fact, DMS's three primary revenue sources-research grants, endowment income, and philanthropic gifts-have all taken a hit. "The challenge," says Green, "is that all three of these are down at once."

To meet the challenge, Green says the School needed to fill, through a combination of budget reductions and revenue increases, a projected gap of about $25 million over the next two years.

New revenue will come in the form of increases in tuition and in the size of the entering class. DHMC also increased the amount it contributes to DMS (at Dartmouth, as at all academic medical centers, the clinical operation helps to subsidize the teaching and research effort).

Cut: To cut costs, the School reduced facilities expenses; asked all departments to trim noncompensation expenditures, such as for travel and supplies; left most vacant positions unfilled; and froze salaries for FY10.

But those actions were not quite enough to close the gap, so a small number of layoffs became "inescapable," Green said in May, announcing what he called "some difficult decisions." As of July 2009, 12 staff positions will be eliminated and an additional 40 will have their hours reduced. No faculty or grant-funded positions were affected. DMS has over 1,160 employees.

Strong: Though the institution must respond to the fiscal crisis, Green points out, it is also essential to retain a commitment to strong academic programs. For example, he says faculty must remain competitive for grants, particularly given the new monies appropriated to the NIH through the stimulus bill.

"We're trying to respond in a way that's responsible," Green says, "to meet the financial challenges, but at the same time to cause the least impact on programs and services. We feel that we'll get through this and emerge the stronger for the process, as painful as it may be."