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Research dollars shrink—and shift

Changes in private, not government, funds fuel debate about the future

From the November 1996 ACP Observer, copyright 1996 by the American College of Physicians.

By William Marden

Consider two possible scenarios:
In one, the American medical research machine that has been fueled by billions of dollars sputters and slows as the dollar stream dries up. Smaller teaching hospitals close their doors or cut back on clinical research that transforms basic research findings into life-saving drugs and treatments. Only big-name institutions like Johns Hopkins and UCLA continue doing ground-breaking research.

In the other scenario, medical research continues to be funded, but in a more limited fashion. Some teaching hospitals fold, but most adapt and become leaner and more efficient. Like businesses, academic medical centers learn to set priorities for research projects rather than fund every proposal, and they aggressively pursue private dollars.

Which future is more likely? If present trends are any indication, the research community can expect to see a little of each. Experts agree that U.S. research institutions have already lost funding from various sources that they would normally spend on medical research. In addition, the research community is reeling from changes in how medical research dollars are distributed by private sources of funding such as drug makers.

Just how bad is the situation for medical research? ACP President Christine K. Cassel, FACP, chair of the Henry L. Schwartz Department of Geriatric Medicine at Mount Sinai Medical Center in New York, noted that researchers from Europe and Japan are already beginning to produce more research than the U.S. community. "Unless steps are taken to turn the trend around," she said, "the United States will lose its preeminence in research."

But it's a complicated scenario because the typical villain in most budget-cutting scenarios—the federal government—has been relatively good to the medical research community and kept funding relatively stable.

"Congress has so far looked very kindly at biomedical research," explained Albert H. Teich, PhD, director of science and policy programs at the American Association for the Advancement of Science. "In the context of the previous budget, where a lot of things got cut—some rather substantially—the NIH was one of the few agencies to get a substantial increase."

In fiscal year 1997, for example, the NIH will receive $12.74 billion, a 6.9% increase over the previous year. Educational organizations such as the Association of American Medical Colleges, which had fought for an increase, said they were pleased with this figure.

The real culprit

If the federal government is not cutting money for research, where are the cuts coming from? According to experts, the sharpest drop in research funding has come from the private sector.

Academic medical centers, for example, have lost millions in revenue from the managed care industry's cost-cutting efforts. Fees paid to practice plans have dropped dramatically in recent years as managed care organizations move patients—and reimbursement dollars—to centers that don't provide teaching or research and can get the job done for less money.

The results have been disastrous for the research community. Traditionally, academic health centers used a portion of the fees their physicians and surgeons charged to pay for teaching and research. As managed care organizations take patients away from academic medical centers and slash payments for the patients who remain, medical centers and teaching hospitals have less income with which to subsidize research.

At Boston's Dana-Farber Cancer Institute, shrinking practice revenues have resulted in an operating deficit. "We now require public donations or grants to fund research," said David Nathan, MD, president of Dana Farber. And at Johns Hopkins Medical School, reduced revenues have slashed the physiology department's budget for cutting-edge research by 25%.

While many in the research community blame their problems on managed care, health plan advocates maintain that the plans are actually supporting medical research. Approximately 40 managed care organizations have research programs, according to Carmela Bocchino, vice president for medical affairs for the American Association of Health Plans. In addition, she said, many managed care health plans have strong ties to academic institutions. (For example, the Kaiser health plan in Portland works with the University of Oregon and Group Health of Puget Sound in Washington works with the University of Washington.)

Nevertheless, preliminary evidence suggests that managed care may be a big factor in research funding changes. David A. Blake, PhD, senior vice president of the American Association of Medical Colleges, said that data being reviewed for publication conclude that in cities with a large degree of managed care penetration, large research institutions are losing the ability to fund research projects.

New way of doing business

Managed care isn't the only force hurting research funding. In a quest to cut costs, the pharmaceutical industry, another major source of research dollars, has shifted much of its research funding from academic medical centers to private research organizations.

"It is much harder for academic physicians to get money from drug companies than it used to be," explained John M. Eisenberg, MACP, an ACP Regent, former chairman of the Physician Payment Review Commission and chairman of the department of medicine at Georgetown University. "Those funds are now being farmed out to research companies that organize the research programs and enlist doctors in community practice to enter their patients into the studies."

This new breed of research company, known as a contract research organization (CRO), is popular with drug companies because it can conduct research faster and cheaper than the big academic centers. CROs like the Orlando Clinic Research Center, a private clinical practice in Florida that conducts clinical trials, have more flexibility than teaching hospitals when it comes to doing everything from looking for patients to hiring staff.

Thomas C. Marbury, MD, head of the Orlando-based CRO and a former chief of nephrology at a Veterans Administration medical center, said that it is easier to conduct research in the private sector than in a VA setting. "I had to use referrals from the emergency room and clinic and I didn't have a lot of flexibility," he explained. "I couldn't advertise for patients. If I needed to hire staff I had to go through a lot of paperwork. Now if I need a lot of patients and I'm not getting enough, all I need to do is call the newspaper and place an ad. If I need more staff, I hire more staff."

In addition, CROs inspire greater motivation than traditional academic centers. "I have more incentive to get the work done," Dr. Marbury said. "In academic medicine, the professors are on salary and it's not financially important if they get the job done or the volume of patients needed."

Such flexibility and incentives are important to drug makers, who have watched the cost of developing a new medicine jump from about $54 million in the 1970s to more than $500 million today, according to the Pharmaceutical Research and Manufacturers of America. Contracting with CROs and other independent organizations allows drug makers to stretch their research dollars.

But critics question whether such gains in efficiency will threaten innovation in the field. "As a basic science chairman, one of the risks that I see is to the most innovative types of research," said William Agnew, MD, physiology chairman at Johns Hopkins Medical School. He explained that it is often individual researchers working on the periphery of current scientific knowledge, or on projects that don't appear likely to offer a return on major research investment, who make the basic science breakthroughs that lead to new scientific knowledge.

Coping strategies

Regardless of how science is affected, research institutions are struggling to replace lost research funding. Institutions such as Johns Hopkins are trying to generate endowments, while others are creating joint ventures or attempting to strip down research programs to make more efficient use of scarce research dollars.

"We can't just sit here and moan," said Dana Farber's Dr. Nathan. "We are trying to preserve our research function through joint ventures." Dana Farber/Partners Cancer Care, for example, a joint venture in clinical adult oncology between Dana Farber, Brigham and Women's Hospital and Massachusetts General Hospital, will eliminate beds at Dana Farber and move them to the Brigham. Dana Farber will slash 250 positions from its work force, form a single oncology staff, create a single marrow-transplant service and close unneeded clinical laboratories. Almost all the employees let go from Dana Farber will find positions in the larger Brigham and Women's Hospital, which will handle 200,000 patient visits per year, Dr. Nathan said.

Some say that forcing research institutions to become leaner and less wasteful might actually be a good thing. "Maybe having these cutbacks will force prioritization," said John Siegfried, MD, deputy vice president for the regulatory and science affairs division of the Pharmaceutical Research and Manufacturers of America. "The same thing is happening in managed care as one-man and small practices are being driven out of business as businesses merge to give more cost effective care."

But competition for research dollars may have its downside. Dr. Agnew from Johns Hopkins noted that even in the awarding of government research funds, the trend is toward concentrating research dollars in fewer major institutions. For example, he said, while Johns Hopkins accounted for 3% of all NIH research dollars 20 years ago, it now accounts for more than 4% of the agency's overall budget. "If this reflects weakened programs nationally," he said, "it's not a good sign for biomedical research."

Others argue that government funding is the only long-term way to ensure adequate support of vital research. One possible prototype currently used to fund graduate medical education is a New York all-payer system that has been in effect for seven years. The plan charges all payers for a portion of the cost of medical education and other public goods such as free care. Some of the money raised goes to fund special initiatives, such as $1.4 billion for graduate medical education and $1.3 billion for uncompensated care.

John Chessare, MD, associate medical director for Albany Medical Center, explained that the surcharges paid into the all-payer system go into a pool to be distributed to hospitals based on their amount of bad debts and how much each provided free medical care and medical education. He said it makes up an important part of the hospital's $270 million annual operating budget. While most of the money does not fund research, supporters say that a similar model could be used to help the research community.

In fact, similar plans have been proposed at a national level. A bill introduced during the last Congress by Sen. Daniel Patrick Moynihan (D-N.Y.) would levy a 1.5% tax on all health care insurance premiums in the country to support funds for research and training of physicians.

But there are fears that just the opposite may happen. Although Congress has been reluctant to cut funding for research in the past, many fear that if both political parties continue their drive to cut government spending, medical research may be next. "It's difficult to believe that Congress will be able to continue the sort of increases it has given to NIH at a time when all other programs are being cut," said David Moore, executive secretary of the Ad Hoc Group for Medical Research.

Even if the federal government does intervene, some still worry about the future of medical research. ACP President Dr. Cassel, for example, acknowledges that "there will be downsizing," but added that "reductions should not be made in the most precious resources we have—new knowledge and new abilities to treat illness."

Conserving these resources in an era of shrinking—and shifting—funds promises to be difficult. As Dana Farber's Dr. Nathan reflected, "We can't build and maintain academic health care centers in every village and hamlet in the United States. We all have to get together and pool our resources."

William Marden is a freelance writer in Orange Park, Fla.

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