Teaching hospital costs: implications for academic missions in a competitive market.

CONTEXT As the managed care environment demands lower prices and a greater focus on primary care, the high cost of teaching hospitals may adversely affect their ability to carry out academic missions. OBJECTIVE To develop a national estimate of total inpatient hospital costs related to graduate medical education (GME). DESIGN Using Medicare cost report data for fiscal year 1993, we developed a series of regression models to analyze the relationship between inpatient hospital costs per case and explanatory variables, such as case mix, wage levels, local market characteristics, and teaching intensity (the ratio of interns and residents to beds). SETTING AND PARTICIPANTS A total of 4764 nonfederal, general acute care hospitals, including 1014 teaching hospitals. MAJOR OUTCOME MEASURES Actual direct GME hospital costs and estimated indirect GME-related hospital costs based on the statistical relationship between teaching intensity and inpatient costs per case. RESULTS In 1993, academic medical center (AMC) costs per case were 82.9% higher than those for urban nonteaching hospitals (actual cost per case, $9901 vs $5412, respectively). Non-AMC teaching hospital costs per case were 22.5% higher than those for nonteaching hospitals (actual cost per differences in case, $6630 vs $5412, respectively). After adjustment for case mix, wage levels, and direct GME costs, AMCs were 44% more expensive and other teaching hospitals were 14% more costly than nonteaching hospitals. The majority of this difference is explained by teaching intensity. Total estimated US direct and indirect GME-related costs were between $18.1 billion and $22.8 billion in 1997. These estimates include some indirect costs, not directly educational in nature, related to clinical research activities and specialized service capacity. CONCLUSIONS The cost of teaching hospitals relative to their nonteaching counterparts justifies concern about the potential financial impact of competitive markets on academic missions. The 1997 GME-related cost estimates provide a starting point as public funding mechanisms for academic missions are debated. The efficiency of residency programs, their consistency with national health workforce needs, financial benefits provided to teaching hospitals, and ability of AMCs to maintain higher payment rates are also important considerations in determining future levels of public financial support.