Tough Choices: Medical Schools Juggle Reduce Budgets, Patient Care, and Physician Training

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Cover Story -- September 2003  

By  Ken Ortolon
Senior Editor  

At a time when lawmakers and many medical educators say Texas needs to train more physicians to meet the needs of its growing population, a series of budget cuts by the Texas Legislature threaten to cripple the state's ability even to maintain the current pace.

Lawmakers earlier this year slashed state support for graduate medical education (GME) in primary care fields by nearly half and lopped an average of 5 percent off the budgets of the state's medical schools. Medical educators say those cuts, combined with reductions in state funding for indigent health care programs such as Medicaid and the Children's Health Insurance Program (CHIP), will dramatically impact the ability of medical schools, teaching hospitals, and residency programs to provide health services to low-income Texans. (See " Cuts in Graduate Medical Education .")

What's worse, the cuts could shut the doors of some medical residency programs, forcing Texas medical graduates to go out of state for their residency training.

The budget cuts came as no surprise to those in the medical education community. Entering the session, lawmakers faced a multibillion-dollar shortfall in its fiscal 2003 budget caused by a sagging economy and declining tax revenues. On top of that was a budget deficit of almost $10 billion for the state's two-year fiscal period that began Sept. 1.

Thus, medical school officials and residency directors knew their programs likely were on the chopping block. And chop the legislature did. Possibly the cruelest cuts were in graduate medical education.

The Texas Higher Education Coordinating Board also fell victim to the budget axe. While the cuts it experienced were smaller than those suffered by the medical schools, the coordinating board saw reductions in nearly half the budgets of the various primary care graduate medical education programs it administers.

Among the programs cut was the Graduate Medical Education Program, which provides state support for residency programs. The program's budget was slashed from $15.2 million in 2002-03 to $3.8 million for 2004-05.

In fiscal year 2003, the program contracted with eight medical schools and 11 independent residency programs and supported 2,620 primary care residents in training. Because of the budget cuts, coordinating board staff project that per-resident funding will drop from $2,839 to $730 in fiscal years 2004 and 2005.

Lawmakers also eliminated the $8 million Resident Physician Compensation Program and the Family Practice Residency Pilot Project, which previously was budgeted at just under $2 million. The first program provided funds to teaching hospitals for training residents in primary care specialties such as internal medicine, pediatrics, obstetrics and gynecology, geriatrics, and emergency medicine. The second program allowed residency programs to build innovative educational experiences for family practice residents through providing indigent heath care services.

That means residents' salaries could be cut. Funds from the two programs are passed through the medical schools to the teaching hospitals and community-based programs. The money can be used for faculty expenses or resident stipends. Without these funds, those programs will have to pay those expenses out of other funds or cut expenses.

On top of those cuts, lawmakers also eliminated some $42 million in GME funding in the Medicaid budget, says James C. Guckian, MD, acting executive vice chancellor for health affairs for The University of Texas System. Those reductions, combined with the overall reductions in the Medicaid and CHIP programs, could force some residency programs -- particularly community-based programs -- to close, warns Nancy W. Dickey, MD, president of the Texas A&M University System Health Sciences Center.

"GME's being hammered from the perspective that our graduate medical education programs provide a tremendous amount of indigent and Medicaid care in this state," she said. "The reality is that 330,000 fewer children will be covered by Medicaid this coming year, 200,000 fewer children will be covered in CHIP this year, and about 17,000 adults will not receive coverage they had in the past. That does not translate into fewer babies being delivered or fewer kids falling off their bicycles or swing sets needing stitches and casts. What it translates into is community physicians and hospitals having to find a way to pay for care that in previous years was being paid for by state and federal programs."

Marcia Collins, director of Texas Medical Association's Medical Education Department, says the outlook is not good for resident training.

"Because of the overall economic climate, we think that some residency programs will close," Ms. Collins said. "It's not just because of the GME cuts. That's a big factor, but generally it's the overall economic picture."

Within the past two years, a family practice residency program in Beaumont closed, and Dr. Dickey says a second recently came within 72 hours of shutting its doors before contract negotiations provided adequate funds to allow the program to remain open. A&M's community-based family practice residency program also has experienced financial difficulty, but Dr. Dickey believes it will survive, at least for now.

If residency programs are forced to close, medical educators are concerned it will result in an exodus of Texas medical graduates from the state.

"There's a concern that we're going to spend all this money to educate new physicians and yet we're not going to preserve the opportunity for them to stay in Texas for their residency training," Ms. Collins said. "That's a serious concern when you consider the relationship between where physicians do their residency training and where they end up practicing."

The Budget Shuffle  

While the expected impact of the budget cuts on the residency programs is dramatic, medical school officials say they also will have to cut services to make ends meet. All state-run health-related higher education institutions, as well as the privately owned Baylor College of Medicine, which receives some state dollars, were included in the average 5-percent cut in general revenue appropriations. That cut actually was less than originally anticipated, says Stacey Silverman, program director of the coordinating board.

"That decrease is less than [the cuts for] the general academic institutions and less than the community and technical colleges," Ms. Silverman said. Those schools took 7-percent and 10-percent cuts, respectively.

Most of the funding cuts for the health science centers came in a reduction in the state's funding formula system, which has been used to set state medical school appropriations since 1999. The formula's base unit was reduced from $11,776 per student to $9,934, a 16-percent reduction. That means state appropriations to medical schools will be reduced from $56,000 per medical student to $47,000.

While the cuts average 5 percent, there was great variation among individual institutions. Dr. Dickey says her institution took one of the smaller cuts, at about 1 percent. She praised College Station-area lawmakers for preserving the school's funding, but added that A&M also was aided by its rapid growth. While such a small cut was good news, it also is bad news because it leaves the school scrambling to figure out how to fund that growth in the coming biennium.

"The reality is the cuts are much more substantial than 1 percent because our health science center is in a rapid growth phase," Dr. Dickey said. "At a time when we would have anticipated that growth to show a substantial increase in state dollars because of an increased number of students, we actually stayed level."

While A&M's cut was small, it may actually be hurt more than other institutions because it is most dependent on state revenue, Dr. Dickey says. A&M gets roughly 68 percent of its operating funds from state appropriations, compared with about 50 percent for the University of North Texas Health Science Center, and between 15 and 20 percent for UT System health science centers.

"It's not that the state gives less money to the UT health science centers; they actually get more total dollars, but they have over the years had opportunities to diversify their budgets," Dr. Dickey said. "They have good practice plans, they have hospitals they run or own. We don't have a practice plan, and we don't own a hospital."

While A&M saw a small cut, some of the UT System institutions took much more significant cuts. The six UT System health-related institutions took a total cut of $78.05 million, or 5.18 percent, with UT Medical Branch at Galveston seeing the largest cut in general revenue at 8.65 percent, or $42.2 million. UT Southwestern Medical Center at Dallas was the only UT System health institution that did not get a cut. Its state funding actually increased 3.67 percent, or $6.84 million, because of special item appropriations to provide $7 million for research activities related to heart disease and stroke, neurological disease, cancer immunology, pharmacology, and genetics and molecular biology, and $7.87 million to fund an Institute for Innovations in Medical Technology.

Officials representing a majority of the state's medical schools say they will be able to shuffle funding and staff to preserve the core missions of their institutions, which are medical education and research. However, patient care and some program areas, such as allied health training, may have to be sacrificed, they say.

The 5-percent average cut for the medical schools, including Baylor, came on top of 7-percent reductions in fiscal year 2003 spending that Gov. Rick Perry asked all state agencies to plan for in order to resolve the shortfall in the 2002-03 budget. The impact of both cuts already is being felt.

For example, in late June, UTMB announced it would immediately lay off 100 employees and cut another 50 workers from its payroll by Sept. 1. Those layoffs came on top of 660 employees who lost their jobs earlier in the year.

Some laid-off employees were able to fill other positions at UTMB, but the medical school's president, John Stobo, MD, has warned his employees that lean times are ahead. And the lean times are not staring just UTMB in the face.

The Double Whammy  

Despite the fact that UT System schools generate more revenue through practice plans and hospital income than A&M or other institutions, Dr. Guckian says those revenues won't help his system's health science centers weather these tight economic times. In fact, he says cuts in Medicaid, CHIP, and the medical programs of the Texas Department of Criminal Justice will put an additional financial strain on UT System institutions and their partner teaching hospitals.

"We generate such a large part of our practice plan and hospital revenue from governmental payers -- Medicaid and Medicare -- that have limited reimbursement, and in Texas, for example, Medicaid is being cut," he said. "So we expect our Medicaid revenue to actually go down."

With the exception of M.D. Anderson, which generates millions in outside dollars from both public and private payers because of its reputation as a world-class cancer center, most other UT System institutions will have to cut patient care services so that their core missions of medical education and research can be maintained.

"They will have to cut back some services," Dr. Guckian said. "It's true not only for the Medical Branch, it's true for our affiliated hospitals, as well, like Parkland in Dallas, University Hospital in San Antonio, and Harris County Hospital District. These hospitals, because of the cuts in Medicaid and CHIP, also are facing budget shortfalls that they are going to have to adjust to. And because they're our partners, and in many respects they compensate us for the care we provide to their indigent patients, they're going to be strapped. As a result, we're going to be impacted by that."

While Drs. Guckian and Dickey and Ronald Blanck, DO, president of the UNT-Fort Worth, say they will adjust their budgets to protect teaching and research functions, there already have been some very real and dramatic reductions in programs. In addition to the layoffs at UTMB, about 120 employees were cut at UT-Houston, Dr. Guckian says.

UTMB also has eliminated some cardiac care programs, closed its hyperbaric medicine unit, and likely will close some beds at UTMB-owned hospitals. Some UTMB outreach clinics that provide indigent care outside the Galveston area also likely will close, Dr. Guckian says.

While UT Southwestern got more money for research, it may have to eliminate as many as three of its 10 allied health programs because of the cuts in formula funding. Gordon Green, MD, dean of the school's Allied Health Sciences School, says allied health and nursing programs will be disproportionately hurt by the budget cuts because they do not enjoy the level of research grant and practice plan revenue that medical schools can generate.

"The allied health programs are much more dependent on state appropriations," Dr. Green said. "For the most part, clinical service income is a very, very small portion of what comes into allied health training programs and an even lesser amount into public health educational programs. In addition, the research grants that the medical schools enjoy in considerable abundance typically are not available to a great extent in the allied health schools."

Meanwhile, Dr. Blanck says UNT-Fort Worth, which experienced a 4-percent reduction in general revenue, has mostly avoided program cuts by making some administrative reductions, such as eliminating some campus police officer positions and hiring security guards to replace them. However, library hours have been cut, a pathology lab for the school's practice plan was closed, and about 30 positions have been eliminated, with more likely to follow.

The cuts, he says, will affect UNT's ability to expand its research activities, practice plan, and other programs that generate nonstate revenue. "It will affect our ability to grow and to put investment dollars into programs that would ultimately allow us to be less state dependent," he said.

The $51 Million Question  

While the health science centers were still scrambling to figure out how to live within their reduced revenues, uncertainty about just how much money lawmakers had appropriated for those institutions remained. Through a quirky rider to the appropriations bill, some $51 million was still in question.

As lawmakers were finishing up the budget, Congress approved federal tax cut legislation that included the appropriation of so-called "state fiscal relief funds" that should net Texas an additional $2 billion in federal aid during the coming biennium. Under Rider 56, lawmakers announced their intent to earmark $51.23 million of those fiscal relief funds to meet a "target" appropriations level for the health-related institutions.

However, that money was not actually appropriated and it will be up to the governor or the Legislative Budget Board to eventually allocate those funds. Dr. Dickey says there are still unresolved questions about whether those funds will be needed elsewhere to balance the state budget or when the money actually might be available to the medical schools.

Without the federal funds, the UT System cuts would jump from $78 million to more than $116 million, Dr. Guckian says. A&M's cut would be an additional $3 million without those funds.

Additional funding for at least two institutions -- UTHSC-San Antonio and Texas Tech University Health Sciences Center -- also remained unresolved in mid-July as some attempted to push funding measures through the special legislative session to provide more money to the Regional Academic Health Center (RAHC) in the Lower Rio Grande Valley and TTUHSC in El Paso.

Sen. Eddie Lucio (D-Brownsville) filed legislation to provide an additional $19 million in funding to support further development of the Valley RAHC. Meanwhile, House Appropriations Committee Chair Talmadge Heflin (R-Houston) filed a competing bill to provide an additional $9 million for the RAHC and $2 million to help the two-year health science center in El Paso gain accreditation as a four-year medical school.

Both Senator Lucio and Sen. Eliot Shapleigh (D-El Paso) say Representative Heflin's bill provides too little money, but it was unclear whether either bill would make it through the legislature this summer because Governor Perry had not included funding for either the Valley RAHC or the El Paso medical school in his call for the special session.

Ken Ortolon can be reached at (800) 880-1300, ext. 1392, or (512) 370-1392; or by e-mail at Ken Ortolon .  


Cuts in Graduate Medical Education

The Texas Legislature made deep cuts in medical school and graduate medical education programs administered by the Texas Higher Education Coordinating Board that are designed to promote careers in primary care medicine. Below is a comparison of fiscal 2002-03 funding with appropriations for the biennium that began Sept. 1.



FY 2002  

FY 2003*  

FY 2004  

FY 2005  

Family Practice Residency Program





Primary Care Residency Program





Graduate Medical Education Program





Statewide Preceptorship Programs





Joint Admission Medical Program (TAMS)


Unexpended balance


Unexpended balance

Resident Physician Compensation Program





Family Practice Residency Pilot Project










Source: Texas Higher Education Coordinating Board
*FY 2003 totals reflect the 7-percent cuts made in all state agency budgets for the fiscal year.

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