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Reducing Deficits, Increasing Surpluses in Medical Schools

Kastor, John A. MD

doi: 10.1097/ACM.0b013e3181890060
Letters to the Editor

Professor of medicine, University of Maryland School of Medicine, Baltimore, Maryland; (

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To the Editor:

Financial difficulties plague many medical schools. Some are in deficit, while others, although solvent, lack the resources to improve their educational, research, and clinical programs.

To learn how schools can reduce deficits and increase surpluses, I interviewed 30 knowledgeable persons at some of the leading U.S. academic medical centers: deans, associate deans concerned with finance and organization, chief financial officers of medical schools and teaching hospitals, practice plan directors, and acquaintances in business.1

Reform of the practice plan often offers the greatest immediate opportunity. Major reasons that practice plans underperform financially are that collection of the income generated by the clinicians is poorly managed, expenses to operate the plan are excessive, reporting of data to the school is incomplete or has been manipulated, the managed care contracts pay the doctors poorly, and compensation of the clinical faculty does not correlate with their activities. Solutions, among others, include improving billing and collection, establishing mission-based compensation of clinical faculty, closing or reducing the size of deficit-producing clinical units, and preventing departments from spending unbudgeted funds. Creation of a fiscal affairs advisory committee to manage the reform will involve leading faculty members in the process.

Methods of increasing income include convincing the principal teaching hospital to better support the school (a vital step, since few medical schools can develop academically without financial help from their teaching hospitals), increasing the overhead recovery rate on grants and contracts, requiring investigators to assign a larger portion of their grants to their salaries, establishing a productive program of incentives for faculty members, encouraging biotechnology transfer, and increasing the endowment.

Growth by itself, particularly in the research enterprise, will not reduce a deficit. “Research is a negative cash-flow business,” several sources reminded me. Despite adding people and programs, the problems that are causing the deficit will remain.

Some members of the faculty will oppose instituting such changes, and, when those changes strike home, those faculty may try to have the dean dismissed. Consequently, it is essential that the university leadership approve the strategy and support the dean in the changes he or she will make.

John A. Kastor, MD

Professor of medicine, University of Maryland

School of Medicine, Baltimore, Maryland;


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1 Kastor JA. Appendix B. In: Selling Teaching Hospitals and Practice Plans: George Washington and Georgetown Universities. Baltimore, Md: Johns Hopkins University Press; 2008:192–203.
© 2008 Association of American Medical Colleges