[Congressional Record Volume 145, Number 129 (Wednesday, September 29, 1999)]
[House]
[Pages H9010-H9018]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




TEACHING HOSPITALS IMPACTED AS RESULT OF PASSAGE OF THE BALANCED BUDGET 
                                  ACT

  The SPEAKER pro tempore (Mr. Cooksey). Under the Speaker's announced 
policy of January 6, 1999, the gentleman from Illinois (Mr. Davis) is 
recognized for 60 minutes.
  Mr. DAVIS of Illinois. Mr. Speaker, during the last several months we 
have had a tremendous amount of discussion about managed care, 
patients' bill of rights, different kinds of indicators of disease and 
problems with our health care delivery system, trying to find a way and 
trying to find solutions, answers, to many of these problems. Group of 
us come this afternoon because we want to talk about another problem, 
and that is a problem facing the hospitals in the State of Illinois and 
especially facing tertiary care teaching hospitals as a result of our 
passage of the Balanced Budget Act.
  Health care, as all of us would agree, is one of the essential 
elements of a great society, and unless people have access, have the 
ability, unless people have the assurances of knowing that they can 
find the care that they need in times of stress and difficulty and in 
times of physical pain and disability, then that society is missing 
something.
  As a member of the Illinois delegation, I am going to share some 
concerns about the fate of Illinois' teaching hospitals and academic 
medical centers unless we get some form of relief from reimbursement 
cuts authorized in the 1997 Balanced Budget Act.
  While we all recognize that cost containment, trying to manage the 
cost of health care, is important, all of us recognize the concerns 
that have been expressed over the years about unregulated, unbridled, 
unchecked cost overrunning our ability to pay; and so while we 
recognize that certain sacrifices must be made in order to achieve 
Balanced Budget Act objectives, we strongly believe that the unintended 
consequences of the Balanced

[[Page H9011]]

Budget Act threaten the viability of these valuable health care 
resources.
  As envisioned, the Balanced Budget Act was intended to cut $104 
billion from Medicare reimbursement to hospitals.

                              {time}  1500

  However, the Balanced Budget Act, if implemented as enacted, will 
result in nearly $200 billion in reductions.
  Now, the people of Illinois have come to expect, and they have every 
right to do so, the high quality medical care delivered by our teaching 
hospitals and academic medical centers. The benefits derived by 
residents of every region of our State are incalculable. These teaching 
hospitals and academic medical centers are the primary providers of 
complex medical care and high risk specialty services, such as trauma 
care, burn care, organ transplants and prenatal care to all patients, 
regardless of their ability to pay. In fact, the 65 tertiary care 
teaching hospitals in Illinois provide approximately 63 percent of all 
hospital charity care in the state.
  Aggressive Balanced Budget Act cuts are jeopardizing their ability to 
fulfill their vital mission of maintaining state-of-the-art medical 
care and technology, providing quality learning and research 
environments, and serving as a safety net for those unable to pay.
  Not only do these institutions enhance our health and physical well-
being, they are also some of our largest employers and consumers. As a 
matter of fact, they are an integral part of our overall economy. In 
total, our Illinois teaching hospitals and academic medical centers 
employ more than 56,000 of our constituents and add almost $3 billion 
to the State's economy in salaries and benefits alone. Yet, despite the 
great benefits that Illinois residents derive from our teaching 
hospitals and academic medical centers, these institutions suffer 
disproportionately under the Balanced Budget Act.
  In total, Illinois teaching hospitals face 5-year reductions of more 
than $2.5 billion. I will say that again. In total, Illinois teaching 
hospitals face 5-year reductions of more than $2.5 billion. 
Consequently, while teaching facilities comprise 27 percent of Illinois 
hospitals, they will bear the brunt of 59 percent of the Balanced 
Budget Act reductions. These cuts are compounded by increasing fiscal 
pressures from managed care companies and inadequate Medicaid 
reimbursements on the State level. We believe that we must act now, 
that we really cannot wait.
  I represent a district that has 22 hospitals in it. I have four 
academic medical centers, four of the best in the Nation, in my 
district. Not only do they provide greatly needed care, but they are 
also the primary trainers of medical personnel, not only for Illinois, 
but all over America. I have three Veterans Administration hospitals in 
my district that are linked to these medical schools.
  So not only are we looking at the provision of greatly needed care, 
but we are also looking at the overall economic impact on a community 
if the individuals cannot work, if they have no place to go. Then, 
obviously, the status of health for the community worsens, worsens, and 
worsens.
  Also with me this afternoon, one that I know is greatly interested in 
this problem and this issue and has concerns not only about the ability 
of hospitals to serve but the ability of our society to function as it 
is intended to do, it pleases me to yield to the gentlewoman from the 
9th District in the State of Illinois (Ms. Schakowsky).
  Ms. SCHAKOWSKY. Mr. Speaker, I want to thank the gentleman from 
Illinois for organizing this special order tonight and for yielding 
time. His commitment to providing quality health care in Illinois and 
across the Nation is unparalleled.
  There is probably not a Member in this House that is not committed to 
and has not talked about protecting Medicare, but that means more than 
just the benefits under the Medicare program. That means that we have a 
strong and vibrant delivery system in place. That is what we need, one 
that is available to meet the needs of Medicare beneficiaries.
  Unfortunately, the payment cuts required under the Balanced Budget 
Act threaten that delivery system. Inadequate payment levels are 
jeopardizing quality care at nursing homes, in hospices, for home care 
services, and the subject of tonight's special order, hospitals.
  Now, my mother-in-law in Shreveport, Louisiana, Adelaide Creamer, was 
director of volunteer services at the large university hospital there; 
and she knows, as good as volunteers are, this is one issue where we 
are going to need far more than that in order to meet the needs of our 
Medicare patients.
  We need to understand as policymakers and as consumers that payment 
cuts and inadequate reimbursement levels are patient issues. Patients 
will suffer if we do not act now to correct the problems created by the 
Balanced Budget Act.
  The Balanced Budget Act, when it was passed, was supposed to cut 
hospital rates by $53 billion, but the actual cuts are now estimated to 
be $71 billion. As the gentleman from Illinois has said, cuts in 
Illinois would be close to $3 billion, and, in my Congressional 
District alone, the cuts could approach $270 million over 5 years. 
Because the size of the cuts grows every year, the longer we wait to 
correct this problem, the greater the impact on patients and healthcare 
quality.
  I want to emphasize that we are not talking here about slowing the 
growth rate in hospital payments in the coming years. Without a 
correction in the Balanced Budget Act provision, Illinois hospitals 
will face actual reductions below existing payment levels. That is why 
the Honorable John Stroger, President of the Cook County Board, and 
Robert Maldonado, County Commissioner, and many of the members of the 
Cook County board, introduced and passed a resolution that calls on the 
President and the Members of the 106th Congress to refrain from 
enacting additional Medicare reductions in addition to those contained 
in the Balanced Budget Act of 1997, and to use at least a portion of 
the Federal budget surplus to address the negative impact caused by 
these reductions.
  Obviously, as the cost of healthcare rises, cuts of these magnitudes 
will mean that hospitals will face horrible decisions, whether to cut 
back on staffing, turn away patients, shut down services such as trauma 
care, delay elective surgery, impose cutbacks on clinics and outpatient 
services.
  In February, I wrote to President Clinton endorsing his proposal to 
use 15 percent of the budget surplus for Medicare and encouraging him 
to place a moratorium on any further BBA, Balanced Budget Act, payment 
reductions. Recognizing the problems being created already by the 
Balanced Budget Act, we simply cannot allow it to continue in place.
  We need to take additional steps as well. I particularly am concerned 
about the impact of cuts on disproportionate share hospitals, hospitals 
that serve a large number of uninsured and underinsured patients.
  We have heard a lot this week from the Republican leadership 
expressing their concern about the 44 million uninsured Americans. 
Disproportionate share hospitals care for those uninsured persons. They 
are the only source of care for many children and adults.
  According to the Illinois Hospital Association, 30 percent of these 
disproportionate share hospitals had negative margins before the 
Balanced Budget Act was enacted. By 2002, if we do not act to stop 
further reductions, two out of every three of these hospitals serving 
low-income people will have negative margins.

  In Illinois, these DSH hospitals, is what we call them, will lose 
$1.7 billion. $1.7 billion. These cuts are simply not sustainable. As 
the number of uninsured rises, DSH providers should be getting more 
resources, not suffer the cutbacks required under the balanced budget 
amendment.
  Patients who rely on teaching hospitals would also suffer. The $1.1 
billion in projected cuts to Illinois teaching hospitals threaten their 
ability to train medical professionals and serve patients.
  Tertiary teaching hospitals in Illinois provide over half of all 
charity care in the State, even though they represent only 13 percent 
of hospitals. That care too would be threatened. Finally, teaching 
hospitals provide critical specialty services, trauma centers, organ 
transplants, specialized AIDS care, and other critical services.
  Teaching hospitals are pioneers in training medical professionals and 
providing complex and innovative medical

[[Page H9012]]

technologies to patients. We should make it a priority to ensure that 
they have adequate resources to continue to do so. As less and less 
services are performed on an inpatient basis and more and more in 
hospital outpatient departments, we need to take action to stop drastic 
cuts for outpatient services.
  Finally, I hope that we will act to repeal the annual $1,500 per 
patient cap on rehabilitation therapy payments. This arbitrary cap is 
preventing patients from getting adequate care to maintain, restore, 
and improve their functioning. We need to protect and increase payments 
to disproportionate share hospitals and payments for teaching 
hospitals. We need to protect against drastic cuts in outpatient 
hospital care. If we fail to do so, the real victims will not be the 
providers, they will be the patients who rely on their hospitals for 
quality, compassionate, and timely care.
  Again, I thank the gentleman for the time.
  Mr. DAVIS of Illinois. Let me thank the gentlewoman from Illinois for 
her comments. As I was listening, I was just sure that not only are the 
people of the 9th District in Illinois pleased that you are here 
working on their behalf, but citizens from all over the State of 
Illinois are pleased to know that they have you as a Member of Congress 
fighting for their rights and for their communities. So I thank you so 
very much.
  The gentlewoman that I would like to next yield time to is not from 
the State of Illinois, but any time that she would want to come she is 
always welcome, and especially would she be welcome in the 7th 
District. But I would like to yield to the gentlewoman from the State 
of North Carolina (Mrs. Clayton).
  Mrs. CLAYTON. Mr. Speaker, I thank the gentleman for his time and 
gracious comments, and I appreciate him allowing me to say a few words 
during his designated special order on the impact of the 1997 budget on 
hospitals as it relates to hospitals, particularly in urban areas.
  I come from rural North Carolina. I am here to talk about another 
issue, which I will do later, but I could not pass up the opportunity 
of reaffirming how important the subject you are talking about is, how 
the 1997 Balanced Budget Act affects hospitals, and to also share with 
you that the implication is even more severe for those of us who live 
in rural America.
  Just think that if indeed you think about the delivery system or the 
infrastructure for health care being at peril in urban areas, think of 
rural areas of having already a severe shortage of providers and 
institutions and heavily dependent on Medicare reimbursement and 
Medicaid reimbursement, and, therefore, having private insurance to pay 
for most of their care is not a part of the equation in supporting 
rural hospitals or nursing homes or home health services or hospice 
services. They are heavily dependent on the participation of the 
Federal budget.
  So your raising this issue for us helps us to join with you from 
rural America to say that this is a nationwide project, it is a 
nationwide problem. It is a challenge for those of us who live in rural 
America, because we serve a disproportionate number of senior citizens 
who are very much dependent on Medicare.
  The teaching hospital that is in my district, for their interns and 
their fellows, it is supported in the main by the Medicare payments 
that are made to the individual institution.

                              {time}  1515

  We talk about DSH. Most of our hospitals are actually 
disproportionately hospitals in rural areas so we are on the verge of 
losing hospitals in our area if, indeed, we pursue with this gradual 
sliding below to the lowest common denominator, Balanced Budget Act 
projection, given just what the last speaker spoke of. Actually we have 
exceeded those projections where the intent was to have 53 percent.
  Now we have exceeded those. So just think, that means we are going to 
have to make decisions about cutting outpatient, making decisions about 
cutting AIDS programs, of all of those extra programs that hospitals 
were beginning to equip themselves for, so they would not have to keep 
patients in their hospitals in beds. They had outpatient, they had 
therapy, they had rehabilitation programs. All of those are threatened 
under the 1997 Balanced Budget Act.
  It is not the act itself. It is the implementation. So we really do 
need to do two things. There needs to be two tracks. We need to make a 
case to the administration in the finance mechanism that they need to 
adjust where they have authority to adjust so they can make that relief 
that hospitals need right now.
  Secondly, we need to make some amendments in our budgetary process to 
allow for us to not have the year 2000 as structured as we had proposed 
in 1997.
  I thank the gentleman for allowing me to participate and just would 
say finally that rural hospitals also are appreciative of the efforts 
of the gentleman to raise this issue for Members of Congress so that we 
can take the appropriate action.
  Mr. DAVIS of Illinois. Mr. Speaker, let me just thank the gentlewoman 
and commend the gentlewoman again for the tremendous advocacy that she 
displays consistently on the part of rural America, and especially as 
she crusades right now to try and find relief for that part of North 
Carolina and for all of those thousands and thousands of people who 
have been uprooted by recent Hurricane Floyd.
  Certainly, our hopes, our prayers, and our thoughts are with the 
gentlewoman and all of the people in North Carolina as they try to work 
their way out of this disaster.
  Mr. RUSH. Mr. Speaker, will the gentleman yield?
  Mr. DAVIS of Illinois. I yield to the gentleman from Illinois, who 
represents a district that certainly has one of the most outstanding 
hospitals and academic medical centers in the Nation in it, the 
University of Chicago.
  Mr. RUSH. Mr. Speaker, I want to thank the gentleman from Illinois 
(Mr. Davis), Congressman from the 7th Congressional District, for 
holding this special order. This special order is important to the 
hospitals in my district, the hospitals in urban America and, as the 
previous speaker indicated, the hospitals in rural America.
  I want to say to my colleague from the 7th Congressional District 
that, again, he is on point. We served in the Chicago city council 
together. He was a leader on health care issues in the city council. He 
was a leader on health care issues when he was a member of the Cook 
County Board of Commissioners and now in the Congress he is a leader on 
health care issues, and I want to applaud him for his leadership and 
again thank him for holding this important special order.
  To the gentlewoman from North Carolina (Mrs. Clayton), I want to join 
with my colleague from the 7th Congressional District in indicating my 
support for her, my support for those distressed constituents in her 
district, those individuals who are experiencing hardship now because 
of Hurricane Floyd. I want her to know that any time she wants to visit 
her son, who is a constituent of mine in the 1st Congressional 
District, she certainly can come in; and we will roll out the red 
carpet for her, as we have done in the past.
  The Balanced Budget Act, Mr. Speaker, is causing real pain for 
hospitals, for patients, and the communities that they serve. The BBA 
has produced an unintended financial burden on Chicago teaching 
hospitals, on rural hospitals, on skilled nursing facilities, and on 
home health providers. The issue is important, to me and to others, 
because Illinois ranks fifth in the Nation in the number of teaching 
hospitals.
  Teaching hospitals not only provide training to our Nation's future 
doctors but they also provide uncompensated care to underserved 
communities. In my State, the State of Illinois, these teaching 
hospitals provide 59 percent of the State's charity care. Additionally, 
in teaching hospitals in Illinois and in academic medical centers in 
Illinois, there are at least 80,000 Illinoisans statewide who are 
employed by these hospitals.
  As a matter of fact, Illinois teaching hospitals and academic medical 
centers are one of Illinois' largest employers. They add more than $3 
billion in salaries and benefits to the Illinois economy.
  Because of these BBA cuts, these hospitals will lose $1.678 billion 
between

[[Page H9013]]

fiscal year 1998 and fiscal year 2002. $1.678 billion the hospitals in 
Illinois will lose between fiscal year 1998 and fiscal year 2002. These 
cuts would be atrocious, these cuts will undeniably deny many low-
income patients adequate and much-needed health care.
  This year this Congress passed a budget resolution that would have 
allowed for $792 billion in tax breaks, mostly to millionaires and 
billionaires, those who are living the good life, but not one red cent 
to fix the damage to Medicare from the BBA.
  Ironically, today in this Congress we are seeing that Members who 
voted for the BBA 2 years ago, they are now switching. They are now 
reversing their positions. They are now supportive of fixes to 
Medicare.
  Mr. Speaker, the Members on both sides of the aisle, this Congress, 
the Republicans particularly, this Congress must fess up and admit that 
it made a mistake; and it must do the right thing by funding for 
substantial increases in Medicare reimbursements.

  Mr. DAVIS of Illinois. Mr. Speaker, let me just thank the gentleman 
from Illinois (Mr. Rush) for the comments that he has made because what 
he has said actually is the same thing that I am hearing from 
constituents of mine each and every day.
  In my hand and in my office are actually thousands of cards that I 
have received from constituents of my district asking that we provide 
for them some relief. They are very active people who understand what 
is going on, who recognize when they hurt that they need to cry, and 
who recognize that if they do not cry chances are nobody will even know 
that they are hurting.
  I can say that the people of the 7th District are crying. They are 
crying out for relief from the Balanced Budget Act. They are crying out 
to make sure that their hospitals, that their health centers, that 
their skilled nursing homes, can continue to exist and provide for them 
the greatly needed services that they so richly and rightly deserve.
  So I thank the gentleman for being where the people are, and I 
appreciate his comments.
  Not only, though, are we saying it, I mean the Members of Congress 
are saying it, but also I am looking at editorials, and I would put 
these entered into the Record at this point, Mr. Speaker.

             [From the Peoria Star Journal, Aug. 31, 1999]

               Medicare Reductions Threatening Hospitals

       If these are the good years, then why are hospitals 
     administrators so blue? The answer is that they're seeing 
     red.
       Medicare cuts being implemented now are ``the most serious 
     reductions in the history of the program,'' says Ken Robbins, 
     president of the Illinois Hospitals and Health Systems 
     Association.
       Hospitals operating on a slim margin, or dependent on 
     Medicare for almost all of their revenues, will close, he 
     says. Those which stay in business will cut staff, eliminate 
     unprofitable programs and increase prices charged paying 
     patients, forcing insurance rates up.
       Teaching hospitals, which will lose more assistance than 
     most, will cut residency slots. That will threaten medical 
     specialities and charitable care, which depends heavily on 
     resident physicians. Already OSF St. Francis has trimmed 
     seven positions and is considering eliminating an entire 
     residency program. In the 26 years he's been looking Robbins 
     says he's never seen a more critical threat.
       It seems peculiar that hospitals are ringing this alarm as 
     congressman fan out across the land to tell of a federal 
     treasury overstuffed with surplus dollar bills. The timing is 
     not accidental.
       The federal surplus owes its existence not just to a 
     booming economy but to the domestic spending cuts mandated by 
     the Balanced Budget Act of 1997. About half of them will come 
     from Medicare and Medicaid. The American Hospital Association 
     anticipates that by 2002, hospitals will lose $71 billion, a 
     little more than one of every 10 Medicare dollars they take 
     in.
       OSF St. Francis figures it will give up $27.6 million; 
     Methodist, $22.6 million; Proctor, $18.2 million. To 
     appreciate the size of the losses, and the steps necessary to 
     compensate, consider that Methodist and Proctor derive 50 
     percent of their income from Medicare, while St. Francis gets 
     40 percent. By the end of 2002, Robbins says Illinois 
     hospitals will be treating more Medicare-dependent patients 
     for fewer inflation-factored dollars than they get now. He 
     says everybody who needs hospital care will feel the effects.
       The hospital association wants legislation that will 
     restore $25 billion, a little more than a third of what 
     hospitals lost. To get the money, it will have to fight off 
     those who would spend the surplus on tax cuts and those who 
     would pay down the federal debt.
       Members of both camps say they want to make sure the 
     anticipated surplus isn't used to increase spending. That is 
     an understandable goal but an inaccurate description of the 
     alternative. The third choice in the surplus arguments is not 
     whether to expand federal programs with the extra money but 
     whether to maintain the present level of service.
       Permitting spending to grow at the rate of inflation would 
     cost nearly $750 billion, or three-fourths of the predicted 
     10-year non-Social Security surplus. Assuming that defense 
     spending will not be reduced, the Balanced Budget Act will 
     require domestic spending cuts of about 20 percent over five 
     years. If Congress boosts military spending, as it has 
     indicated it would like to do, then bigger reductions in 
     domestic spending will be necessary.
       The hospital lobbyists would seem to be at vanguard of 
     those who will feel the pinch. Earlier this month Peoria 
     officials said they anticipated a 10 percent cut in Community 
     Development Block Grant funds for neighborhood-based 
     programs. Housing and Urban Development Secretary Andrew 
     Cuomo warned last week of budget cuts that would leave 
     156,000 people without affordable housing. The nation's 
     parkland preservation program is due to be reduced to one-
     tenth of its 1978 level. Congress has put out feelers about 
     taking back from the states $4.2 billion in welfare reform 
     money.
       Cuts of this magnitude may have made sense when the nation 
     was battling to control deficit spending and the threats it 
     posed. The case for them is not as strong now that it's been 
     declared the post-deficit era on Capitol Hill.
       Certainly maintaining Head Start participation and national 
     park dollars and environmental enforcement at present levels, 
     rather than slashing them, deserves an equal platform with 
     tax cuts and debt reduction as decisions are made. So do the 
     hospitals' concerns.
       It is particularly irksome that the facts of the issue have 
     been so poorly laid out and that the budget cuts which lie 
     ahead have claimed so small a stage in the national debate. 
     Perhaps the hospital lobbyists will help.
                                  ____


           [From the St. Louis Post-Dispatch, August 4, 1999]

                        When Hospitals Get Sick

       The nation's teaching hospitals, the backbone of the 
     country's health care system, are getting sick. Squeezed on 
     one side by managed care's demand for lower costs and shorter 
     stays and on the other by federal cuts in Medicare 
     reimbursements, the average teaching hospital will have lost 
     $43 million between 1997 and 2002. That will leave nearly 40 
     percent of the facilities operating in the red.
       Similar dire figures are projected for facilities here. By 
     the end of this year, St. Louis-area teaching hospitals will 
     have seen their revenues reduced by $70 million. The 
     reduction for all the state's teaching hospitals will be 
     about $126 million. By 2002, the figure will have climbed to 
     over $100 million in St. Louis and $214 million for Missouri. 
     Barnes-Jewish Hospital has gone from generating $30 million a 
     year to just $4 million this year.
       Those figures are much more than just numbers on a balance 
     sheet. Teaching hospitals, particularly in St. Louis and 
     Missouri, are unique, vital cogs in the health care network. 
     Though they represent only 4 percent of all of the nation's 
     hospitals, they treat 44 percent of the uninsured patients. 
     Meanwhile, they provide expensive, highly specialized 
     programs, such as the organ transplant, bone marrow 
     transplant and trauma programs operating at St. Louis 
     University Hospital and Barnes-Jewish Hospital.
       In St. Louis and Missouri, this continued financial 
     hemorrhaging could hurt the local economy. Barnes-Jewish 
     Hospital, with over 8,000 employees, is the largest private 
     employer in the city of St. Louis. Its network, BJC Health 
     System, is Missouri's single largest private employer.
       Sen Daniel Patrick Moynihan, D-N.Y., and Rep. Charles 
     Rangel, D-New York, have an answer for the current mess. Mr. 
     Moynihan has introduced a bill to freeze the reductions in 
     Medicare reimbursements for the next two years. The New York 
     Democrats have proposed the establishment of a Medical 
     Education Trust Fund that would be financed by a 1.5 percent 
     assessment on private health insurance premiums and funding 
     from Medicare and Medicaid.
       Congress' desire to rein in rising medical costs is 
     commendable, but the 1997 Balanced Budget Act, which cut the 
     Medicare reimbursements for teaching hospitals, produced 
     serious unintended consequences. The nation must not 
     sacrifice the great institution of the teaching hospital to 
     the budgetary scalpel.
                                  ____


                [From the Chicago Tribune, July 9, 1999]

                 UIC To Cut Hospital Jobs, Seek Merger

                           (By Bruce Jaspen)

       In a rare move that highlights the deepening financial 
     crisis of one of the city's biggest teaching hospitals, the 
     University of Illinois said Thursday it will turn over 
     management of its West Side academic medical center to a 
     Florida consulting firm.
       At the same time, the university reassigned the hospital's 
     director, announced that more than 10 percent of the 
     hospital's employees will lose their jobs and said it will 
     seek a merger with another health-care firm.

[[Page H9014]]

       The dire measure for the University of Illinois at Chicago 
     Medical Center were recommended by The Hunter Group of St. 
     Petersburg, Fla., in the wake of millions of dollars in 
     losses, blamed in large part on drastic reductions in 
     Medicare spending growth as a result of the Balanced Budget 
     Act of 1997.
       As part of the government's effort to slow the growth in 
     spending for Medicare, the federal health insurance for the 
     disabled and the booming elderly population, the Balanced 
     Budget Act is taking $33.5 million in projected revenue from 
     the UIC's budget over a five-year period, and thus far has 
     contributed to an $8 million deficit in the hospital's second 
     quarter. As recently as 1997, UIC had income of $6.1 million 
     on a budget of nearly $300 million.
       UIC has also been vulnerable to an intensely competitive 
     health-care marketplace in Chicago, where one in three 
     hospital beds remains empty and managed-care companies and 
     developments in science are keeping patients out of the 
     hospital.
       ``We are struggling with making ends meet,'' said Dieter 
     Haussmann, vice chancellor for health services at UIC. 
     ``Unless things change, you will see fewer teaching hospitals 
     in the next decade.''
       Like all academic medical centers, UIC is particularly 
     vulnerable to managed care, which emphasizes low-cost 
     outpatient care.
       Contracts with teaching hospitals are less attractive to 
     managed-care insurers because the costs of training the 
     nation's future doctors and conducting cutting-edge research 
     typically make services at teaching hospitals 20 to 25 
     percent higher than at community hospitals.
       To keep the UIC's teaching mission of educating doctors 
     viable, The Hunter Group will begin looking for potential 
     partners, possibly leading to a merger or sale to one of any 
     number of possible buyers. Haussmann speculated about one 
     scenario involving the UIC forming some partnership with 
     Rush-Presbyterian-St. Luke's Medical Center or Cook County 
     Hospital, both within a block of the UIC on Chicago's West 
     Side.
       ``Without some sort of partnership, we are going to have 
     serious difficulties being viable,'' Haussmann said.
       Rush executives Thursday seemed open to the idea. ``The 
     University of Illinois is a major institution within the 
     Illinois Medical Center District, and therefore it would be 
     logical for Rush and Cook County to pursue mutually 
     beneficial discussions with the University of Illinois,'' 
     said Rush's senior vice president, Avery Miller.
       UIC officials, however, said they would be exploring all 
     options.
       ``Anything is possible,'' Haussmann said. ``We won't leave 
     any stones unturned from the outset.''
       Thursday's decision by the university's board of trustees 
     follows a 14-week study by the Hunter Group, which was paid 
     $1.2 million for its work and will now manage the hospital 
     for $140,000 a month over a period officials expect will be 
     less than a year.
       Sidney Mitchell, the hospital's executive director for the 
     last several years, will be reassigned for the time being 
     within the university, Haussmann said. Mitchell was 
     unavailable Thursday for comment.
       About 275 of the hospital's 2,600 full-time employees will 
     lose their jobs as part of The Hunter Group's 
     recommendations, but it remains unclear exactly when the cuts 
     will take effect and who will be affected.
       Officials hope most of those employees, mainly clerical 
     workers and support staff, will be able to find jobs within 
     the university system, but negotiations on those positions 
     will also take place with some unions.
       Earlier this year, the UJC implemented a hiring freeze and 
     eliminated 250 positions, and most of those workers were 
     placed elsewhere, university officials said.
       Meanwhile, the proposed changes will also mean a different 
     employment arrangement for more than 300 physicians who are 
     either full- or part-time faculty at the University of 
     Illinois at Chicago College of Medicine and do clinical work 
     at the hospital. They will become more independent, with 
     employment contracts, much like doctors at other academic 
     medical centers where the physicians work for affiliated 
     practices.
       Thus, doctors will be forced to build up a base of patients 
     and referrals for the hospital rather than relying largely on 
     the hospital's contracts with insurance companies.
       ``The idea that the board is looking at is, can these 
     physicians take on more responsibility for their actions?'' 
     said David Hunter, chief executive of The Hunter Group, which 
     will officially take over management sometime next month, 
     once its contract is made final. ``Can physicians take more 
     control over their lives and their practice, and therefore be 
     more productive?''
       Physicians appeared to support the changes. ``I'm very 
     positive, and I believe the physicians will be, too,'' said 
     Dr. Gerald Moss, a surgeon and dean of the medical school. 
     ``We believe with these changes the hospital will return to 
     profitability.''
       The hospital is also going to streamline billing and 
     collection systems and reduce supply expenses, aiming to save 
     more than $6 million by 2002.


                         uic announces changes

       University of Illinois at Chicago Medical Center said 
     Thursday it will implement changes for improving hospital 
     operations.
       Major recommendations include: Reduce staffing by about 
     275; Implement supply expense reduction program; Streamline 
     patient registration, billing and collection systems; and 
     Seek a merger or sale.
                                  ____


             [From Crain's Chicago Business, June 21, 1999]

 Deep Medicare Cuts Draw Blood at Teaching Hospitals--Top Med Centers 
                 Take Largest Hit; Survival of Fittest

                        (By Meera Somasundaram)

       Chicago's academic medical centers, known for treating the 
     most challenging cases and training the nation's top doctors, 
     are facing some tough medicine of their own.
       Already struggling with pressures from managed care, rising 
     drug costs and a surplus of local hospital capacity, they now 
     are bracing for one of the sharpest cutbacks ever in Medicare 
     payments to hospitals.
       And the prognosis isn't good. Some top hospitals are 
     already in the red. Others have seen operating income fall 
     sharply. The most pessimistic observers question whether, 
     long term, the region can support all of its high-end medical 
     centers.
       In Chicago, which has an unusually high concentration of 
     such facilities--five major academic medical centers and 
     seven medical schools--the effects of the statewide $2.5-
     billion retrenchment will be staggering: The five academic 
     medical centers together will lose about $350 million over 
     five years.
       Two of the five--University of Illinois at Chicago Medical 
     Center and Rush-Presbyterian-St. Luke's Medical Center--
     already are feeling the pinch, having reported operating 
     losses in fiscal 1998.
       Two that were in the black--Northwestern Memorial Hospital 
     and University of Chicago Hospitals--reported sharp downturns 
     from 1997. Loyola University Medical Center posted operating 
     income after a loss in 1997.
       ``Clearly, we are in for some difficult times for academic 
     medical centers over the next few years,'' says health care 
     consultant David Anderson of Health Care Futures L.P. in 
     Itasca.
       The downward spiral is expected to worsen over the next few 
     years because the cuts--mandated under the Balanced Budget 
     Act of 1997 and phased in from fiscal 1998 to fiscal 2002--
     widen each year. Some of the current losses have been offset 
     by a robust stock market, which has helped hospitals stay in 
     the black. But that can't continue forever.


                         how much they'll lose

       Medicare payments are the lifeblood of many teaching 
     hospitals--accounting for 20% to 40% of total revenues.
       In addition to receiving payments from Medicare for 
     treating elderly patients, the hospitals also are paid 
     through Medicare for training physicians in residency 
     programs. The larger a hospital's Medicare population and the 
     larger its residency program, the larger its Medicare 
     payment.
       Rush-Presbyterian and the University of Chicago Hospitals 
     will lose the most because of their greater dependence on 
     public aid and larger residency programs: Rush will see $104 
     million in cuts over five years, and U of C will lose $95 
     million.
       As for the other three. Northwestern Memorial will lost $65 
     million; Loyola, about $50 million, and UIC, $33.5 million, 
     according to Ralph W. Muller, president and CEO of U of C 
     Hospitals and chairman-elect of the Assn. of American Medical 
     Colleges, which is lobbying Congress to restore the cuts.
       The fallout from the cuts could drastically change the 
     hospital landscape in Chicago.
       The Illinois Hospital and Health-Systems Assn. (IHAA) has 
     predicted that some smaller area hospitals will be forced to 
     close. Others will turn to layoffs, cutbacks in programs or 
     consolidation. In addition, the loss of funds could put a 
     squeeze on research programs and bolster unionization efforts 
     among physicians and nurses seeking job security amid the 
     turmoil.
       Notes Jonathan Kaplan, director of the Midwest health care 
     consulting division in Chicago at Ernst & Young LLP: ``As you 
     erode the revenue side, they're going to have to dramatically 
     redesign their business to make sure they can survive.''
       Already, U of C says it won't fill 115 positions this year, 
     and UIC is eliminating 250 positions and has initiated a 
     hiring freeze. Experts say more layoffs are likely.
       ``What's going to happen is, we'll see cutbacks in 
     programs,'' says U of C's Mr. Muller. ``If you cut back 
     programs, then patients stop coming and doctors stop using 
     you. That's not in anyone's interest.''
       Rush-Presbyterian, which includes expenses for Rush 
     University and faculty practices in its financial results, 
     posted an operating loss of $18.7 million on revenues of 
     $520.4 million in the fiscal year ended last June 30, on top 
     of an operating loss of $235,000 the previous year. Losses at 
     the university and the faculty practices more than offset 
     operating income of $8.3 million at the hospital--down from 
     $28.7 million in 1997--according to President and CEO Leo M. 
     Henikoff. He cites eroding Medicare revenues as the reason 
     for the decline.
       In fact, Rush kicked off an aggressive three-year cost-
     cutting program in 1997, aimed at saving $120 million, in 
     anticipation of Medicare cuts in 1998.
       ``A number of people thought that was overkill,'' says Dr. 
     Henikoff. ``It turns out it was underkill.''
       Rush is also taking steps to boost growth, including plans 
     to buy or build 24-hour ambulatory surgery centers in the 
     suburbs, and to expand Rush System for Health, a network of 
     six hospitals with Rush-Presbyterian as a tertiary hub. He 
     also says the recent recruitment of Dr. Leonard Cerullo to 
     head

[[Page H9015]]

     Rush's neurosurgery department will attract more patients.


                           u of c vulnerable

       While Rush tries to increase patient volume, competitors 
     are undertaking changes of their own.
       University of Chicago, whose operating income dropped a 
     whopping 72% to $6.3 million last year from 1997, also is 
     particularly vulnerable to federal cutbacks.
       If losses associated with its Medicaid managed care plan 
     and a now-divested Meyer Medical Group and other affiliates 
     are included, the medical center posted a consolidated 
     operating loss of $32.6 million last year.
       Even though the losses are steep, observers say U of C is 
     taking steps in the right direction, including selling money-
     losing ventures.
       Still, U of C has a high dependence on Medicaid, receiving 
     26% of revenues from the federal-state health insurance 
     program for low-income patients, while Loyola receives 14%; 
     Rush, 13%, and Northwestern, 11%, according to IHHA.
       Northwestern Memorial Hospital, located in the affluent 
     Streeterville neighborhood, is perhaps the best-positioned to 
     withstand the Medicare cuts. Although it reported a 35% drop 
     in operating income to $35 million last year, it has 
     significant investments in marketable securities, as well as 
     a desirable payer mix. However, the hospital must absorb 
     depreciation costs and risks associated with its new, $580-
     million building, which it funded with debt and cash. 
     Hospital officials say the new facility is more efficient and 
     will save costs in the long run.


                           a rush-uic merger?

       Loyola University Medical Center, which posted operating 
     income of $6.2 million in 1998, after a loss of $4.2 million 
     in 1997, is trying to shore up operations at its 19 
     outpatient care clinics.
       UIC earlier this year hired a consulting group to help 
     improve operations. In the first nine months of fiscal 1999 
     ended March 31, the medical center reported a $5.8-million 
     operating loss, following a loss of $7.1 million in fiscal 
     1998 due to a drop in revenues and patient volume.
       In response, UIC could turn to mergers or affiliations, 
     including a potential merger with its nearby competitor, 
     Rush.
       Although Dieter Haussmann, vice-chancellor for health 
     services at UIC, says he's not in formal talks with Rush, he 
     doesn't rule out the option. The most difficult task for any 
     academic medical center would be the melding of medical 
     schools, he adds.
       ``It's clear that, ultimately, there have to be fewer 
     academic medical centers,'' says Mr. Haussmann, ``How we get 
     there is the big question.''
       Observers say UIC would have more to gain from a Rush-UIC 
     combination than Rush because UIC could gain patients from 
     Rush's network. Dr. Henikoff agrees with that assessment, and 
     says a merger with another teaching hospital wouldn't make 
     sense for Rush.


                         Finance-driven outcome

       ``When you end up with two hospitals, you don't save 
     money,'' says Dr. Heinkoff. ``You would get saddled with 
     another infrastructure. The last thing I want is an 
     infrastructure that isn't utilized.''
       Still, if Congress doesn't reverse the cutbacks, mergers 
     here may be inevitable.
       Says consultant Mr. Anderson: ``Financial pressures are 
     going to drive very serious evaluations by boards of 
     hospitals about whether the enemy across the street now needs 
     to be their friend.''

   MEDICARE FLU--OPERATING INCOME (LOSSES) FOR CHICAGO'S FIVE ACADEMIC
                             MEDICAL CENTERS
                              [In millions]
------------------------------------------------------------------------
                                                        1998      1997
------------------------------------------------------------------------
University of Chicago Hospitals.....................     $6.3      22.7
Northwestern Memorial Hospital......................     35.0      53.9
Rush-Presbyterian-St. Luke's Medical Center,            (18.7)     (0.2)
 including Rush University and faculty practices....
Loyola University Medical Center....................      6.2      (4.2)
University of Illinois at Chicago Medical Center....     (7.1)      2.7
------------------------------------------------------------------------
Source: Hospitals' financial statements.


                                  ____
                [From the New York Times, May 31, 1999]

                     Teaching Hospitals in Trouble

       The nation's teaching hospitals are facing deep financial 
     trouble, brought on by the growth of managed care and cost-
     cutting measures in government health programs. Congress can 
     help by restoring some cuts made to Medicare funding in 1997 
     that squeezed these institutions severely. But their long-
     term financial health will depend on new ways of financing 
     their special missions. They also should be required to live 
     by reasonable cost controls.
       All hospitals are facing the same pressures, chiefly cuts 
     in government payments and managed care's demand for lower 
     hospital fees and shorter hospital stays. Most have responded 
     by reducing staff and merging with other institutions. 
     Teaching hospitals have also taken these steps, but their 
     problems are compounded by the extra obligations that 
     teaching hospitals have long assumed--training new doctors, 
     conducting medical research and providing charity care for 
     the poor. These functions have traditionally been indirectly 
     underwritten in part by the private sector.
       Managed care has changed that by making it much harder to 
     pass along charity care and education costs through higher 
     fees. At the same time, these hospitals have been especially 
     hard hit by government cuts because they derive much of their 
     revenue from Medicaid and Medicare patients. These pressures 
     are especially severe in New York City, which has the 
     nation's largest concentration of teaching hospitals. City 
     hospitals have cut their staffs by 10 percent since 1993. 
     Still, Gov. George Pataki has proposed trimming roughly $150 
     million in state Medicaid payments to hospitals in the new 
     fiscal year, and Clinton Administration is also proposing 
     further Medicare cuts.
       But the worst blow comes from the 1997 Balanced Budget Act. 
     That law has produced the welcome and unexpected result of 
     actually cutting Medicare expenditures in the first half of 
     this fiscal year. But it also had a disproportionate impact 
     on teaching hospitals. Among other cost controls, the law 
     sharply cut the Federal subsidy for graduate medical 
     education that is financed as part of Medicare. By 2002, when 
     all the cuts are fully phased in, New York State hospitals 
     will have lost $5 billion in Federal revenue, with $3 billion 
     of that squeezed out of the metropolitan area hospitals.
       Senator Daniel Patrick Moynihan introduced legislation that 
     would reduce some of the damage. One bill would freeze the 
     graduate medical education subsidy, rather than allow further 
     annual reductions for the next two years, as required under 
     the 1997 law. That would save teaching hospitals $3 billion 
     in losses over five years. Another bill would take the 
     Federal subsidies for serving low-income patients that are 
     included in payments to Medicare managed-care plans and 
     redirect the money to the hospitals that provide the care. In 
     theory, Medicare H.M.O.'s pass on the subsidy to the 
     hospitals, but in practice they often do not. A similar bill 
     would redirect the subsidy for training nurses from Medicare 
     H.M.O.'s to teaching hospitals.
       Congress should make these adjustments without unraveling 
     other cost-containment measures of the 1997 law. Mr. Moynihan 
     has also proposed broader legislation that would spread the 
     burden of paying for medical education. His plan would 
     establish a separate Medical Education Trust Fund that would 
     be financed by a fee levied on private health insurance 
     premiums, as well as contributions from Medicaid and 
     Medicare. The bill calls for an advisory commission to debate 
     alternative approaches.
       Something has to be done to shore up this key part of the 
     nation's biomedical infrastructure. Simply plugging holes in 
     the current patchwork of funding will not insure stability 
     for the future.
                                  ____


                 [From the New York Times, May 6, 1999]

        Teaching Hospitals, Battling Cutbacks In Medicare Money

                          (By Carey Goldberg)

       BOSTON, May 5.--Normally, the great teaching hospitals of 
     this medical Mecca carry an air of white-coated, best-in-the-
     world arrogance, the kind of arrogance that comes of 
     collecting Nobels, of snaring more Federal money for medical 
     research than hospitals anywhere else, of attracting patients 
     from the four corners of the earth.
       But not lately. Lately, their chief executives carry an air 
     of pleading and alarm. They tend to cross the edges of their 
     palms in an X that symbolizes the crossing of rising costs 
     and dropping payments, especially Medicare payments. And to 
     say they simply cannot go on losing money this way and remain 
     the academic cream of American medicine.
       The teaching hospitals here and elsewhere have never been 
     immune from the turbulent change sweeping American health 
     care--from the expansion of managed care to spiraling drug 
     prices to the fierce fights for survival and shotgun 
     marriages between hospitals with empty beds and flabby 
     management.
       But they are contending that suddenly, in recent weeks, a 
     Federal cutback in Medicare spending has begun putting such a 
     financial squeeze on them that it threatens their ability to 
     fulfill their special missions: to handle the sickest 
     patients, to act as incubators for new cures, to treat poor 
     people and to train budding doctors.
       The budget hemorrhaging has hit at scattered teaching 
     hospitals across the country, from San Francisco to 
     Philadelphia. New York's clusters of teaching hospitals are 
     among the biggest and hardest hit, the Greater New York 
     Hospital Association says. It predicts that Medicare cuts 
     will cost the state's hospitals $5 billion through 2002 and 
     force the closing of money-losing departments and whole 
     hospitals.
       Often, analysts say, hospital cut-backs closings and 
     mergers make good economic sense, and some dislocation and 
     pain are only to be expected, for all the hospitals' tendency 
     to moan about them. Some critics say the hospitals are partly 
     to fault, that for all their glittery research and 
     credentials, they have not always been efficiently managed.
       ``A lot of teaching hospitals have engaged in what might be 
     called self-sanctification--`We're the greatest hospitals in 
     the world and no one can do it better or for less'--and that 
     may or may not be true,'' said Alan Sager, a health-care 
     finance expert at the Boston University School of Public 
     Health.
       But the hospital chiefs argue that they have virtually no 
     fat left to cut, and warn that their financial problems may 
     mean that the smartest edge of American medicine will get 
     dumbed down.
       With that message, they have been lobbying in Congress in 
     recent weeks to reconsider the cuts that they say have turned

[[Page H9016]]

     their financial straits from tough to intolerable.
       Hospital chiefs and doctors also argue that a teaching 
     hospital and its affiliated university are a delicate 
     ecosystem whose production of critical research is at risk.
       ``The grand institutions in Boston that are venerated are 
     characterized by a wildflower approach to invention and the 
     generation of new knowledge,'' said Dr. James Reinertsen, the 
     chief executive of Caregroup, which owns Beth Israel 
     Deaconess Medical Center. ``We don't run our institutions 
     like agribusiness, a massively efficient operation where we 
     direct research and harvest it. It's unplanned to a great 
     extent, and that chaotic fermenting environment is part of 
     what makes the academic health centers what they are.''
       Federal financing for research is plentiful of late, 
     hospital heads acknowledge. But they point out that the 
     Government expects hospitals to subsidize 10 percent or 15 
     percent of that research, and that they must also provide 
     important support for researchers still too junior to win 
     grants.
       A similar argument for slack in the system comes in 
     connection with teaching. Teaching hospitals are pressing 
     their faculties to take on more patients to bring in more 
     money, said Dr. Daniel D. Federman, dean for medical 
     education of Harvard Medical School. A doctor under pressure 
     to spend time in a billable way, Dr. Federman said, has less 
     time to spend teaching.
       Whatever the causes, said Dr. Stuart Altman, professor of 
     national health policy at Brandeis University and past 
     chairman for 12 years of the committee that advised the 
     Government on Medicare prices, ``the concern is very real.''
       ``What's happened to them is that all of the cards have 
     fallen the wrong way at the same time,'' Dr. Altman said. ``I 
     believe their screams of woe are legitimate.''
       Among the cards that fell wrong, begin with managed care. 
     Massachusetts has an unusually large quotient of patients in 
     managed-care plans. Managed-care companies, themselves 
     strapped, have gotten increasingly tough about how much they 
     will pay.
       But the back-breaking straw, hospital chiefs say, came with 
     Medicare cuts, enacted under the 1997 balanced-budget law, 
     that will cut more each year through 2002. The Association of 
     American Medical Colleges estimates that by then the losses 
     for teaching hospitals could reach $14.7 billion, and that 
     major teaching hospitals will lose about $150 million each. 
     Nearly 100 teaching hospitals are expected to be running in 
     the red by then, the association said last month.
       For years, teaching hospitals have been more dependent than 
     any others on Medicare. Unlike some other payers, Medicare 
     has compensated them for their special missions--training, 
     sicker patients, indigent care--by paying them extra.
       For reasons yet to be determined, Dr. Altman and others say 
     the Medicare cuts seem to be taking an even greater toll on 
     the teaching hospitals than had been expected. Much has 
     changed since the 1996 numbers on which the cuts are based, 
     hospital chiefs say; and the cuts particularly singled out 
     teaching hospitals, whose profit margins used to look fat.
       Frightening the hospitals still further, President 
     Clinton's next budget proposes even more Medicare cuts.
       Not everyone sympathizes, though. Complaints from hospitals 
     that financial pinching hurts have become familiar refrains 
     over recent years, gaining them a reputation for crying wolf. 
     Critics say the Boston hospitals are whining for more money 
     when the only real fix is broad health-care reform.
       Some propose that the rational solution is to analyze which 
     aspects of the teaching hospitals' work society is willing to 
     pay for, and then abandon the Byzantine Medicare cross-
     subsidies and pay for them straight out, perhaps through a 
     new tax.
       Others question the numbers.
       Whenever hospitals face cuts, Alan Sager of Boston 
     University said, ``they claim it will be teaching and 
     research and free care of the uninsured that are cut first.''
       If the hospitals want more money, Mr. Sager argued, they 
     should allow in independent auditors to check their books 
     rather than asking Congress to rely on a ``scream test.''
       For many doctors at the teaching hospitals, however, the 
     screaming is preventive medicine, meant to save their 
     institutions from becoming ordinary.
       Medical care is an applied science, said Dr. Allan Ropper, 
     chief of neurology at St. Elizabeth's Hospital, and strong 
     teaching hospitals, with their cadres of doctors willing to 
     spend often-unreimbursed time on teaching and research, are 
     essential to helping move it forward.
       ``There's no getting away from a patient and their 
     illness,'' Dr. Ropper said, ``but if all you do is fix the 
     watch, nobody ever builds a better watch. It's a very subtle 
     thing, but precisely because it's so subtle, it's very easy 
     to disrupt.''
                                  ____


               [From the Chicago Tribune, Apr. 25, 1999]

                     Medicare Cuts Hit Big Centers


                     teaching costs lower immunity

                           (By Bruce Japsen)

       For years Dieter Haussmann has been far from the tremors of 
     managed care, but the government's effort to drastically slow 
     Medicare spending growth is quickly pushing him toward the 
     epicenter.
       As vice chancellor for health services at the University of 
     Illinois at Chicago Medical Center, Haussmann was forced to 
     disclose recently a deficit of $8 million that will result in 
     a hiring freeze and the elimination of more than 250 jobs at 
     the West Side academic medical center.
       Although UIC said the shortfall was ``unexpected,'' the 
     changing economic landscape made it bound to happen sooner or 
     later.
       Like all academic medical centers, UIC is more vulnerable 
     than community hospitals to managed care, which emphasizes 
     low-cost outpatient care. Teaching hospital costs are 
     traditionally higher because such hospitals also train the 
     nation's future doctors and conduct cutting-edge research.
       Until federal spending began slowing under the Balanced 
     Budget Act of 1997, Chicago teaching hospitals seemed largely 
     immune to financial forces squeezing hospitals elsewhere. 
     Health maintenance organizations--the most restrictive form 
     of managed-care insurance when it comes to paying medical-
     care providers fixed rates--insure only one in four Chicago-
     area consumers and the insurance industry is largely 
     fragmented.
       ``Maybe we are late compared to other academic medical 
     centers,'' Haussmann said.
       Now, with HMOs gaining more leverage here through 
     consolidation and with Medicare slicing millions from 
     hospitals' projected revenues, everything from more job cuts 
     to mergers may be in store for Chicago's five major academic 
     medical centers, analysts say.
       A substantial number of the more than 22,000 workers at 
     UIC, Rush-Presbyterian-St. Luke's Medical Center, University 
     of Chicago Hospitals, Northwestern Memorial Hospital and 
     Loyola University Medical Center could be affected.
       This trend has already passed through other markets, where 
     storied teaching hospitals have merged and been forced to 
     make deep cuts in their workforces.
       For example, Massachusetts General Hospital in Boston said 
     it will eliminate 130 positions in the wake of a $5 million 
     loss in its first quarter.
       The hospitals' plight has been made worse by the Balanced 
     Budget Act of 1997, which seeks to drastically hold down 
     spending.
       ``The crunch is coming,'' said Haussmann, who concedes that 
     consultants recently hired by the university may recommend a 
     merger. ``We need to develop a strategic partnership with 
     somebody.''
       Indeed, without the pressure from managed care to keep 
     Chicago consumers out of hospitals, acute-care hospitals here 
     have remained bloated with beds and staffing. Much like at 
     the rest of Chicago hospitals, one in three beds at UIC lies 
     empty on any given day.
       In fact, Chicago has more acute-care capacity than 
     practically every major metropolitan area in the country, 
     according to a Dartmouth Medical School study published last 
     week by the Chicago-based American Hospital Association.
       The Chicago area had 4.4 acute-care beds and 21.9 acute-
     care employees per 1,000 residents in 1996, compared with a 
     national average of 2.8 beds and 13.2 employees per 1,000, 
     the Dartmouth study said.
       Even New York, Boston and Philadelphia--cities where 
     academic medicine is also a hallmark of health-care service--
     ranked lower than Chicago in the study.
       ``If we have a higher utilization than New York, then that 
     is a problem,'' said Ralph Muller, president and chief 
     executive of University of Chicago Hospitals. ``We need to 
     bring that down to be in line with national averages.''
       With five major stand-alone academic medical centers, 
     analysts say, excess capacity here is costing consumers and 
     employers more than elsewhere. That's because consumers here 
     aren't encouraged to use wellness programs and other 
     outpatient services designed to keep people out of the 
     hospital.
       ``There seems to be a great under-use of preventative 
     services in some of the lesser managed-care areas,'' said 
     Carol Schadelbauer, a spokeswoman for the American Hospital 
     Association.
       ``It's a tremendous waste,'' said Larry Boress, executive 
     director of the Chicago Business Group on Health, a business 
     coalition that includes 65 employers that represent $1.5 
     billion in health-care spending. ``I don't think there is any 
     doubt this is costing us. You have beds sitting empty and yet 
     it's coming out of the budget [of the hospitals] to maintain 
     those.''
       But teaching hospitals here are now beginning to make 
     serious efforts to reduce the size of their workforces. Last 
     week, Michael Reese Hospital and Medical Center said it would 
     lay off 400 full-time employees, while Muller said the 
     University of Chicago ``will not fill well over 115 positions 
     this year . . . and the number may get higher.''
       The UIC has pared 200 hospital positions through attrition 
     or retirements since the beginning of the year, and is 
     looking to eliminate 50 more by next month.
       ``It's a long, slow struggle,'' Haussmann said. ``We aren't 
     getting paid as much as we used to. The managed-care market 
     is becoming much tougher.''
       Chicago's other academic medical centers, too, saw their 
     operating income drop last year when it came to operations. 
     University of Chicago's operating income dropped by $10 
     million last year to $6 million.
       Even cash-rich Northwestern Memorial Hospital saw its net 
     operating income fall 35 percent last year to $34.9 million 
     from $53.9 million in 1997. ``Medicare reimbursements were 
     part of the decrease,'' said Northwestern Memorial 
     spokeswoman Paula Poda.
       Northwestern and University of Chicago are each getting 
     more than $60 million less

[[Page H9017]]

     from Medicare through 2002 than earlier projected. The UIC is 
     amid a five year hit of $33.5 million out of a projected 
     $334.5 million.
       Most of Chicago's academic medical centers have remained 
     well in the black, however, because of multimillion-dollar 
     gains on their investment income. University of Chicago 
     Hospitals, for example, made $50 million on stocks, real 
     estate and other investments last year.
       The UIC medical center's balance sheet would be in even 
     worse shape if the hospital didn't get state support. Through 
     the University of Illinois, the state provides the hospital a 
     $45 million subsidy per year and another $32 million directly 
     from the state for hospital employees' fringe benefits.
       ``In some ways, among the academic medical centers, we may 
     be the first to come to grips because we don't have a big 
     endowment that we can sort of exist on for awhile,'' 
     Haussmann said. ``We have to go back to the state treasury . 
     . . and that's not a very likely prospect.''
       With UIC already losing money, the hospital's only recourse 
     may be to form a partnership or enter into a merger with 
     another hospital or academic medical center.
       Over the last two decades, UIC has talked merger at various 
     time, but negotiations have never come to anything, including 
     talks with its neighbor across Polk Street, Rush-
     Presbyterian-St. Luke's Medical Center.
       ``Just because we tried in the past doesn't mean we 
     wouldn't try again.'' Haussmann said of Rush. ``Circumstances 
     are different for both of us.''
       As operating margins here sink, U. of C.'s Muller said, 
     it's only a matter of time before academic medical centers 
     here will be swimming in red ink like those in other parts of 
     the country.
       ``This is going to start putting hospitals like us in 
     difficulty,'' Muller said. ``When you do that, you start 
     weakening the regional health system.
                                  ____


                [From The New York Times, Apr. 15, 1999]

                          Hospitals in Crisis

       A deep financial crisis is spreading like a virus through 
     the nation's teaching hospitals. It is undermining their 
     honorable and historic mission, which has been to train new 
     generations of physicians, to conduct critically important 
     medical research and to provide treatment for, among others, 
     the poor.
       A devastating combination of financial pressures ``has 
     produced a situation in which our best hospitals are now 
     essentially all losing money,'' said Dr. Joseph Martin, dean 
     of the Harvard Medical School. He was referring to hospitals 
     in the Boston area, but similar pressures are being felt at 
     teaching hospitals across the country.
       The teaching hospitals (or, more accurately, academic 
     medical centers) have been hammered by the Medicare cuts that 
     were part of the Balanced Budget Act of 1997. As teaching 
     hospitals are the key providers of the nation's charitable 
     care, they are affected disproportionately by cuts in 
     government funding. At the same time, they are being squeezed 
     by the drastic reductions in payments that have resulted from 
     the changeover to managed care in recent years.
       Meanwhile, the cost of delivering care continues to rise. 
     The bottom line has been an explosion of red ink that 
     threatens not just the mission but the very existence of some 
     of the finest teaching institutions.
       ``The only payers who help balance the books have been 
     those who pay through private insurance, and the payments for 
     that are declining as well,'' said Dr. Martin.
       In California, the medical center known as UCSF Stanford 
     Health Care expects operating losses of $50 million this 
     year. Layoff notices have already been sent to 250 employees, 
     and officials said 2,000 of the center's 12,000 staff members 
     would probably be let go over the next year and a half.
       Without the layoffs, UCSF Stanford would see an operating 
     loss of $135 million next year, according to the center's 
     chief executive, Peter Van Etten.
       Inevitably the center's mission will be diminished. Said 
     Mr. Van Etten: ``I have to say the services we will provide 
     can't be of the same quality that we would provide with 2,000 
     more people.''
       You cannot overstate the importance of teaching hospitals 
     to the health care system in the U.S. They offer the most 
     advanced and sophisticated treatment in the nation. They 
     are essential to the health of the poor, providing nearly 
     40 percent of the nation's charitable care. They are also 
     the places, as Neil Rudenstine, the president of Harvard, 
     noted, ``where physicians get educated,'' where they get 
     their first, carefully guided exposure to the connection 
     between scientific study and the real world of clinical 
     treatment.
       And they are medical research centers, the places where 
     cures are found, treatments developed, miracles realized.
       Toying with the future of such a system is as dangerous as 
     Russian roulette.
       When asked yesterday how much of a threat the financial 
     problems pose to the mission of the teaching hospitals, Mr. 
     Rudenstine replied: ``It's a total crisis, a complete crisis. 
     I think anybody who would call it less than that would really 
     just not know what's going on. I'm not quite sure what the 
     cumulative deficit of our four or five closely related 
     hospitals is, but it's certainly well over $100 million so 
     far, and we haven't even finished the year yet.''
       The outlook is not good. The cutbacks in Medicare funding, 
     the single biggest source of revenues for teaching hospitals, 
     will accelerate over the next few years. This is not a case 
     of administrators crying wolf. The situation is dire. The 
     University of Pennsylvania Health System lost $90 million 
     last year and the Temple University system lost nearly $25 
     million.
       When he mentioned the financial losses at Harvard's 
     affiliated hospitals, Mr. Rudenstine said: ``Two or three 
     more years like that and you're going to see either some 
     people go out of business or become for-profit institutions, 
     which means they will drop the research and teaching 
     components because those things don't make any money. They'll 
     become perfectly good hospitals up to a certain level, but 
     not up to the level at which we now treat disease, and not up 
     to the level where you can actually train the best 
     physicians.''
                                  ____

       Teaching hospitals and academic medical centers are the 
     primary sources for complex care. Continued failure to 
     support these institutions threatens their long-term 
     viability.
     ``Illinois' teaching hospitals need adequate funding to 
         remain viable for people like . . .'' Vanessa Blaida, Age 
         21, Children's Memorial Hospital, Asthma Study.
       ``I was known as the girl who didn't have asthma,'' Vanessa 
     Blaida explains about growing up with asthma. ``I would 
     pretend I didn't have it, because I didn't want it.'' 
     Instead, she played volleyball every fall, and softball every 
     spring. She also missed weeks of school and spent days in the 
     hospital.
       Throughout college, Vanessa's illness grew worse. Though 
     she continued to participate in sports, she was getting 
     sicker and sicker. ``It was frustrating. I would be rushed to 
     the local emergency room and the nurses would tell me I was 
     just hyperventilating. I wasn't hyperventilating, I was 
     having an asthma attack.''
       In August of 1998, Vanessa became part of a year-long 
     asthma study. Children's Memorial Hospital is one of only 
     seven hospitals nationwide participating in the study to 
     decrease the level of asthmatic morbidity.
       Under careful supervision, Vanessa is trying a new 
     experimental inhaler designed to prevent future asthma 
     attacks, long-term.
       Doctors monitor Vanessa's health with a Peak Flow Meter. 
     Every morning she blows into the device which determines the 
     level of her condition, and alerts her if she's getting sick. 
     ``It's great because it gives the patient control over the 
     illness. You can tell when you are getting sick and you know 
     what to do to help yourself,'' she said.
       Since she began using the experimental inhaler, Vanessa's 
     condition has dramatically improved. ``Usually fall and 
     spring are my worst times. I didn't get sick at all in the 
     fall. I got a little sick in the spring, but I haven't had to 
     go to the hospital at all. That's unusual for me.''
       Vanessa graduated from St. Xavier University in May, with a 
     degree in psychology. She hopes to become a counselor for 
     chronically ill children. ``The thing that's so great about 
     Children's Memorial is no matter what's wrong with you, they 
     don't ignore you. They don't make you feel like an outsider. 
     They're working to give children a normal life.''
     ``Illinois' teaching hospitals need adequate funding to 
         remain viable for people like . . .'' Heather Marker, Age 
         27, Northwestern Memorial Hospital, Robert H. Lurie 
         Comprehensive Cancer Center.
       For 14 years, Heather Markel has struggled against systemic 
     lupus. Systemic lupus is a devastating, chronic disease in 
     which the immune system attacks normal tissue. It can cause 
     joint inflammation, severe pain and permanent damage to 
     internal organs.
       During the spring of 1997, Heather's life changed. As a 
     patient at Northwestern Memorial Hospital, Heather had access 
     to one of the most cutting-edge treatments for lupus.
       Northwestern Memorial Hospital is participating in the 
     first comprehensive research program to develop techniques--
     traditionally used to treat cancer--to treat autoimmune 
     diseases such as lupus, rheumatoid arthritis and multiple 
     sclerosis.
       Heather's treatment for lupus included chemotherapy and 
     transplanted blood stem cells. Within ten days of the 
     procedure Heather's immune system began to rebuild itself. 
     For the first time in 14 years, Heather was free of the 
     disease she had struggled with since childhood. She is 
     currently planning on returning to medical school and hopes 
     to fulfill her lifelong dream of becoming a physician.
       The procedure was discovered through research at the Robert 
     H. Lurie Comprehensive Cancer Center of Northwestern 
     University. Northwestern Memorial Hospital's connection to 
     Northwestern University, and its status as a teaching 
     hospital, provides patients with cutting-edge technology and 
     experimental treatments based on University research. To date 
     Northwestern Memorial Hospital's program is one of the few in 
     the country using this procedure.
       Heather was the first person to receive the treatment, and 
     doctors are optimistic about her condition.
     ``Illinois' teaching hospitals need adequate funding to 
         remain viable for people like . . .'' Philip Gattone, Age 
         12, Rush-Presbyterian St. Luke's Medical Center, Rush 
         Epilepsy Center.
       Phil and Jill Gattone's son Philip began having seizures as 
     a baby. Doctors diagnosed

[[Page H9018]]

     Philip with intractable epilepsy. The disease interfered with 
     Philip's development so much that by age six he still 
     couldn't speak in full sentences.
       An estimated 2.3 million Americans suffer from epilepsy. 
     While about 75 percent find medications or other treatments 
     to control their seizures, the other 25 percent, like Philip, 
     try everything available to alleviate their seizures, but 
     find no relief.
       The Gattone's search for help from specialists around the 
     country ended at the Rush Epilepsy Center. Rush-Presbyterian 
     is one of the few hospitals in the nation that offers 
     advanced treatment options and research capabilities for 
     people with epilepsy.
       Philip went through various tests at Rush to diagnose his 
     condition and to discover the right way to treat his 
     particular form of the disease. During the test period, 
     Philip was videotaped 24-hours-a-day so doctors could 
     identify his type of epilepsy, recording certain symptoms 
     including facial expressions and unusual or abnormal 
     behavior.
       Doctors experimented with a variety of medications, but 
     Philip's seizures persisted. His IQ was dropping, and he was 
     losing critical cognitive abilities. His father, Philip Sr. 
     said, ``We knew we had to do something.''
       Doctors agreed that surgery was the only option. ``If you 
     can stop epileptic activity at its original site, you can 
     stop the spread,'' said Thomas Hoeppner, PhD., a Rush 
     neuroscientist.
       In 1993, Philip underwent the first of two surgeries 
     designed to prevent epileptic activity in areas of the brain 
     critical to speech, movement and sensation.
       Philip, now 12, has been seizure-free for the last five 
     years. His parents are thrilled to see their dark haired, 
     bright-eyed son doing so well. ``This is what happens when 
     research, dedication and commitment come together,'' said his 
     father.
                                  ____


             Tertiary Care in Illinois: A Resource at Risk


                                Request

       Because the costs associated with delivering more complex 
     care limit the ability of these hospitals to compete on price 
     in the health care marketplace, their continued ability to 
     provide leading-edge technology and specialized care depends 
     heavily on government reimbursement policies. Several bills 
     that would give teaching hospitals and academic medical 
     centers some relief from BBA cuts have been introduced in 
     Congress. All deserve the support of our state's U.S. 
     senators and representatives.
       S. 1023/H.R. 1785, the Graduate Medical Education Payment 
     Restoration Act of 1999, would freeze the IME payment 
     reduction at its current level of 6.5%. It would restore 
     nearly $90 million of Medicare funding to Illinois teaching 
     hospitals and academic medical centers.
       S. 1024/H.R. 1103, the Managed Care Fair Payment Act of 
     1999, would pay disproportionate-share hospitals (DSH) 
     directly from Medicare for services provided to beneficiaries 
     who are members of Medicare+Choice health plans.
       S. 1025, the Nursing and Allied Health Payment Improvement 
     Act of 1999, and H.R. 1483, the Medicare Nursing and 
     Paramedical Education Act of 1999, would carve out funding 
     for nurse and allied health training from payments to 
     Medicare+Choice plans and pay the money directly to the 
     hospitals that provide the training. Illinois Rep. Philip 
     Crane (R-8th Dist.) is the sponsor of H.R. 1483.
       Tertiary teaching hospitals and academic medical centers 
     also support:
       A halt in implementation of further DSH payment reductions.
       Payment of 100% of their DME and IME costs in lieu of the 
     current partial carve out under Medicare+Choice, beginning in 
     FY 2000.
                                                    July 23, 1999.

                                 Draft

       As members of the Illinois Congressional Delegation, I am 
     writing to share our concerns over the fate of Illinois 
     teaching hospitals and academic medical centers absent some 
     form of relief from reimbursement cuts authorized in the '97 
     Balanced Budget Act (BBA). While we recognize that all 
     sectors of society must sacrifice to achieve BBA objectives, 
     we strongly believe that the unintended consequences of BBA 
     threaten the viability of these valuable health care 
     resources. As envisioned, BBA was intended to cut $104 
     Billion from Medicare reimbursement to hospitals. However, 
     BBA, if implemented as enacted, will result in nearly $200 
     Billion in reductions.
       The people of the State of Illinois deserve and have come 
     to expect the high-quality medical care delivered by our 
     teaching hospitals and academic medical centers. The benefit 
     derived by residents of every region of the state is 
     incalculable. These teaching hospitals and academic medical 
     centers are the primary providers of complex medical care and 
     high-risk specialty services such as trauma care, burn care, 
     organ transplants and prenatal care to all patients--
     regardless of ability to pay.
       In fact, the 65 tertiary care teaching hospitals in 
     Illinois provide approximately 63% of all hospital charity 
     care in the state. Aggressive BBA cuts are jeopardizing their 
     ability to fulfill their vital mission of maintaining state-
     of-the-art medical care and technology, providing quality 
     learning and research environments, and serving as a safety 
     net for those unable to pay.
       Not only do these institutions enhance our health and 
     physical well-being, they also are some of our largest 
     employers and consumers and, as a result, are an integral 
     part of our overall economy. In total, our Illinois teaching 
     hospitals and academic medical centers employ more than 
     56,000 of our constituents and add almost $3 Billion to the 
     state's economy in salaries and benefits alone.
       Yet, despite the great benefits Illinois residents derive 
     from our teaching hospitals and academic medical centers, 
     these institutions suffer disproportionately under the BBA. 
     In total, Illinois teaching hospitals face five-year 
     reductions of more than $2.5 billion. Consequently, while 
     teaching facilities comprise 27% of Illinois hospitals, they 
     will bear the brunt of 59% of BBA reductions. These cuts are 
     compounded by increasing fiscal pressures from managed care 
     companies and inadequate Medicaid reimbursements on the state 
     level.
       We believe we must act now to prevent the unintended 
     consequences of BBA from eroding the high quality medical 
     care we in Illinois take for granted. We respectfully urge 
     you to make relief for our teaching hospitals and academic 
     medical centers a high priority in this legislative session.

  Mr. Speaker, I am looking at an editorial from the Peoria Star 
Journal that says, ``Medicare Reductions Threatening Hospitals.''
  I am looking at one from the St. Louis Post Dispatch that says, 
``When Hospitals Get Sick,'' that hospitals can be sick if they are not 
being provided the necessary resources with which to operate.
  I am looking at one from the Chicago Tribune which says, ``University 
of Illinois to cut hospital jobs, seek merger.''
  I am looking at one from Crain's Chicago Business Magazine that says, 
``Deep Medicare cuts draw blood at teaching hospitals,'' and they are 
not talking about the kind of blood that needs to analyzed. They are 
talking about the blood that is going to cause the institutions to 
hemorrhage; and, of course, if one does not stop a hemorrhage we know 
that institutions, as well as individuals, can die. If institutions 
die, then they threaten the life of communities.
  I am looking at one from the New York Times that says, ``Teaching 
Hospitals in Trouble.''
  Then one that says, ``Teaching Hospitals Battling Cutbacks in 
Medicare Money.'' Another editorial from the Chicago Tribune, 
``Medicare Cuts Hit Big Centers.''
  So all around America, both rural and urban, we are experiencing 
difficulties that unless there is relief we do not really know what to 
do about it. It is understandable if our economy was in bad shape, if 
we were on the verge of disaster, if we were on the verge of 
bankruptcy; but all of us continue to talk about how fortunate we have 
been that the economy has been holding steady, that we continue to 
experience economic growth. If we are experiencing economic growth, 
then it would seem foolhardy to allow institutions that provide the 
most needed of services to dissipate and perhaps even go under.
  Now, there are some things that are being proposed. There are bills 
that have already been introduced that could provide some relief. One 
is Senate bill 1023 and House Resolution 1785. The Graduate Medical 
Education Payment Restoration Act of 1999 would freeze the IME payment 
reduction at its current level of 6.5 percent, and it would restore 
nearly $90 million of Medicare funding to Illinois teaching hospitals 
and academic medical centers. Obviously, we are asking people to 
support that legislation.
  Senate bill 1024 and House Resolution 1103, the Managed Care Fair 
Payment Act of 1999, would pay a disproportionate share to hospitals 
directly from Medicare for services. So we would hope that these 
legislative initiatives would be seriously looked at by the Members of 
Congress and that we could move to provide the kind of relief that is 
necessary to keep our institutions alive, viable, healthy, and well.

                          ____________________