The chief accountant unrolled the spreadsheets and gave the grim news to the CEO: “With runaway energy costs and skyrocketing workforce benefits, we’re now losing money on every sale.”
“Don’t worry,” replied the chief, leaning back and chomping his cigar. “Sure we lose money on every sale–but we make it up in volume!”
Some days, I know just how that accountant felt. Elsewhere in this issue, Jeremy Nathans makes many cogent points in questioning whether the School of Medicine’s “growth” trajectory is a wise strategy, particularly in light of the slowdown and decline of the NIH budget. We need to be especially concerned because government funders (and often, corporate and foundation funders) don’t pay the true full costs of the research they are supporting.
The seriousness of this issue depends a bit on your perspective. For faculty members, this is a “phantom deficit” with no apparent direct impact. The institution, however, must make up the difference. By the nature of the cost reimbursement system, we are virtually guaranteed to have to subsidize faculty research efforts. To add further insult, many grants require that matching funds be provided by the institution!
In medicine, tuition revenue is not a large source of funds. So the shortfall in research funding is generally subsidized from three sources: clinical practice revenues (which benefit the basic science departments as well as the clinical departments), support from the hospital and revenue from philanthropic gifts and endowments.
Margins on clinical and hospital operations have become razor-thin. Therefore, it doesn’t take a brain surgeon to know that research (and teaching, for that matter) can no longer be subsidized by treating sick patients. We have the makings of a perfect storm: First, NIH funding decreases suddenly after 10 years of significant growth (a worse combination than if the NIH budget had only grown modestly in that time), add a decline to near zero in clinical margins and, for Hopkins, top it off with the need to expand, and in some cases entirely replace, our facilities. The new Hospital construction combined with several new research buildings coming online squeezes even tighter on the operating margins of the entire Health System.
Nathans rightly points out that we wouldn’t be in quite the same squeeze if we had a no-growth policy for research. From his vantage point, why doesn’t the dean simply dictate that we will not expand research space, for example, and maintain the status quo?
The answer may not be as straightforward as it seems. First, even if the dean could take the heat and mandate a no-growth policy, there would be budgetary challenges. If research revenues (and F&A reimbursement) are not growing, inflation will erode the research budget bottom line even further. And if grant revenue growth were—horribile dictu!—negative, serious financial losses would appear. Therefore, some growth is probably needed just to maintain the status quo. The question is, how much growth?
Moreover, how does the dean get away with telling faculty and department directors, “Don’t grow your research programs”? When I was recruited to be director of radiology, I asked the then dean for a considerable expansion in research space for the department. After all, I wasn’t going to move from my beloved home state of California and give up all that sunshine just to continue the status quo for a department that was very good, but not considered the best. I wanted to make the Hopkins radiology program numero uno, and came because I felt it was possible to do that at Hopkins.
I assure you, every department director recruit worth her or his salt these days will not come without the possibility of expanding programs. And without top-notch leadership, Hopkins Medicine would not be Hopkins. Currently, the five-year plan for the SOM predicts growth in research reduced to single digits, barely above inflation. The dilemma, as Nathans points out, is that as we keep growing, it’s going to cost us more. But this is the cost of greatness and is exactly why Hopkins remains at the pinnacle of American medicine.
