Academic Health Centers and the Provision of Collective Outputs: The Financing Dilemma

This paper examines the inherent and growing tension between the social mission of Academic Health Centers (AHCs), to provide collective-type services, which cannot be sold profitably, and the means of financing those services, which involves provision of saleable private-type services. It finds that increased fiscal stringency of AHCs, resulting largely from public and private policies to rein in health care costs, has cut the ability of AHCs to finance provision of basic research, indigent care, and medical education out of profit from patient care. This, in turn, is driving AHCs to become increasingly commercial in seeking out new revenue sources. The commercialization, while generating revenue, and in that sense aiding achievement of the social mission, also conflicts with mission achievement because of the interrelations between the social and private outputs. Public policy should recognize that its efforts to contain health care costs are having unintended side effects, the author concludes. These actions are forcing AHCs to become increasingly like private firms and producing a variety of problems in the process, whether the commercial activities bring competition with private firms or collaboration with them.