To help offset a drop in Harvard University’s enormous endowment, Harvard Medical School has cut a deal with its affiliated teaching hospitals that calls for the hospitals to contribute $36 million to the school over the next 3 years.
The figure represents but a fraction of the medical school’s $580 million budget, but it may signify the onset of a new kind of relationship between the school and its affiliates.
Before the deal, Harvard was probably the only medical school in the country that didn’t derive financial support from its teaching hospitals. The school does not own its teaching hospitals, as do most others.
The peculiar arrangement means Harvard Medical School has been unusually dependent on government research funding and endowment income, which exhibit cyclical variations beyond the control of the school.
The ongoing worldwide financial crisis thus hit Harvard Medical hard: Harvard University’s endowment fell by 27%, to $26 billion during fiscal year 2009. That caused a 20% reduction in endowment income for the medical school.
In response, Harvard Medical School froze salaries and dropped 70 FTEs from its labor force via layoffs and early retirement in 2009. It expects to break even in the current fiscal year, but needs more money to expand programs and develop new ones so it can maintain its exalted status.
At a meeting last summer involving medical school dean Jeffrey Flier and teaching hospital execs, Massachusetts General Hospital CEO Peter Slavin said Flier “had to convince us this is the fairest thing to do.’’
Although the Harvard teaching hospitals are profitable, insurers, politicians and regulators are all pressuring them to cut costs.
In return for their largesse, the hospitals asked the medical school to handle physician promotions more quickly, among other things.