Economic downturn spares medical school

Despite the economic downturn and a 25 percent decline in the University’s endowment, the Yale School of Medicine remains, in many respects, on strong financial footing, Dean Richard Alpern said in a letter issued Friday to the medical school community.

While the medical school will continue to hire faculty and maintain its recently expanded financial aid policy — which eliminates the parental contribution from families making under $100,000 — Alpern said the School of Medicine will postpone some of its initiatives at the University’s West Campus, in addition to limiting salary growth, and cutting back on non-faculty salaries and non-salary expenses by 5 percent.

For the most part, the medical school will remain relatively unchanged because it is significantly less vulnerable than the University at large to a decline in the endowment. Because the medical school receives large amounts of revenue from external sources, such as sponsored research, it derives just 8 percent of its operating budget from the endowment. (In comparison, forty-four percent of the University’s operating budget comes from the endowment.)

Overall, Alpern’s message was one of strength and a call for members of the community to collaborate with their colleagues to reduce costs and minimize waste without compromising the school’s core values of education, research and health care.

“What is most critical is for all of us to recognize the importance of strategic decision-making,” Alpern wrote.

A STRONG FOUNDATION

The two primary components of the medical school’s operating budget — sponsored research and clinical collections — remain strong, the School of Medicine’s Deputy Dean of Finance and Administration Cynthia Walker said. Both are externally-generated revenue sources and comprise 45 and 36 percent, respectively, of the medical school’s budget.

Theoretically, these revenue streams should be more variable than endowment income, as they need to be earned continually, Walker said.

“Research faculty need to go out and get a new grant and doctors have to keep treating patients,” she explained.

In recent years, funding from the National Institute of Health — the primary source of research funding in the United States — has been constrained. But Yale has been fortunate to remain one of the few American medical schools to experience steady growth in NIH funding, Alpern said in an interview with the News. At the same time, clinical income — revenue from physicians — increased about 11 percent over the past year, he said.

Furthermore, while other medical schools across the nation have experienced a decrease in donations, philanthropic donations to the school — which comprise 2 percent of its budget — remained strong between July 1 and Dec. 31, 2008, during which the medical school raised $67 million.

“The gifts are the same as last year’s, but higher than all the years before that,” Alpern said.

VULNERABILITIES

Nonetheless, some parts of the School of Medicine remain vulnerable to the decline in the endowment. The medical school’s central administration will be the hardest hit — as the endowment income it receives from the University composes 17 percent of its total budget, according to the letter.

“We have to cut some amount of money out of the budget and we have to do it specifically,” Alpern said. “We are looking for inefficiencies and areas of waste.”

To cut down on administrative waste, the medical school is implementing small, systemic changes — such as switching to double-sided, black-and-white printing, and ordering fewer lunches — which can produce significant savings when added up, he said.

Despite the dual need to cut costs and seize opportunities, the downturn has already had one significant casualty: a halt to the planned expansion of the School of Medicine’s already revamped financial aid policy.

Alpern said providing increased financial aid to students was a key objective going into the last fiscal year. “I wanted to go further this year, but I can’t,” he said. “The finances are prohibitive.”

ROOM TO GROW

While the medical school is making cuts, it also has the capacity to make strategic decisions — a result of its relatively firm financial foundation. For instance, Alpern said the school is likely to hire a major consultant to advise them on how to improve the structure of its clinical practice.

“We have a huge clinical practice,” he said. “We’re trying to see if there’s a way to get the parts to work together to become more efficient.”

The Yale Medical Group is the umbrella organization for medical school’s clinical practice and its members form the single largest group of physicians in Connecticut.

Additionally, the medical school will continue to pursue hiring opportunities, such as a new Cell Biology department chair and several positions at the new Smilow Cancer Center, which is scheduled to open in late 2009.

Yale’s ability to attract new hires stems partially from its relatively more stable financial situation in comparison to some of its peers, Alpern said.

“It is not that things are going so well at [the School of Medicine] that makes it so appealing,” he said, “But the fact that things are so much worse everywhere else.”

Paradoxically, the economic contraction may even allow Yale-New Haven hospital — the medical school’s teaching hospital — to expand its market share.

Especially if private practices and hospitals close over the next few years, as they are likely to do, the hospitals that do remain open will see an ever-increasing number of patients, Robert Udelsman, the chief of surgery at Y-NH hospital said.

“We are in a pretty active growth phase, even though the finances are discouraging,” he said.

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