Academic Medicine Under Economic Stress: A Case Study of the Institutional Change Transforming American Health Care

American Academic medicine--the system of education and research that trains the coming generations of physicians, produces new basic and clinical bio-medical research and provides the medical safety net in many U.S. urban areas--is in a funding crisis. This essay lays out an historical and analytical account of the institutions, functions and funding mechanisms of this enterprise. The objective is to interpret the forces that led to the current impasse in which the medical education establishment now finds itself, and what the future is likely to hold as the forces of budgetary stringency and market competition continue to accelerate. A comprehensive review of the cross-subsidy system, its intricate relationship to the federal financing of health care and its origin in the Vannevar-Bush-inspired post-war research establishment is offered. The standpoint of economic theory is then taken to suggest that the intertwined functions of academic medicine be viewed from two perspectives. One, it can be viewed as a financially unnecessary mix of public and private goods. Two, it is an institutional framework for joint production that evolved under the post-Flexner, post-Bush era reforms of scientific medicine, but which now may be in need of modifications to its mission.