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Research as a profit center in radiology
Research as a Profit Center in Radiology' Edmund A. Franken, Jr, MD, Wilbur L. Smith, MD
The purpose of this article is to assert that funded research can be a profitable activity in an academic radiology department. We hope that this assertion wilt stimulate further discussion in our specialty.
The three traditional components of academic clinical medicine--research, teaching, and service--are intrinsic to our societal mission (1). Historically, these responsibilities have attracted top-quality faculty to academic health centers, and they are the basis for the working atmosphere of clinical departments (2). The number of aca-
Acad Radio11999; 6:187-190
1From the Department of Radiology, University of Iowa, College of Medicine, 200 Hawkins Dr, Iowa City, IA 52242 (E.A.F.), and the Department of Diagnostic Radiology, Henry Ford Hospital, Detroit, Mich (W.L.S.). Received and accepted for publication September 30, 1998. Address reprint requests to E.A.F. ©AUR, 1999
demic faculty has grown dramatically in recent years, and there are now more full-time faculty than students in our nation's medical schools. As an offshoot of this growth, many academic physicians now devote the majority of their time to research activities, as there are strong incentives to do so (3). The increased number of faculty accentuates the difficulty of financing academic activities. There has been an almost 400% growth in funding for medical centers since the early 1980s (Table) (4,5). Although there has been a relative reduction in income from traditional sources, such as tuition, appropriations, and endowments, until very recently clinical income has increased concomitantly as a percentage of total revenue. Research income has decreased on a relative basis but remains the basis of about 30% of medical school resources. The current environment of reducing health care expenses in all categories is now diminishing clinical income (6). Faculty in most academic radiology departments have additional responsibilities not found in private practice that consume substantial resources, such as providing indigent health care
Sources of Medical School Financing
Source
1981-1982
1986-1987
1991-1992
1993-1994
Federal appropriations State appropriations Practice plans Tuition Hospital programs Grants/contracts Indirect cost recovery Other
68 (1.0) 1,475 (20.4) 1,267 (17.5) 415 (5.7) 220 (3.0) 2,328 (32.2) 489 (6.8) 967 (13.4)
89 (0.7) 2,098 (16.6) 2,795 (22.2) 677 (5.4) 1,608 (12.8) 3,537 (28.1) 825 (6.5) 973 (7.7)
105 2,662 7,505 955 2,640 5,689 1,516 2,075
110 (0.4) 2,781 (10.1 ) 9,120 (33.2) 1,130 (4.1) 3,659 (13.3) 6,643 (24.2) 1,768 (6.4) 2,298 (8.3)
7,229
12,602
Total revenues
(0.5) (11.5) (32.4) (4.1) (11.4) (24.6) (6.5) (9.0)
23,147
27,509
Source.--References 4 and 5. Note.--Percentages of revenues are in parentheses.
187
and supporting other medical school programs. Resources for these activities have traditionally come from clinical income. In recent years, academic radiology has taken a double hit in the clinical arena. Staff now have increased responsibilities for clinical services, which demands increased staff time, and simultaneously there have been numerous changes that reduced reimbursement for services to all radiologists (7). Many leaders in our specialty have responded to our need for resources by encouraging and facilitating funded research. These efforts are now meeting with substantial success. In fiscal 1997, the 10% increase in National Institutes of Health (NIH) funding for radiology exceeded that for any other clinical specialty (D. Sullivan, MD, oral communication, 1998). Even with this increase in funding, a major question in academic radiology remains: Can funded research pay for itself in a specialty with generally high clinical revenue per physician and high faculty salaries? An early investigation on the income of academic health centers compared research to clinical income of faculty in an internal medicine department (8). Actual clinical income in that study was probably lower than stated, because charges, not collections, were reported. The results showed that clinician scientists far exceeded clinical colleagues in bringing financial support to the institution. Criticisms made at the time included that the nature of the department studied (Stanford) was not representative because its research funding was substantially above the academic mean (9,10). There also were challenges to the applicability of this study to departments with relatively higher clinical income per faculty member, particularly the procedural specialties. Nevertheless, there has been no serious challenge to that investigation in the intervening years. In the 19 years since that report was published, there have been dramatic changes in physician reimbursement, with a relative reduction in income per practicing physician, particularly for those in the procedural specialties. Concurrently, regulations that limit individual salaries for funded investigators have created some problems.
We report a theoretic analysis that compares the potential clinical mad research income of academic radiologists. Because hard data are unavailable for some aspects and because there is wide variation among individual ra-
188
diology departments in baseline costs and income, there is necessarily some variability in the application of the analysis. We used best estimates when exact numbers were unavailable that were based on discussions with several chairs and chief financial officers of academic departments. One set of hard data is known. The average annual salary of an academic radiologist in the United States is $175,000 (11). If we assume that fringe benefits cost an additional 20% of that number, then $210,000 is required to support the average radiology faculty member. Most academic medical centers have a unique and enormously complex internal tax system that is generally, but not always, based primarily on the clinical income of the department or individual (E. Staab, MD, oral communication, 1998). Other sources that are occasionally taxed include interest on cash reserves, clinic support payment, outreach and pass-throughs (eg, Veterans Affairs activities), head tax on each faculty person, and even grant support. For our purposes, we assume that salary dollars from research income is taxed at the same rate as those from clinical income.
Academic Overhead We use the qualifier "academic" to indicate those costs that are specific to teaching and research departments and are not found in private practice. These include intradepartmental expenses, such as office staff and facilities for assisting research and teaching, as well as extradepartmental obligations, such as support of non-income-producing sections elsewhere in the medical school and the dean's tax. A chief financial officer of one academic radiology department calculated that about twothirds of departmental overhead was related to clinical practice and one-third to the academic enterprise (anonymous adminstrator, oral communication, 1997). Such academic support must come from somewhere--clinical income, institutional appropriations, or research resources. For our purposes, we assigned only billing costs to clinical income and assumed that all academic overhead applies equally to clinical and research faculty income.
Practice Income and Costs On the basis of information gathered from numerous informal conversations and contacts, we assumed an average annual billing per full-time staff radiologist of $600,000 per year and a collection rate of 50% (which is realistic for academic health centers in the current environment). The actual income generated per physician,
therefore, is $300,000. Other deductions from that amount include estimates of 10% of clinical income for billing and related office expenses. We ignored the institutional overhead, such as the dean's tax and similar costs, assuming that these apply equally to clinical and research income. Other costs generally attributed to practice, such as malpractice insurance, licensing, and continuing medical education, also were not included in this analysis, under the generous assumption that research radiologists would incur some of these costs. After deducting the expense of the average salary and fringe benefit package of $210,000 and billing costs of $30,000 from the $300,000 income generated, we are left with a calculated "profit" from activities of the average clinical radiologist of $60,000 per individual.
Research Income Although solid fiscal data exist on external research support, assignment of such income to various levels within an institution varies tremendously from one medical center to another. Current NIH regulations provide a maximum salary for investigators of $125,000 plus fringe benefits. For this analysis, we assumed a fringe benefit package for investigators identical to that for those in clinical practice (20%). Therefore, a maximum of $150,000 per principal investigator is available to support a research-based faculty member. At first glance, this indicates a need to subsidize the average research radiologist by $60,000 annually ($210,000 [average salary + fringe benefits] - $150,000 [maximum grant dollars available]). The overhead costs of clinical practice are not applicable here, since research support is pure income to the department. Nevertheless, other fiscal benefits do come to the institution, and to some extent to the individual's department, depending on local circumstances. The average NIH grant consists of about one-third for salaries and fringe benefits for the principal investigator and other faculty, one-third for salaries and fringe benefits for research associates, and one-third for other expenses (capital equipment, patient care costs, special services) (B. Harvey, oral communication, 1998). Thus, the average grant that contains salary support for a faculty investigator of $125,000 (plus fringe benefits of $25,000) would have a total institutional fiscal impact of approximately $400,000 (we subtracted additional fringe benefit costs from the 1/3-1/3-1/3 formula). The $250,000 available in grant support over and above the principal investigator's salary adds a considerable fiscal dimension to an institution's resources.
Indirect costs of the parent institution that are attributable to grant activities are also supported by the NIH. Disposition of these funds within the institution is largely the decision of the host institution. Theoretically the funds could be available to the investigator's department for academic support. The percentage of indirect costs recognized by the NIH varies from one institution to another, but 50% is a reasonable, middle-of-the-road number. Indirect support does not apply to the one-third of funds designated for other expenses (eg, capital equipment). Thus, on a $400,000 grant, support for indirect costs would add about $125,000 in extramural funding to the investigator's institution.
To compare apples and oranges--that is, clinical versus research funds--we assumed equal salaries and fringe benefits for both research and clinical radiologists and that contributions to academic overhead were identical for both parties. We arrived at the calculations shown in the Figure. To quote McMillin (9), who paraphrased Mark Twain's paraphrase of Disraeli, "There are three kinds of lies: lies, damn lies, and cost accounting." But even without formal sensitivity analysis and detailed cost accounting, it is clear that there is an overwhelming fiscal benefit to an institution for funded research by clinician scientists compared with the same clinician in all but the most lucrative practice environments. How or which part of the institution reaps the fiscal benefits of extramural awards involves decisions of its leadership. These decisions reflect local policies, customs, and traditions that are beyond the scope of this article. The critical factor for judging the financial success of extramural funds is the distribution and recognition of the two-thirds of funds that are not devoted to faculty salary support and the allocation of indirect cost support. Nonfaculty salary dollars are distributed by means as diverse as the practices of the universities to which they are paid, hence the differences in perception of the value of extramural grants. If a portion of the indirect accruals from an extramural grant is garnered by the parent department or if there is a rebate of salary by the dean or college, grantfunded salary support is a great benefit. If the entire salary liability remains on a departmental level, the "big picture" must be the primary consideration. Prestige to the individual and the department are intangible factors;
189
Clinical Radiologist
Income Clinical fees -
300,000
Expenses Billing Academic overhead Salary/fiSnge Total =
Profit (Loss) 30,000 NA 210,000 240,000
Total
60,000
-
R e s e a r c h Radiologist
Income Salary/fringe from grant -
150,000
Expenses Academic overhead Salary/fringe -
Profit (Loss) NA 210,000
Subtotal =
Other Institutional Income Research associate salaries 125,000 Capital & similar support 125,000 Indirect cost recovery 125,000
Subtotal
=
375, 000
(60,000)
Profit (Loss)
Total =
315,000
Comparison of clinical and research funds.
their value must be decided on a case-by-case basis. In the end, grant support is the proverbial cup half empty or half full, and the way it is perceived depends on local rules and point of view. The bottom line is that extramural research support, even for the clinician scientist in radiology, can produce considerable fiscal reward for an academic institution. 1EFERENCE~ 1. Schroeder SA, Zones JS, Showstack JA. Academic medicine as a public trust. JAMA 1989; 262:803-812. 2. Fye WB. The origin of the full-time faculty system. JAMA 1991 ; 265:1555-1562.
190
3. Cadman EC. The academic physician-investigator: a crisis not to be ignored. Ann Intern Med 1994; 120:401-410. 4. Ganem JL, Beran RL, Krakower JK. Review of US medical school finances, 1993-1994. JAMA 1995; 274:723-730. 5. Krakower JY, Jolly P, Beran R. US medical school finances. JAMA 1993; 270:1085-1091. 6. Allcorn S, Winship DH. Restructuring medical schools to better manage their three missions in the face of financial scarcity. Acad Med 1996; 71:846-857. 7. Papatheofanis FJ. Changing images. Decis Imaging Econ 1997; 10:6365. 8. Chin D, Hopkins D, Melmon K, Holman HR. The relation of faculty academic activity to financing sources in a department of medicine. N Engl J Med 1985; 312:1029-1034. 9. McMillin JM. Letter to the editor. N Engl J Med 1985; 313:584-585. 10. Petersdorf RG. Letter to the editor. N Engl J Med 1985; 313:585. 11. Smith WC Jr. Report on medical school faculty salaries 1996-97. Washington, DC: Association of American Medical Colleges, 1997.
The purpose of this article is to assert that funded research can be a profitable activity in an academic radiology department. We hope that this assertion wilt stimulate further discussion in our specialty.
The three traditional components of academic clinical medicine--research, teaching, and service--are intrinsic to our societal mission (1). Historically, these responsibilities have attracted top-quality faculty to academic health centers, and they are the basis for the working atmosphere of clinical departments (2). The number of aca-
Acad Radio11999; 6:187-190
1From the Department of Radiology, University of Iowa, College of Medicine, 200 Hawkins Dr, Iowa City, IA 52242 (E.A.F.), and the Department of Diagnostic Radiology, Henry Ford Hospital, Detroit, Mich (W.L.S.). Received and accepted for publication September 30, 1998. Address reprint requests to E.A.F. ©AUR, 1999
demic faculty has grown dramatically in recent years, and there are now more full-time faculty than students in our nation's medical schools. As an offshoot of this growth, many academic physicians now devote the majority of their time to research activities, as there are strong incentives to do so (3). The increased number of faculty accentuates the difficulty of financing academic activities. There has been an almost 400% growth in funding for medical centers since the early 1980s (Table) (4,5). Although there has been a relative reduction in income from traditional sources, such as tuition, appropriations, and endowments, until very recently clinical income has increased concomitantly as a percentage of total revenue. Research income has decreased on a relative basis but remains the basis of about 30% of medical school resources. The current environment of reducing health care expenses in all categories is now diminishing clinical income (6). Faculty in most academic radiology departments have additional responsibilities not found in private practice that consume substantial resources, such as providing indigent health care
Sources of Medical School Financing
Source
1981-1982
1986-1987
1991-1992
1993-1994
Federal appropriations State appropriations Practice plans Tuition Hospital programs Grants/contracts Indirect cost recovery Other
68 (1.0) 1,475 (20.4) 1,267 (17.5) 415 (5.7) 220 (3.0) 2,328 (32.2) 489 (6.8) 967 (13.4)
89 (0.7) 2,098 (16.6) 2,795 (22.2) 677 (5.4) 1,608 (12.8) 3,537 (28.1) 825 (6.5) 973 (7.7)
105 2,662 7,505 955 2,640 5,689 1,516 2,075
110 (0.4) 2,781 (10.1 ) 9,120 (33.2) 1,130 (4.1) 3,659 (13.3) 6,643 (24.2) 1,768 (6.4) 2,298 (8.3)
7,229
12,602
Total revenues
(0.5) (11.5) (32.4) (4.1) (11.4) (24.6) (6.5) (9.0)
23,147
27,509
Source.--References 4 and 5. Note.--Percentages of revenues are in parentheses.
187
and supporting other medical school programs. Resources for these activities have traditionally come from clinical income. In recent years, academic radiology has taken a double hit in the clinical arena. Staff now have increased responsibilities for clinical services, which demands increased staff time, and simultaneously there have been numerous changes that reduced reimbursement for services to all radiologists (7). Many leaders in our specialty have responded to our need for resources by encouraging and facilitating funded research. These efforts are now meeting with substantial success. In fiscal 1997, the 10% increase in National Institutes of Health (NIH) funding for radiology exceeded that for any other clinical specialty (D. Sullivan, MD, oral communication, 1998). Even with this increase in funding, a major question in academic radiology remains: Can funded research pay for itself in a specialty with generally high clinical revenue per physician and high faculty salaries? An early investigation on the income of academic health centers compared research to clinical income of faculty in an internal medicine department (8). Actual clinical income in that study was probably lower than stated, because charges, not collections, were reported. The results showed that clinician scientists far exceeded clinical colleagues in bringing financial support to the institution. Criticisms made at the time included that the nature of the department studied (Stanford) was not representative because its research funding was substantially above the academic mean (9,10). There also were challenges to the applicability of this study to departments with relatively higher clinical income per faculty member, particularly the procedural specialties. Nevertheless, there has been no serious challenge to that investigation in the intervening years. In the 19 years since that report was published, there have been dramatic changes in physician reimbursement, with a relative reduction in income per practicing physician, particularly for those in the procedural specialties. Concurrently, regulations that limit individual salaries for funded investigators have created some problems.
We report a theoretic analysis that compares the potential clinical mad research income of academic radiologists. Because hard data are unavailable for some aspects and because there is wide variation among individual ra-
188
diology departments in baseline costs and income, there is necessarily some variability in the application of the analysis. We used best estimates when exact numbers were unavailable that were based on discussions with several chairs and chief financial officers of academic departments. One set of hard data is known. The average annual salary of an academic radiologist in the United States is $175,000 (11). If we assume that fringe benefits cost an additional 20% of that number, then $210,000 is required to support the average radiology faculty member. Most academic medical centers have a unique and enormously complex internal tax system that is generally, but not always, based primarily on the clinical income of the department or individual (E. Staab, MD, oral communication, 1998). Other sources that are occasionally taxed include interest on cash reserves, clinic support payment, outreach and pass-throughs (eg, Veterans Affairs activities), head tax on each faculty person, and even grant support. For our purposes, we assume that salary dollars from research income is taxed at the same rate as those from clinical income.
Academic Overhead We use the qualifier "academic" to indicate those costs that are specific to teaching and research departments and are not found in private practice. These include intradepartmental expenses, such as office staff and facilities for assisting research and teaching, as well as extradepartmental obligations, such as support of non-income-producing sections elsewhere in the medical school and the dean's tax. A chief financial officer of one academic radiology department calculated that about twothirds of departmental overhead was related to clinical practice and one-third to the academic enterprise (anonymous adminstrator, oral communication, 1997). Such academic support must come from somewhere--clinical income, institutional appropriations, or research resources. For our purposes, we assigned only billing costs to clinical income and assumed that all academic overhead applies equally to clinical and research faculty income.
Practice Income and Costs On the basis of information gathered from numerous informal conversations and contacts, we assumed an average annual billing per full-time staff radiologist of $600,000 per year and a collection rate of 50% (which is realistic for academic health centers in the current environment). The actual income generated per physician,
therefore, is $300,000. Other deductions from that amount include estimates of 10% of clinical income for billing and related office expenses. We ignored the institutional overhead, such as the dean's tax and similar costs, assuming that these apply equally to clinical and research income. Other costs generally attributed to practice, such as malpractice insurance, licensing, and continuing medical education, also were not included in this analysis, under the generous assumption that research radiologists would incur some of these costs. After deducting the expense of the average salary and fringe benefit package of $210,000 and billing costs of $30,000 from the $300,000 income generated, we are left with a calculated "profit" from activities of the average clinical radiologist of $60,000 per individual.
Research Income Although solid fiscal data exist on external research support, assignment of such income to various levels within an institution varies tremendously from one medical center to another. Current NIH regulations provide a maximum salary for investigators of $125,000 plus fringe benefits. For this analysis, we assumed a fringe benefit package for investigators identical to that for those in clinical practice (20%). Therefore, a maximum of $150,000 per principal investigator is available to support a research-based faculty member. At first glance, this indicates a need to subsidize the average research radiologist by $60,000 annually ($210,000 [average salary + fringe benefits] - $150,000 [maximum grant dollars available]). The overhead costs of clinical practice are not applicable here, since research support is pure income to the department. Nevertheless, other fiscal benefits do come to the institution, and to some extent to the individual's department, depending on local circumstances. The average NIH grant consists of about one-third for salaries and fringe benefits for the principal investigator and other faculty, one-third for salaries and fringe benefits for research associates, and one-third for other expenses (capital equipment, patient care costs, special services) (B. Harvey, oral communication, 1998). Thus, the average grant that contains salary support for a faculty investigator of $125,000 (plus fringe benefits of $25,000) would have a total institutional fiscal impact of approximately $400,000 (we subtracted additional fringe benefit costs from the 1/3-1/3-1/3 formula). The $250,000 available in grant support over and above the principal investigator's salary adds a considerable fiscal dimension to an institution's resources.
Indirect costs of the parent institution that are attributable to grant activities are also supported by the NIH. Disposition of these funds within the institution is largely the decision of the host institution. Theoretically the funds could be available to the investigator's department for academic support. The percentage of indirect costs recognized by the NIH varies from one institution to another, but 50% is a reasonable, middle-of-the-road number. Indirect support does not apply to the one-third of funds designated for other expenses (eg, capital equipment). Thus, on a $400,000 grant, support for indirect costs would add about $125,000 in extramural funding to the investigator's institution.
To compare apples and oranges--that is, clinical versus research funds--we assumed equal salaries and fringe benefits for both research and clinical radiologists and that contributions to academic overhead were identical for both parties. We arrived at the calculations shown in the Figure. To quote McMillin (9), who paraphrased Mark Twain's paraphrase of Disraeli, "There are three kinds of lies: lies, damn lies, and cost accounting." But even without formal sensitivity analysis and detailed cost accounting, it is clear that there is an overwhelming fiscal benefit to an institution for funded research by clinician scientists compared with the same clinician in all but the most lucrative practice environments. How or which part of the institution reaps the fiscal benefits of extramural awards involves decisions of its leadership. These decisions reflect local policies, customs, and traditions that are beyond the scope of this article. The critical factor for judging the financial success of extramural funds is the distribution and recognition of the two-thirds of funds that are not devoted to faculty salary support and the allocation of indirect cost support. Nonfaculty salary dollars are distributed by means as diverse as the practices of the universities to which they are paid, hence the differences in perception of the value of extramural grants. If a portion of the indirect accruals from an extramural grant is garnered by the parent department or if there is a rebate of salary by the dean or college, grantfunded salary support is a great benefit. If the entire salary liability remains on a departmental level, the "big picture" must be the primary consideration. Prestige to the individual and the department are intangible factors;
189
Clinical Radiologist
Income Clinical fees -
300,000
Expenses Billing Academic overhead Salary/fiSnge Total =
Profit (Loss) 30,000 NA 210,000 240,000
Total
60,000
-
R e s e a r c h Radiologist
Income Salary/fringe from grant -
150,000
Expenses Academic overhead Salary/fringe -
Profit (Loss) NA 210,000
Subtotal =
Other Institutional Income Research associate salaries 125,000 Capital & similar support 125,000 Indirect cost recovery 125,000
Subtotal
=
375, 000
(60,000)
Profit (Loss)
Total =
315,000
Comparison of clinical and research funds.
their value must be decided on a case-by-case basis. In the end, grant support is the proverbial cup half empty or half full, and the way it is perceived depends on local rules and point of view. The bottom line is that extramural research support, even for the clinician scientist in radiology, can produce considerable fiscal reward for an academic institution. 1EFERENCE~ 1. Schroeder SA, Zones JS, Showstack JA. Academic medicine as a public trust. JAMA 1989; 262:803-812. 2. Fye WB. The origin of the full-time faculty system. JAMA 1991 ; 265:1555-1562.
190
3. Cadman EC. The academic physician-investigator: a crisis not to be ignored. Ann Intern Med 1994; 120:401-410. 4. Ganem JL, Beran RL, Krakower JK. Review of US medical school finances, 1993-1994. JAMA 1995; 274:723-730. 5. Krakower JY, Jolly P, Beran R. US medical school finances. JAMA 1993; 270:1085-1091. 6. Allcorn S, Winship DH. Restructuring medical schools to better manage their three missions in the face of financial scarcity. Acad Med 1996; 71:846-857. 7. Papatheofanis FJ. Changing images. Decis Imaging Econ 1997; 10:6365. 8. Chin D, Hopkins D, Melmon K, Holman HR. The relation of faculty academic activity to financing sources in a department of medicine. N Engl J Med 1985; 312:1029-1034. 9. McMillin JM. Letter to the editor. N Engl J Med 1985; 313:584-585. 10. Petersdorf RG. Letter to the editor. N Engl J Med 1985; 313:585. 11. Smith WC Jr. Report on medical school faculty salaries 1996-97. Washington, DC: Association of American Medical Colleges, 1997.