Ownership and Governance of University Teaching Hospitals: Let Form Follow Function

Under the best of circumstances, the complex decision-making and resource-allocation processes of a state university (and often of a variety of state agencies important to the university) significantly hinder the ability of the university-owned hospital to make changes critical to its financial and, hence, its programmatic success. At worst, as was the case for the University of Maryland Hospital a decade ago, the hospital can become capital-starved and operationally deficient under the bureaucratic mantle of the state and university and find itself unable to respond to the fast-changing market, placing its viability in jeopardy. To remedy this situation at the University of Maryland Hospital, in 1984 the state created a separate not-for-profit corporation, the University of Maryland Medical System ("the Medical system"), governed by its own board of directors, with a mandate to assure sound business practices, outstanding patient care, access to patients from across the state for tertiary care, access for the local disadvantaged community for comprehensive care, and attention to the academic mission of the university and its school of medicine. The results include strong financial performance, the ability to recapitalize outmoded facilities and technology, growth of strong programs, and the recruitment of excellent chairs and faculty. The Medical System's success suggests that university teaching hospitals, which necessarily depend on patient care revenues, may best be served by (1) removing them from university governance, thus allowing them to give primacy to their mission of patient care, and (2) removing them from state ownership, thus allowing them to use sound business practices in the competitive health care environment. The challenge under this arrangement is to ensure that the teaching hospitals can still support the educational and research programs that distinguish them. By establishing its independent, actively involved board of directors, the Medical System has successfully responded to this challenge.