"That area will have much more of an impact on the Deaconess since so much of what we do is medical education," Norton says. "My suspicion is that that number in the next few years could be reduced by as much as 50 percent of the current amount."

Norton says the Deaconess Hospital has already begun aggressively examining the financial impact of its commitment to medical education, in particular, thinking of ways to streamline the process and perhaps reduce the number of residency positions.

But even Norton concedes that cutting costs in its medical education infrastructure may not be adequate to recoup the loss in Medicare revenue.

"We're going to have to turn to such alternative vehicles as philanthropy and other means of support for medical education," Norton says. "Certainly at the Deaconess, medical education is such an integral part of what we do, so it is difficult to isolate it 'simply' because Medicare decides to change their funding."

Norton says it the government withdraws itself as the major payer of medical education, there will be a dramatic change in the way future medical leaders will be trained.

Adapting

Simon says the general cost-cutting climate in the health care system and the push towards managed care have already forced teaching hospitals to change their practices, whether through forming networks or consolidating administrative functions.

Cost cutting has been the main way in which teaching hospitals are dealing with the adverse economic climate.

To increase its competitiveness, Partners Healthcare, which already consists of Brigham and Women's Mass General, McLean and Spalding hospitals, is now in the process of merging with the North Shore Medical Center, which also has some teaching function, according to Pieper.

"I think the matter is not where to find the extra money, but it's a matter of reducing the cost to go with the money you get," says Pieper. "There are very few strategies that are very successful to argue that we will replace the money."

According to Pieper, Partners reduced the number of resident and fellow positions at its hospitals by five percent last spring, when it made a statement that it would continue such reduction until some balance had been achieved.

But Pieper says such measures don't even begin to offset the revenue loss that would occur with the proposed cuts in GME and IME.

Partners has also attempted to reduce the cost of hospital supplies by making commitments to vendors and suppliers in exchange for lower prices. But Pieper acknowledges that even with these savings, some layoffs and personnel restructuring are inevitable.

"The numbers being discussed are so large that no one should think that to meet that price we could use a catheter that costs less or a lower-priced catheter to begin with. There is an impact on people. We'll have to change the way we work and reduce our payroll costs," Pieper says.

Disproportionate Burden