Funding slowdown worries hospitals

The continued dominance of Boston's healthcare industry, the region's largest employer, could be undermined by stagnant federal funding for biomedical research, combined with the city's chronically high cost of living and competition from other cities, according to a report by an industry group.

The warning is included in an economic impact study to be released today by the Conference of Boston Teaching Hospitals , an organization representing 14 institutions and the city's three medical schools that lobbies government on healthcare spending and regulations.

Since 2003, National Institutes of Health funding nationally has been flat, but Boston is especially vulnerable to the leveling off because it relies heavily on research. The region's teaching hospitals collectively receive about $1.4 billion annually in federal grants, more than any other group of healthcare institutions in the country.

Boston laboratory construction and research activity exploded as the NIH doubled its budget nationally to $27.1 billion between 1998 and 2003. Such research often leads to drug development deals between teaching hospitals and the area's biotechnology companies.

But for the last four years, laboratories and scientists have competed for grants from a pool of NIH money that is not keeping pace with inflation, and in some areas is actually declining. For instance, grants awarded for cancer research fell by $83 million from 2005 to 2007. Funding for research into Alzheimer's disease and diabetes also declined.

Although no widespread layoffs or increases in laboratory vacancy rates have been reported in Boston, academic medical centers say the city's research economy is starting to fray as a result of the slowdown in federal funding. Success rates for NIH grant applications have dropped from about 30 percent in 1998 to about 20 percent last year, according to NIH statistics. Last month, the agency said it was also cutting by 2.9 percent the level of funding available for ongoing research projects that have previously been awarded grants.

Partners HealthCare, the state's largest network of teaching hospitals , said its $254 million in research revenue in the first quarter fell $2 million from a year ago and attributed the drop to declines in federal spending. Hospital executives view the modest drop as a possible precursor of more significant cuts.

"We're at a clear turning point," said Dr. James Mongan , chief executive of Partners, the parent organization of Massachusetts General Hospital and Brigham and Women's Hospital. "Ultimately, we want to get the funding increases back on track."

Today's report, which overall puts a positive face on the local biomedical industry, is part of an aggressive effort by Boston teaching hospitals to deliver their message to lawmakers and the public that more money and favorable federal and state policies are needed to keep the medical economy strong.

The report also quantifies the huge contributions to the local economy of the teaching hospitals and the medical schools run by Boston University , Harvard University , and Tufts University. The hospitals account for $24.3 billion in economic activity annually and the direct and indirect employment of more than 150,000 people in the Boston area, the report said.

But it also cautions political and healthcare leaders to avoid becoming overconfident about the status of the region's healthcare industry. The presence of Harvard, the Massachusetts Institute of Technology, and other universities is not enough to guarantee continued prosperity, it said. As an example, the authors cite the decline of Massachusetts' once-thriving manufacturing and electronics industries.

"I think it's very, very dangerous to say that because we've got the intellectual capital here, people are not going to go elsewhere," said Dr. James Mandell , chief executive of Children's Hospital Boston and chairman of the Conference of Boston Teaching Hospitals. "History will tell you differently."

Few cities can rival the Boston area's cluster of academic medical centers and biotechnology companies, the report says, but Atlanta, Cleveland, Phoenix, Pittsburgh, and other cities are forging ahead with efforts to establish their own clusters. Those locales have cheaper housing, skilled labor, and strong political support from local officials. For example, Pennsylvania has plowed $100 million from a tobacco-industry settlement into a plan to pay hospitals to help develop the life-sciences industry in Pittsburgh, Harrisburg, and Philadelphia.

"Those other cities look at Boston and the $20 billion in annual economic impact that comes from teaching hospitals and the biotech cluster, and they say, `I want a piece of that,"' said Paul Umbach , president of the Pittsburgh consulting firm Tripp Umbach , which wrote the report.

Boston's high housing costs are frequently cited by medical residents, fellows, and research scientists who accept jobs elsewhere, the report said. Housing in Boston is 40 percent more expensive than in Chicago and Miami, it said, and 63 percent more costly than in North Carolina's research center around Raleigh, Durham, and Chapel Hill.

While offering no suggestions for reducing housing costs, the report does touch on a number of policy issues that hospitals want to underscore for federal and state officials, including a call for increasing National Institutes of Health funding.

"Declining and uncertain federal funding has a chilling effect on young scientists entering the field of medical research and threatens research currently under way," the report says.

Other states don't have to build facilities on the scale of Mass. General to compete with Boston, Umbach said. "All they really have to do is lure the physicians and scientists away, and you have taken the part of Boston you really want," he said. "You just want to take away the brains."

A survey of postdoctoral life scientists in the March issue of The Scientist magazine indicates that may already be happening -- the magazine's list of the top 15 places to work in North America does not include any Boston-area institutions.

The Conference of Boston Teaching Hospitals being released today also emphasizes the need for a "favorable regulatory climate" in the state Legislature, citing as an example the group and the hospitals' opposition to mandatory nurse-to-patient ratios and limits on the number of hours medical residents can work.

"We have a leadership position that is both national and global, and unless we nurture and support that leadership position, we could lose it," said Paul Guzzi , chief executive of the Greater Boston Chamber of Commerce.

Christopher Rowland can be reached at crowland@globe.com.