By Edward Abraham, MD, Michelle Moratti
Academic medical centers (AMCs) play a unique role in the U.S. healthcare delivery system. More than 400 major teaching hospitals and health systems are affiliated with the nation’s 154 accredited medical schools, which train next-generation providers, perform research, and accelerate the development and adoption of new approaches to care.
With their unique position in the healthcare industry, AMCs are experiencing an increasing magnitude of challenges associated with multiple, competing goals and the need to maintain a tenuous balance of cross-subsidization across activities, including providing:
At the same time, no two AMC models are alike. Each has its own balance of these three functions. Some emphasize education more than research, while others emphasize research more than clinical care, and still others prioritize clinical activity.
However, the balance of those functions at each AMC, along with the traditional AMC business model, face pressure from economic uncertainty and the effect of the COVID-19 pandemic. The time has come for AMCs to reconsider their strategy, operations, and traditional core practices to successfully manage future volatility and ensure long-term growth.
A new Guidehouse analysis of 110 AMCs provides insights into how the same market forces that affect all providers specifically affect the nation’s AMCs.1
Guidehouse’s analysis shows that AMCs are treating more patients across the U.S. each year, which in turn drives up their case mix index (CMI), average length of stay (ALOS), and operating expenses. These increasing numbers of patients add up to dramatic — and more costly — changes in how AMCs function. Specifically:
Historically, AMCs have struggled with ALOS, often due to inefficiencies associated with their care models and teaching activities. In many AMCs, patients cannot leave the hospital until a resident, fellow, faculty member/attending, and/or hospitalist writes and signs a patient’s discharge note. Only then does the discharge team — nursing, discharge planning, and social work — mobilize to get the patient safely out the door. The patient-discharge wheels at AMCs can turn slowly, inflating ALOS. Greater patient volumes and sicker patients only exacerbate this situation and, along with it, already high operating expenses.
AMC profit margins, which support all three components of their mission, are dropping fast. Guidehouse’s analysis shows:
Unpredictable is the best way to describe how the money flows in, among, and between the three parts of an AMC’s traditional business model. The once predictable flow of money into an AMC from medical school tuition, Medicare graduate medical education (GME) payments, grants, research program contracts, and philanthropy is today in a constant state of flux for reasons unrelated to patient care. That also puts a great deal of pressure on AMC profit margins.
The combination of expenses rising faster than revenue and unpredictable revenue from other sources makes AMCs ripe for new thinking.
As the numbers show, more patient volume isn’t the answer to financial stability, because all volume isn’t created equal. Additionally, as value-based care and alternative payment models replace waning fee-for-service models, AMCs need to fundamentally reconsider the patients they seek to treat and how they treat them, while still maintaining their three-part mission. Establishing and achieving a target patient case and complexity mix is critical to financial sustainability.
In strategizing new approaches to operations and core practices to effectively manage today’s volatile environment, AMCs should consider their:
AMCs also should consider some rather significant and dramatic changes in their teaching practices, and particularly their impact on patient throughput, including:
Any change that affects patient volume and/or care delivery must be viewed in terms of its impact on the other two components of an AMC’s mission — clinical research and medical education. One change cannot be made without understanding how it will affect the other two parts of core AMC activities.
The complex interdependency between AMCs’ three-pronged mission has contributed to slow change within their organizations. Any single move will affect dozens or even hundreds of other functions upon which people employed or affiliated with the AMC base their careers and livelihoods. That makes decision-making exponentially more complicated at AMCs than at non-AMCs.
Yet, the numbers show that the industry is changing in volatile and permanent ways, and these shifts affect AMCs more dramatically than non-AMCs. Inertia or even the lack of awareness for the need to change will put AMCs behind the rest of the industry. A new AMC strategy is key to driving financial stability and long-term growth.
1“The Market Is Challenging the Power of the Healthcare License.” Guidehouse.com, guidehouse.com/insights/healthcare/2022/blogs/market-challenging-power-of-the-healthcare-license. Accessed 28 July 2023.
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