7 Potential Health Policy Shifts That Could Impact Academic Medical Centers

Editor’s note: The healthcare political environment is constantly evolving. This article reflects the current reality at the time of publication. Information may change due to policy shifts and industry events.

Healthcare is among America’s most regulated industries and a major recipient of federal spending—so it’s no surprise that the industry is particularly vulnerable to policy shifts that come with a new presidential administration and Congress. This is especially true in the current environment with an active executive branch and single-party control of both the Senate and House of Representatives.

Academic medical centers (AMCs) are disproportionately impacted by changes in regulations and reimbursement, due to their reliance on federal funding for research, their role as medical training institutions, and their responsibility as tertiary care centers. AMCs are often the largest health system in their regions, major employers, and significant providers of care for underserved populations.

Healthcare institutions, including AMCs, face tremendous pressure from consumers, regulators, and payers, including private insurers and public programs such as Medicaid and Medicare. Initiatives to reduce the cost of care are increasingly important, as is the pressure to treat patients in ambulatory environments instead of inpatient settings, a trend expected to continue under the new administration. 

AMCs, with high fixed costs for teaching and research, are in a precarious position if proposed changes are realized. Academic health systems integrated with their universities and medical schools are at the highest risk, as policy shifts could impact their focus on patient care, education, and research, affecting the financial stability of their university partners. The impact will vary—each AMC relies on differing funding sources and specializes in various types of research and treatment. 

Potential policy changes that could affect AMCs and approaches to mitigate the impact

1. Shifts in NIH funding: Overall funding levels for the NIH and other health agencies could be reduced. On February 7, the NIH announced a fixed indirect cost reimbursement level of 15%. Although this action is on hold, a reduction in indirect cost rates remains a concern for AMCs, many of which have rates higher than 15%. The Senate Committee on Health, Education, Labor, and Pension (HELP) and the House Energy and Commerce Committee have issued reports aimed at modernizing the NIH, which could involve streamlining grant and contract review processes, realigning NIH funding priorities, boosting public-private partnerships, and reorganizing Institutes and Centers. Similar reductions are proposed for the National Science Foundation (NSF). Major funding reductions could leave AMCs struggling to maintain funding for tenured principal investigators and research programs.

What you can do: AMCs should prioritize sustainable research projects and explore alternative funding from philanthropy, corporate partners, and state funding to fill the gaps. Institutions must align their research programs with potential new emphases on preventative care and wellness, evaluate how to sunset or redirect existing programs, retool research spaces, and resolve financial commitments.

2. Cuts to Medicaid and Medicare: The administration has stated its intention to cut as much as $626 billion in Medicaid funding and rescind expansions under the Affordable Care Act (ACA), potentially impacting over 20 million enrollees. Federal Medicaid dollars may shift to a block grant system with less marketing to potential enrollees. This could be problematic for AMCs, which often provide care for significant uninsured and underinsured populations. A shift to Medicare Advantage and other managed care plans could complicate reimbursement for AMCs treating complex cases. 

What you can do: Consider how community-based organizations can help continue care for at-risk populations. Revisit marketing strategies to reach new populations and explore service lines and facility types that may attract favorable reimbursement. 

3. Modifications to training programs: Addressing shortages of care delivery personnel, including nurses and primary care providers, is a priority. The healthcare system is struggling with staffing shortages and increased labor costs. AMCs may need to explore alternative educational programs to address resource shortages. The administration may offer financial incentives for institutions willing to tackle resource scarcity.

What you can do: Determine how your institution can train students differently or more quickly. Expand existent training programs or develop new ones in areas of high scarcity. Fast-track licensure for international medical graduates may also be a solution.

4. Tying value-based care to research activities: A focus on preventative medical research may lead to more favorable value-based care (VBC) reimbursement for AMCs working on these types of studies. Reimbursement may be tied to research activity and reward institutions that implement research findings to improve population health. The administration will likely prioritize new VBC models through CMS that have a focus on cost savings.

What you can do: Align research activities with preventative care and measurable patient outcome priorities. Engage with CMS on VBC models and reforms that support total cost of care, long-term goals, and investments. 

5. Restrictions to the 340B Drug Pricing Program: The administration has indicated a desire to restructure the 340B program and limit funding. Major changes could significantly impact net revenue for healthcare organizations receiving 340B funding. AMCs would struggle to replace current 340B revenue streams given their fixed cost infrastructure and the significant care they provide to underserved communities.

What you can do: Maximize 340B-eligible activities while the program exists in its current state and maintain eligibility for as long as possible. Evaluate contingency plans for 340B-eligible programs if funding is reduced or eliminated.   

6. Elimination of site neutrality and AMC payment privileges: AMCs with Hospital Outpatient Departments (HOPDs) receive preferential reimbursement for services. The administration has signaled a desire to eliminate this preferential reimbursement and move to “site neutral” payments, which could have significant financial consequences. AMCs also receive reimbursement incentives for uncompensated care and teaching programs—this also could be in jeopardy.

What you can do: Consider alternative revenue sources and rebalance clinical activities. The elimination of HOPD reimbursement could change how healthcare organizations invest in new care settings.

7. Price transparency regulations: Organizations are required to publish pricing under existing rules, but additional scrutiny may come from an administration that is focused on reducing care costs and giving patients more choice. This could impact on AMCs with higher cost structures, putting pressure on financial performance. 

What you can do: Plan your response to pricing scrutiny and articulate your organization’s value proposition to consumers, especially those with high-deductible health plans. Work with marketing and access stakeholders to highlight differentiators that justify your cost structure.

AMCs play a critical role in their communities and for the nation. Leaders must pay close attention to actions taken by Congress and the Administration and coordinate their focus on research, education, and patient care. While policy changes are uncertain, AMC leaders can protect their institutions by exploring alternate revenue sources, evaluating research strategies, and advocating to policymakers about their critical role in the healthcare system.