The Future of Academic Medical Centers
Academic Medical Centers (AMCs) are central and unique to the American healthcare system. They are the training grounds for emerging physicians, the birthplaces of new discoveries, and the providers of the most complex life-saving care. And, as the COVID-19 pandemic revealed, they are a critical component of our public health response.
This uniqueness has historically insulated AMCs from industry turbulence and helped them maintain economic stability. However, a number of factors including price transparency and consumer demand for access, convenience, and affordability suggests this stubborn stability may leave AMCs ill-suited to the new value equation in US healthcare.
COVID-19, in particular, has accelerated many of these changes — to the point that the AMC value-proposition now threatens to serve more as a vulnerability than a strength. AMCs may therefore find themselves left behind if they continue operating from a place of comfort versus competition.
As pioneers in innovation, AMCs can build on their existing value proposition and continue their pivotal role in the healthcare system. A few strategies are critical to accomplishing this, such as rethinking the approach to elevating the health of all communities via community partnerships and innovating their way to a brighter, more enjoyable work-life for physicians.
Rethinking the approach to community partnerships will provide AMCs with an easier set of channels for engaging their patients, with varied capabilities, patient experiences, cost structures, and revenue opportunities that can be better tailored to a diverse population. Achieving a step-change in access will up revenue in the short-term, preventing the long-term flight of patients to more innovative and responsive competitors. An updated approach to physician training will prevent burnout and create room to drive the innovative community partnerships and access improvements necessary to survive.
Failing to modernize academic medicine will relegate AMCs to a small corner of the ecosystem, while new entrants and more innovative incumbents take center stage. Over time, new entrants will out-pace AMCs in their speed to innovation and speed to reduced mortality and life expectancy increases.
Many inside AMCs are already realizing this. Over thirty hours of qualitative interviews with leading academic CEOs revealed a sobering reality of the challenges AMCs face in re-imagining a future where they bring new and differentiated value to the healthcare marketplace.
The Start of New Transformation Ahead
That said, AMCs are starting from a position of strength. AMCs possess a range of qualities that are critical to future success — qualities that should be preserved and emphasized. The tricky balance for AMC leaders will be to recognize those strengths while acknowledging the emerging vulnerabilities and plotting a course accordingly.
Brand is an undeniable strength of the vast majority of AMCs. Even before the pandemic, almost every AMC leader we spoke to noted that — at least within their region — when individuals need care, especially more complex care, AMCs were go-to facilities, providing a reliable stream of revenue and leverage against payers. As one executive as part of our direct conversations with leaders noted in our interview, the AMC system is the state’s customers’ destination for care, with 60 percent preferring to seek care in these facilities.
AMCs were preferred destinations pre-COVID-19, and the pandemic will likely amplify AMC branding strength as in-person care, especially elective procedures, resume. Uncertainty and fear tend to drive a flight to familiarity. Harvard Business Review research, for instance, suggested that contagious disease-resulted fear and disgust led consumers to seek out the familiar brands they knew and trusted, to regain control.
At the same time, COVID-19 has famously inspired massive growth in virtual care utilization. An Oliver Wyman Forum survey said of the 21 percent of consumers who had tried telehealth in the past, over half had increased their utilization significantly during the pandemic, and an additional 12 percent of consumers tried it for the first time. Telehealth claim lines across the US spiked 2,980 percent from September 2019 to September 2020.
Telehealth claim lines across the US spiked 2,980 percent from September 2019 to September 2020.
A Global Crisis is Driving New Opportunities
National AMC brands with a well-developed virtual care presence may see this as an opportunity to extend their reach and build a sustained new source of revenue. Building on their successful joint venture in telehealth, Cleveland Clinic and Amwell, for example, have now started to offer virtual second opinion services to better tap into the growing modality of care. However, AMCs with regional reputations and nascent telehealth strategies may find themselves out-competed by regional competitors who invested early to capture the shifting referral funnel to digital, including even higher acuity procedures.
AMCs’ unique ability to effectively deliver highly complex care is another strength, but one that will also be complicated by the pandemic. This kind of care will always be necessary, and it will always be the territory of a select subset of hospitals. This has allowed AMCs to command high reimbursements for the complex procedures themselves and often on the other care they provide, as payers are pressured to deliver high reimbursements to maintain AMC’s unique capabilities in-network.
Pre-pandemic, there were already signs that payers were becoming weary of paying elevated prices for low acuity care provided at AMCs. An Oliver Wyman analysis of several regional AMC’s hospital discharges, for example, unveiled less than 50 percent of care was considered as complex conditions, warranting tertiary level care. The common strategy of acquiring or partnering with community hospitals and negotiating higher rates across a wider range of providers has met increasing resistance, with many payers insisting on separate reimbursement structures for core AMCs and community hospitals.
The pandemic will likely only accelerate this pushback for a few reasons. One is payers’ increasing pressure on affordability. Across markets, payers are looking to strike deals with preferred providers based on lower unit costs and optimize their network contracts.
Another reason is the expected payer mix shift. While large health systems, such as the Mayo Clinic, posted surpluses in 2020 due to a stable payer mix, it will shift as a result of economic pressure. The Commonwealth Fund estimated 14.6 million lost employer-sponsored coverage due to COVID-19. The public exchange open enrollment extension directed by the Biden administration is expected to add material membership to the individual segment. The shift from commercial towards individual and Medicaid will add pressure to contract negotiation — especially for AMCs with a higher premium on the cost of care delivery.
If brand and complex clinical capabilities are traditional strengths of AMCs, access has long been a traditional weakness. Across multiple geographic areas, all AMCs leaders we spoke with acknowledged that patients struggle to access their facilities promptly. Most saw this as an issue necessary to fix — both from a moral and economic perspective. Though, notably, some saw long wait times as an unavoidable sign of success. Now that COVID-19 has produced a massive backlog of high revenue procedures, it is paramount to their financial survival that they find a way to break through traditional access bottlenecks.
Up to 20 percent of annual hospital mergers involve both academic medical centers and non-academic providers.
Looking Ahead
What are the right next steps for AMCs, who retain significant strengths but sit on increasingly shaky ground? AMCs must seize the moment and make changes many have long known were necessary. Here are two suggestions:
1. Modernize the Tripartite Mission to Reduce Physician Burnout and Improve Access
The Tripartite Mission forms the heart of the AMC identity. A simultaneous focus on teaching, research, and clinical care keeps each element vital and innovative. Moving away from this as an institution would be a mistake. However, expecting every physician to be a complete embodiment of this mission is not sustainable. When all AMC physicians are expected to serve multiple demanding roles as excellent clinicians, excellent teachers, and excellent researchers, it is damaging to staff and patients. It is a major driver of two of the most critical issues facing AMCs: physician burnout, as doctors are asked to fit more into a day than any human reasonably could, and access problems, as the level of access an AMC can provide, is quite low relative to their staff expenditures.
Some AMCS have already moved to more flexible physician training and staffing models that provide room both for traditional AMC physicians with multiple roles and those who choose to focus on clinical care or another part of the tripartite mission. More AMCs would benefit from adopting a modernized model of the tripartite mission. It won’t fully solve the physician burnout and access issues, but it will go a long way toward alleviating them.
2. Learn from Community Hospitals and Establish a Bi-Directional Relationship
Community hospital integration has been a go-to strategy in recent years for AMCs looking to secure referral pipelines, expand brand reach, and juice revenue. A study published on JAMA, for instance, showed up to 20 percent of annual hospital mergers involving AMCs also involve non-academic providers. Also, in 2018, nearly three in four hospitals — 72 percent — were affiliated with one of 637 health systems.
This strategy has been met with mixed success. Community hospital leaders have an idea why: relationships often feel unidirectional, with core AMCs hoovering up patients, imposing unfamiliar processes, and generally leaving their supposed community partners robbed of revenue and burdened with new complexities and costs. As a community hospital COO told us, the AMC tried to take over all the processes. However, not all standardization is warranted.
Community hospitals involved in more successful partnerships speak of a bidirectional relationship, where care remains in the community when at all possible, and learnings on effective administrative and clinical processes flow both to and from the community. Every AMC leader we spoke to who gave a successful example of community partnership described a relationship of mutual give and take. For example, UW Health and its community hospital partner entered into a full financial sharing arrangement agnostic of where a patient receives care.
On this note, as Alan S. Kaplan, Chief Executive Officer at UW Health, told Oliver Wyman, where patients end up receiving care tends to be agnostic. “We have a community hospital that is within a few miles of the academic health system – the medical center and main hospital. And we entered into a full financial risk-sharing arrangement in which we share revenues,” he said. “We share expenses and we do a full income split. And that includes all the revenues of the academic health system and this particular hospital. By doing this joint operating agreement, it is agnostic where our patients go and it opens up so much opportunity for operational enhancement, delivering on quality crossing that chasm between the academic medical center and the community.”
Simply using community hospitals as funnels for referrals or opportunities to spread high reimbursement rates is no longer a tenable strategy. However, in a time of complex public health challenges, bringing the expertise of the AMC to the local community is a worthy goal. Greater comfort with digital health will make it easier to partner with community hospitals while keeping care in the community. And greater awareness of the importance of coordinated public health strategies creates a need and an openness for trusted AMC brands to work within local communities. Community integration is still a good strategy, but it needs to be approached collaboratively.
Sixty percent of consumers prefer to seek care at an AMC facility.
The Turning Point
AMCs, like many of their fellow members of the healthcare system, are at a crossroads. There are many potential paths forward. There’s no single right answer; it heavily depends on an AMC’s current state and future goals.
Now is the time for leaders to evaluate their organizations honestly, decide what role they want to play in the transformed future of healthcare, and step forward with intention and determination.