Academic medical centers have a strong social mission of improving health through providing patient care, making discoveries through biomedical research, and training the next generations of physicians and scientists. They often measure their “community benefit’ in terms of providing charity care to the underserved and advancing discoveries to improve the health and well-being of society. The ability to continue to provide this community benefit is facing unprecedented peril. After more than six decades of prodigious growth, many U.S. academic medical centers, health systems, and medical schools are experiencing significant financial distress because of a confluence of changes in the external environment that challenge long-held underlying assumptions of the economics of academic medicine. Those changes permeate all mission areas.
Budget sequestration of 2013 imposed automatic spending cuts to the U.S. government, including the National Institutes of Health (NIH), which funds a significant portion of biomedical research in the nation’s medical schools and teaching hospitals. Sequestration came on top of a stall in growth in NIH appropriations, which lost ground to inflation over the previous 10 years.
QUESTIONS TO EXPLORE
How might for-benefit models apply to academic medicine and what permutations might emerge?
Consistent with the results of these discussions, are for-benefit models generalizable to all academic medicine (e.g. public or private, research-intensive or community-based) and irrespective of their revenue streams or capital resources?
Are there other variables (eg. organizational governance, infrastructure, cultural or political contexts) to consider in transitioning to or applying a for-benefit model? What action steps would facilitate incorporating tools and strategies from the FB model to innovate current structures in academic medicine?
Ann Bonham, PhD, Chief Scientific Officer, Association of American Medical Colleges (AAMC)
William T. Mallon, Ed.D., Senior Director, Strategy and Innovation Development, AAMC
Dr. Benjamin P. Sachs, Senior Lecturer Massachusetts General Hospital, Harvard Medical School; Senior Director, Strategy Implemented; Former SVP and Dean, School of Medicine, Tulane University
Marc J. Kahn, MD, MBA, FACP, Peterman-Prosser Professor, Sr. Associate Dean, Tulane University School of Medicine
Academic Medical Centers & Health Systems
Implementation of the Affordable Care Act (ACA) is prompting rapid transformation of health care reimbursement, including impending decreases in federal funding for certain Medicare payments that affect academic medical centers—such as reductions in the Disproportionate Shared Hospital (DSH) payment—as well as systemic changes such as the migration away from fee-for-service toward value-based payment models and a shift toward population-based health through accountable care organizations (ACOs).
Medical schools face constraints in raising tuition because of concerns about medical student education indebtedness, which averaged $169,900 for the Class of 2013. Across mission areas, the effects of the Great Recession of 2008 linger in philanthropy and fundraising in U.S. higher education. For publicly supported medical schools, state funding for higher education decreased, on average, 23 percent from 2007 to 2012.
While academic medical centers vary in dependence on revenues streams from patient care, extramural research, tuition, endowment and gifts, and other sources, few can take a laissez-faire approach to such environmental forces. Academic medical centers are not simply dealing with a one-time cut in appropriations or a marginal change in clinical cross-subsidies, but rather facing more serious widespread structural challenges.
In fiscal year 2012, more than one quarter of medical schools reported negative operating margins, and medical schools, on average, experienced negative growth in their operating margins compared to the previous year. Moreover, these statistics mask the extent of the financial strain, as many receive institutional transfers from parent university or health system partners to cover negative operating margins that otherwise would appear on their books.
A 2014 report from the Association of American Medical Colleges (AAMC) described the results of these structural changes: “AMCs must evolve rapidly or risk becoming high-priced, anachronistic institutions in a landscape of highly organized health systems.” While many academic medical centers are actively improving management, efficiency, and quality, these changes may not be enough. The 2014 AAMC report suggests that academic medical centers have four options: “form a system (if they have capital and wherewithal to do so), partner with others in a collaborative network model, merge into a system, or be prepared to shrink in isolation. Because of their non-for-profit status (for the most part), the current sources of capital are limited, to already fragile operating margins, federal funding, and philanthropy.
The participants in this track will be leaders in academic medicine, public health, and community development, who will be able to lend their specific backgrounds to envisioning how models from the for-benefit sector might lead to new solutions in the academic health system space.