Healthcare Reform Poses Challenges for Academic Medical Centers

Academic medical centers, those bastions of clinical care, medical research, and medical education, face a number of challenges as healthcare reform becomes more ingrained in the delivery of medical care.

Of course, AMCs have always conducted business in a challenging environment, but the difference now is that a lot of things are happening all at once, explains Alicia Harkness, principal at PwC's Health Research Institute. An effort to learn how academic medical centers are coping with the changes resulted in a PwC study: The Future of Academic Medical Centers: Strategies to Avoid a Margin Meltdown.

According to the study, AMCs have performed well financially in the past largely due to a carefully choreographed mix of revenue that has enabled the clinical work of hospitals and physicians to subsidize research and education. But thanks to the Patient Protection and Affordable Care Act, change is brewing on both policy and political levels that will require academic medical centers to rethink their funding, the value of their brands, and their organizational alignments.

The analysis is based on interviews with thought leaders and executives representing healthcare providers, payers, and professional associations. Survey results are based on responses from an online survey of academic medical center leaders and 1,000 healthcare consumers.

Funding
According to PwC, 10% of traditional AMC revenue could be cut due to external funding threats, such as lower indirect medical education (IME) funds and reduced disproportionate share hospital (DSH) payments. With operating margins that average 5%, some AMCs may see their profit margins disappear altogether, the report says.