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Healthcare Reform Poses Challenges for Academic Medical Centers

 |  By Margaret@example.com  
   March 22, 2012

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.

About 70% of AMC leaders responding to the PwC survey identified as a revenue threat the potential reduction in IME funds. The president's budget proposal includes a 10% reduction in IME by 2013. Harkness says IME isn't the largest bucket in terms of dollar amounts, but AMCs recognize that IME funding is an easy target for policy makers who often contend that it isn't directly related to patient care.

In 2014 PPACA will begin reducing DSH payments. The first-year aggregate reduction of $500 million will grow to $4 billion in 2020. Some 61% of AMC leaders recognize this as a revenue threat. Also in 2014 millions of uninsured will migrate to private insurance or Medicaid. That means Medicaid revenues will increase and AMCs will need to attract their share of the newly insured patients to make up for declining DSH payments.

Brand Breakdown
Academic medical center brands are a conundrum. Although AMCs are among the most recognized and powerful in healthcare they often do not fare well in quality ratings. The report noted that when the Joint Commission ranked the top quality performers of 2010 few major AMCs were among the more than 400 hospitals ranked.

Harkness says she was surprised that only 49% of AMC leaders felt that not meeting new quality standards was a threat to their organization, especially since healthcare reform strengthens the link between quality standards and reimbursements. "AMCs will need to rely on more than past reputation," cautions the report.

Charges associated with care delivered by AMCs are also worrisome. AMCs may be perceived to be high-cost providers in an accountable care environment focused on lowering costs. Only 22% of consumers survey said they would pay more to be treated at an AMC.

Organizational Alignments
The highly decentralized governance structure of AMCs makes it difficult to respond to current and future challenges in the healthcare environment, the report suggests. AMC leaders responded less favorably to initiatives that required significant cultural changes to their governance structure.

Only 11% of leaders were considering consolidating departments to streamline operations, for example. However, 74% were willing to embark on the less-impactful cultural change of integrating IT systems.

The report suggests five strategies to help academic medical centers strategically rework the way they operate:

1. Build the brand by holding faculty accountable for cost and quality. Well-entrenched faculty and organizational structures make it difficult to address costs and quality. AMCs must place an equal focus on reforming organizational structure and improving quality outcomes.

2. Become part of the larger healthcare community network. AMCs have tended to be independent organizations, but healthcare reform encourages partnering with high-quality, low-cost providers such as community hospitals. Some 59% of consumers surveyed said they were likely to seek medical treatment at a community hospital affiliated with an AMC.

3. Leverage technology to extend reach and effectiveness. Some 69% of AMC leaders said they are likely to adopt extended services such as online collaborative classrooms, simulation technology, and telemedicine.

4. Become an information hub. Some 65% of AMC leaders said their institutions will collaborate with other research institutes or medical centers to share electronic health records and to share data to enhance scientific discovery.

5. Align the research pipeline with clinical and business strategies. AMCs are redirecting their research dollars.  Around 62% of AMC leaders indicated that coordinating translational research will be a high priority over the next five years.

It won't be an easy transition. Harkness notes that while academic medical centers haven't really needed to change over the years, the delivery of healthcare is more complex now and "the opportunity is there to leverage their platform to change."

 

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
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