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The Unique Struggle of Academic Medical Centers

No sector of the healthcare industry has been spared from the disruptive effects of healthcare reform over the past several years, but academic medical centers have often been singled out as particularly vulnerable to the nationwide changes in health delivery. Academic medical centers (AMCs) not only tend to serve high-need communities, but also prioritize education and research, initiatives that can complicate a hospital’s overall mission and in some cases represent significant costs. Definitive Healthcare data shows that AMCs face some disadvantages, but new strategies may be able to help them overcome them.

According to Definitive Healthcare data, there are roughly 350 hospitals classified as AMCs in the US. Most of them are large, non-profit acute care facilities, with a median of 477 staffed beds and 25,500 annual discharges for 2016. In addition to being larger, they have a much higher median case mix of 1.87 and Medicaid payor mix of 10.5 percent (compared to a median of 1.24 and 5.9 percent, respectively, for non-AMCs).  A sicker, less wealthy population generally puts downward pressure on hospital finances, and the data shows that AMCs have been suffering declining margins compared to the national median. From 2010 to 2016, the median decline in operating income at AMCs was 11.54 percent, compared to a roughly 10 median increase for all other hospitals during the same period. However, healthcare reform was not the only potential factor contributing to AMCs’ poor performance. Some AMCs also suffered from budgetary pressures during and after the recession as they were state owned or closely affiliated. In addition, the costs of medical research and education are also significant and must often be subsidized by income from clinical operations, further decreasing margins. Even as far back as 2000, some analysts pointed out the struggles of academic medical centers to remain operating.

AMC vs Other Performance and Statistics, 2010-2016

Metric AMCs Other Hospitals
Med Operating Income Growth -11.5% 10.0%
Med Nat Pat Rev Growth 31.7% 20.3%
Med Discharge Growth 0.43% -11.7%
Case Mix (2016) 1.87 1.24
Medicare Payor Mix (2016) 27.9% 43.6%
Medicaid Payor Mix 10.5% 5.9%
Private/Other Payor Mix 60.8% 46.5%

Fig 1 Data by Definitive Healthcare

Though research and education have real costs, they can also yield impressive benefits when properly leveraged. A strong clinical reputation, driven not necessarily by quality scores alone, some of which can reflect a sicker base population, but by clinicians using the latest techniques and acting as pioneers in their field, can make an AMC a destination medical center for patients suffering from specific conditions. One approach is described in a recent article interviewing the CEO of Banner University Medical Center, an AMC operating out of Arizona. There, hospital leaders reorganized their clinical departments into “institutes,” interdisciplinary groups of providers that focus entirely on specific conditions. The idea is to unify personnel from multiple areas of the hospital to coordinate in the care of an illness, rather than keeping physicians, educators, and researchers in distinct silos. It’s a major undertaking, and the hospital had to hire a team of data analysts and engineers to oversee the transition. The CEO said that it was still too early to gauge its effectiveness, but preliminary results were positive.

Mergers and consolidations have been another common method among AMCs to strengthen their position, just as they have been for other types of hospitals. One of the most recent examples was the October 2016 merger between UChicago Medicine, which consisted of University of Chicago Medical Center and the Pritzker School of Medicine, and Ingalls Health, which managed a single community hospital. Partnering with the community hospital would allow the AMC to extend its geographic presence and brand, as well as increase its bargaining power with insurers and suppliers. Though in that case, UChicago Medicine became the corporate parent of Ingalls Health, partnering with the right AMC can bring advantages. An AMC that performs far beyond any nearby competitors in a certain service line can be an ideal partner even if it isn’t the most dominant hospital in the area by offering its expertise at other hospitals. Some analysts believe being acquired or developing strategic partnerships is one of most AMCs’ medium-term goals.

Though some financial indicators for AMCs as a whole look bleak, it’s unlikely that the overall number of AMCs is going to decline significantly. Despite their unfavorable performance, most AMCs are simply too vital as community providers and training grounds for future physicians, which will continue to be in high demand in most specialties for the foreseeable future. That doesn’t include their role as centers of medical research, though some have raised concerns that it may be less of a central focus in their missions as funding opportunities dry up. Going forward, it will be up to AMC leaders to best decide how to devote their limited resources.

Read more about the effects of CMS programs like value-based purchasing on safety-net hospitals on the Definitive Blog.

Definitive Healthcare has the most up-to-date, comprehensive and integrated data on over 7,700 hospitals, 1.4 million physicians, and numerous other healthcare providers. Our information includes current and historical clinical and financial statistics for hospitals, health systems, and more.

 

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