Few would dispute the importance of academic medical centers (AMCs) to the US health care ecosystem. They prepare the next generation of clinicians for the workforce and are among the greatest sources of discovery and medical innovation in the world.
Yet, even fewer would say that business innovation is a core competency of AMCs.
As the US health care system undergoes dramatic change – converging, consolidating, responding to cost pressures, and moving from volume to value-based payment models – AMCs are at particular risk. Challenged by complex models of governance and funds-flow, high unit costs, larger proportions of uninsured and under-insured patients, and, often, the most complex and sickest patients, many AMCs struggle to adapt in an increasingly competitive environment.
However, rather than circling the wagons, a significant group of AMCs has been quietly innovating away, creating scale through mergers and acquisitions (M&A) and creative alliance models, diversifying revenue, embracing value-based care (VBC), and reducing costs.
The Deloitte Center for Health Solutions examined this trend in a recent report, Academic Medical Centers: Joining forces with community providers for broad benefits and positive outcomes. The core question was, as industry consolidation continues to increase in its pace, can an isolated AMC survive financially and with its mission in tact?
M&A trends from 2007-2013 showed some interesting findings. AMCs who purchased at least one hospital in 2009 or 2010 had improved performance at their core location. Financial performance improved, costs were reduced (associated with increased scale), and case mix rose (likely due to more appropriate use of community facilities allowing the “mother ship” to take care of the more complex patients with their higher reimbursement). The takeaway: AMCs can be successful with consolidation, and it does not have to dilute the mission.
In addition to M&A, many AMCs looked for other sources of revenue. For example, the Mayo Clinic formed the Mayo Clinic Care Network, which exports expertise and care models to other organizations in the US and worldwide. The Cleveland Clinic has opened a facility in the Middle East and plans to open one in London. And, Duke has partnered with LifePoint to open 12 community health systems throughout the US.
These trends indicate that AMCs across the country are accelerating the transition to VBC. For example, University of California, Los Angeles and Cedars Sinai have formed a venture with other California hospitals and Anthem to form Vivity, which offers a shared risk health maintenance organization (HMO) product. The new Dell Medical School at the University of Texas, Austin is being designed from the ground up to create innovative models of VBC and has integrated innovation into the new curriculum.
Finally, many AMCs are taking on ambitious projects to improve operating performance. Lowering unit cost and improving efficiency is difficult and can be contentious, but it can be accomplished successfully
The status quo is not an option for our nation’s AMCs. Much has been done already by leading organizations, and the fast followers are making progress. Those who fall in the “laggard” category should be concerned. The health care environment is rapidly changing, and unless they embrace change, they run the risk of mission failure.