America has always been a leader in academic medicine. The top academic medical centers (AMCs) in the U.S. perform the most advanced scientific research, employ the most well-known researchers, and offer the most complex medical treatments in the world.
The healthcare landscape appears to be in turmoil. Hospitals are facing new challenges, the cost of healthcare delivery has become astronomical, and the Affordable Care Act insists hospitals deliver quality care or face cuts in reimbursements.
Almost all hospitals, including academic centers, are facing economic challenges and competition. Academic medical centers stand out because they have the right personnel to dedicate time to valuable research so future caregivers can learn cutting-edge treatments and techniques that will advance the profession and greatly benefit patients. Unfortunately, the majority of AMCs in the U.S. also see routine medical patients who can be treated at a far lower cost at almost any community center with similar outcomes — it is not every day that a liver transplant is performed or a combined heart and lung transplant is needed.
Here is my experience while working at an AMC:
- All AMCs have three missions: education, research, and healthcare
- Higher costs compared to community hospitals
- Payer mix challenges, especially with reimbursement decline
- Research grants are shrinking
- Hospital revenue drives the majority of the AMC operation
- Highly bureaucratic; not as agile as traditional hospitals
So how will these academic medical centers survive? The solution is partnerships.
We are starting to see partnerships between AMCs and community hospitals that will help AMCs stay relevant financially. AMCs have historically been favored by payers and patients due to their reputation of providing specialized care, education, and research, but they are higher in cost compared to other hospitals.
Because the payment mechanisms are in a state of flux and trending toward lower costs with a push for higher quality, AMCs will need to change the way they do business. With higher co-payments and the transition to high deductible health plans, patients themselves are looking for cheaper medical care. Who wants to pay three times the cost for a routine gallbladder removal at an AMC, when it can be done at the community hospital for much less?
According to a study by Deloitte, AMCs that have acquired community hospitals have seen an increase in EBITA (earnings before interest, taxes, and amortization) and a decrease in operating costs years after the purchase. The increase in EBITA is primarily due to the increase in the case mix index where the AMC is primarily focused on complex and high acuity cases, while pushing the chronic cases to the community hospital.
Today, AMCs face intense competition from community and for-profit hospitals, which offer a similar breath of services and similar outcomes. Community centers not only do it cheaper, but also faster. AMCs have for years been burdened with incapacitating bureaucracy, higher administrative costs, and inefficiency. Further, AMCs are not focused and not as flexible to meet the current demands of healthcare delivery.
The transition to partnering or purchasing community hospitals will continue to be the trend in the next few years as community hospitals seek to grow in scale to remain relevant in the population health game. The AMCs will have to figure out ways to shift the low acuity cost procedures while expanded their network for the high complex cases.
The mega-merger trends will continue between various health systems and we will see AMCs play an increasing role as they seek to incorporate community hospitals.
[David Chou is a Global Digital Healthcare Advisor who served as CIO at University of Mississippi Medical Center and AHMC Healthcare, and senior director of IT Operations at Cleveland Clinic Abu Dhabi. To follow him on Twitter, click here.]