Blog Post

Placing a Premium on AMC Performance

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The clinical enterprise is the economic engine of an academic medical center (AMC). By clinical enterprise, we are specifically referring to the academic health system (AHS), which is the combined assets of the teaching hospital, the clinical faculty, and the affiliated or owned nonacademic (or “community”) physicians.

AMCs are built around the tripartite mission of delivering exceptional clinical care, advancing research, and educating the next generation of providers and researchers. Yet, research and teaching programs within AMCs are increasingly unable to sustain themselves through their traditional revenue streams. As a result, an alternative means of investment is required to sustain and grow these critically important programs, and the only remaining means of generating a predictable and healthy margin is through the performance of the AMC’s clinical assets. This critical source of funding may be at risk, though, for organizations that are not strategically and organizationally well positioned.

The market was challenging enough before the Affordable Care Act (ACA). Since its enactment, the headwinds have further intensified for AHSs, as they need to demonstrate the ability to provide accessible, high-quality care at an appropriate cost. These pressures have already begun transforming the nonacademic provider market, where discussions of performance improvement and value-based care have often been followed by greater clinical and financial integration efforts across providers and systems. And now we’re starting to see this occur in some places across the AMC landscape. For instance, the market has seen major transactions at Vanderbilt or Northwestern in recent years, where the clinical assets are shifting to bring the primary teaching hospitals closer together with the faculty group practice.

Still, the majority of the AMCs that do not already have a highly integrated clinical enterprise appear hesitant about making major structural changes; many are unsure of the best approach and are unwilling to assume the risk without understanding the tangible benefits of more closely aligning the teaching hospital with the faculty group practice. After all, what exactly does greater alignment or integration mean? If the AHS was fundamentally more integrated, would it result in a better margin and improve the quality of care?

These are legitimate questions sparked by genuine concerns from AMC leaders. AMCs are highly complex organizations, and AHSs have very little room for error since they face unique business disadvantages in the marketplace, including a less favorable payer mix and a traditionally higher overhead due to their academic mission.

To bring greater clarity to this topic, and confidence to system leaders, ECG recently conducted a study examining the organizational architecture and functional behavior of AHSs to determine whether a demonstrable correlation exists between their level of integration and AMC performance. The data is pretty clear. AHSs that are considered more integrated outperform their less integrated peers across numerous metrics related to reputation, quality, research funding, and graduate medical education.

Most AMC leaders acknowledge, at the very least, that their clinical enterprise should be more integrated to compete in today’s market. And the results of our study substantiate this widely held belief that the more an AHS is strategically, financially, and otherwise aligned, the better the results for the whole AMC. Still, many AMCs have a deficit of political will to pursue such an initiative among key stakeholders. Organizations that choose not to act need to accept that the opportunity cost of not taking steps to build a more integrated AHS will be high for the clinical enterprise, and will also have a direct adverse impact on the AMC as a whole (i.e., together with the university and medical school), as fewer resources will be available to reinvest in the academic mission.

During the coming months, additional blog posts will dive deeper into the integration discussion, highlight the impact of integration across multiple measures of performance, and offer practical opportunities for AMCs to more tightly align their clinical components. Continue to check in with us often and join the conversation.