AMC Integration - Five Points of Opportunity for Real Alignment

Research and medical education are what define an academic medical center (AMC), but right or wrong, the clinical enterprise is ultimately its economic engine. The overall performance of an AMC can hinge on the degree to which the medical school, teaching hospital, and physician organizations are strategically and financially aligned, beginning with the clinical enterprise. Rather than patched approaches through contracts and committees, AMCs are under pressure to make bolder organizational changes to achieve integration between the teaching hospital and physician organizations. Such a move would seem intuitive considering the call for cost reduction and emphasis on quality and highly integrated delivery systems. Nevertheless, the market has seen very few AMCs make sweeping organizational changes over the past 2 decades, aside from Johns Hopkins Medicine, Wake Forest Baptist Medical Center, Georgia Health Sciences Medical Center, and a few others.

Is there not a need for greater alignment? Are there not solutions or options? There are – but too often, it is political risk and historical culture that inhibit bold changes at AMCs. Meanwhile, community health systems with typically milder political climates continue to be very active in their pursuit of clinical integration and market consolidation, which may present a market advantage over AMCs in the long run. To a person, most AMC executive leaders would confess that a more integrated model would place the institution in a better position strategically and financially. This sentiment is already backed by highly aligned AMCs, as echoed in a recent article in Academic Medicine.¹ It is time for leaders of fragmented or less aligned AMCs to strongly consider the long-term opportunity cost of not exploring at least a more integrated clinical model compared to the short-term outlay of political capital.

… it is political risk and historical culture that inhibit bold changes at AMCs.

The graphic below and the corresponding synopsis introduce five points of opportunity for greater alignment within an AMC. While these areas are perhaps more conducive to AMCs that are not already fully integrated, many integrated AMCs may be corporately one unit but not functionally integrated; therefore, opportunity remains.

1. Affiliation Between Medical School and Primary Teaching Hospitals

Some affiliation agreements date back 20 years and are represented in only a few pages to memorialize the relationship between a medical school and a hospital; others are 20 pages but fail to define tangible commitments. Opportunities exist to develop new, more contemporary affiliation arrangements that specifically describe the mutual value of the partnership and what each institution mus provide to the other. Most importantly, there is opportunity to overhaul the financial structure to have clear “lanes” for areas such as GME and program development. Shared risk models should be strongly considered whereby discretionary dollars are linked to performance. The days of negotiated “mission support” dollars from the hospital to the medical school without an understanding of ROI are over or soon coming to an end as hospitals are seeking clear value, accountability, and transparency related to their investments.

2. Alignment of Clinical Enterprise Between Practice

Plan(s) and Teaching Hospital(s)

AMCs are not immune to the consolidation occurring in the marketplace as pressure mounts to reduce costs and demonstrate quality. The business and organizational relationship between the teaching hospital and practice plan (for those not already under single ownership/governance) arguably represents the greatest potential for most AMCs – ranging from community-based AMCs to largescale, well-established institutions. Navigating a growing Web of contracts between these entities to balance the economics and grow programs is not sustainable. These entities should seek to share risk more directly to more effectively align financial incentives and in turn align strategic interests. There is a range of organizational options that can better align the clinical enterprise while addressing the common concern and misperception that a clinically driven strategy will harm the academic enterprise.

3. Alignment Between Community Practices and Teaching Hospitals

Teaching hospitals with open medical staffs, and those that rely heavily on community practices for key service lines or regional coverage, are as active as their nonacademic peer hospitals with respect to direct employment or exclusive contractual arrangements with community physicians. This raises many questions, and in some cases concerns, for the medical school and practice plan regarding the balance between nonacademic practices and clinical faculty. There are extensive organizational and strategic opportunities to better align the two groups and drive growth of the system, ranging from coordination of outreach strategies to service line development.

4. Programmatic Alignment/Integration

The vast majority of the highest-ranking institutes and Centers of Excellence (COEs) in the country are found at AMCs. However, far too many of them represent only a virtual center or brand and are not strategically and financially aligned “behind the curtain.” The community-based counterpart to an AMC-based COE tends to focus on patient service, which cannot be accomplished in a virtual environment. This places AMC-based programs at risk, because without more formal alignment, growth will be stifled, costs will not be contained, and competitors with patient-centric environments will gain market share. AMCs have an opportunity to design more integrated models for institutes, COEs, and/or major service lines, including heart, cancer, neuroscience, and orthopedics, to align the financial and strategic incentives between the participating departments and divisions in a manner that does not undermine the authority of the department chair but that effectively calls for centralized accountability of the program.

5. Faculty Practice Plan Integration

Departments at AMCs are notorious for wanting independence, and it is often difficult for AMC leadership to challenge or change this culture. This is very much the case with clinical departments of many faculty practice plans nationally. Understandably, chairs wish to maintain control of nonphysician staff, develop their own compensation policies, retain as much of their bottom line as they can (if it is in fact positive), and in many instances take an independent approach to negotiating a contract with an affiliated hospital. The benefits of having a more integrated and empowered physician organization with practice-wide policies and aligned financial interests will outweigh the short-term, department-dominated view seen at too many institutions today. There are structures that strike a balance – promoting an entrepreneurial spirit in the department while ensuring the interests and health of the physician organization are paramount. Finding this balance is imperative, considering the changes in the healthcare market. There is room for greater interdepartmental integration within many practice plans nationally today, with tangible benefits.

Published June 10, 2012