Becker's Hospital Review

54 AMCs must continue to provide care under strained reimbursement. They, however, face a more unique challenge: they also must continue to fulfill their educational and research missions in spite of significant funding challenges. Three-pronged mission meets "triple whammy" of challenges As AMCs work to fulfill their three-pronged mis- sions, they face what Ora Pescovitz, MD, CEO of University of Michigan Health System in Ann Ar- bor, calls a "triple whammy" of funding cuts. The sequestration cuts of 2013 reduced funding for all three areas of AMCs' missions: patient care, graduate medical education and research. While Congress' Bipartisan Budget Act of 2013 is ex- pected to restore most of the sequestration cuts, including those to National Institutes of Health- supported research and federal payment for grad- uate medical education ($63 billion in additional federal funding was approved, but specific distri- bution of these funds is pending the appropria- tions process), the 2-percent cut in Medicare pay- ments will remain in place through 2023. Let's take closer look at the variety of funding challenges facing AMCs: patient care — Payments for patient care con- tinue to face pressure. Medicare sequester cuts mean lower-than-expected payments for hospi- tals. Even without the cuts, Medicare pays hos- pitals just 90 percent of the cost of caring for benefeciaries, according to the American Hospital Association. Additionally, many AMCs are the safety-net provider for their market. Nationally, AMCs treat 40 percent of hospitalized uninsured patients, and 23 percent of Medicaid patients. Education — On average, the cost of training a physician (direct graduate medical education) in the United States is $100,000. Medicare pays hospitals just $40,000 per physician through GME funding to AMCs, according to the Association for American Medical Colleges. Indirect medical education (e.g., opportunity cost of slower procedure times and fewer procedures, and/or less productive attending physicians) results in $27 billion in additional costs to AMCs. Medicare has capped its payment for IME at $6.5 billion since 1997's Balanced Budget Act, de- spite estimates that the country will have a shortage of nearly 90,000 physicians by 2020. While medical school enrollment has increased by 30 percent in recent years to help meet future physician demand, residency and fellowship slots have not. According to the AAMC, approximately 10,000 residents trained in the U.S. every year are paid for entirely by hospitals' operating margins, not feder- al support. While AMCs have taken on this finan- cial burden because its supports their broader mis- sions, their ability to take on additional residents is unlikely without some sort of intervention by the government, other payers or the public. Research — It costs AMCs $1.25 to carry out every $1 of research that is funded, and "that 25 cents is usually transferred from the clinical side," says Joanne Conroy, MD, chief health care officer for the AAMC and former COO of Morristown (N.J.) Memorial Hospital. Additionally, while the total amount of NIH fund- ing rose between 1998 to 2011, the "real amount" — or value adjusting for inflation — peaked in 1998 and has declined each year since, according to the research advocacy group FasterCures. Dr. Pescovitz of UMHS argues declining research funding threatens the medical innovation pipe- line. "We can decide to reduce support for medi- cal research and that science is not a national pri- ority, but that means we must also accept what it means. It means fewer discoveries and a decrease in the development and production of new drugs, therapies and treatments that improve and save lives," she says. Shifting funds Much like a university using the revenue from its men's college football team to support women's tennis, AMCs have long helped support their ed- ucational and research missions through clinical care revenue. In 2010, AMCs transferred close to 9 percent of net patient service revenue to fund research and education, and this percent is likely increasing each year, as pressure on patient care reimbursement grows, says Dr. Conroy. In the past, shifting funds from one column to an- other, while not a perfect solution, was an effective approach to sustain organizations' three-pronged missions. Today, this approach is a short-sighted strategy. Transformational changes in how care is reimbursed, and the cost-consciousness of con- sumers, threatens the ability of AMCs to support two missions on the back of one. As a result, busi- ness as usual is no longer an option for AMCs. In- stead, they must embrace change, adjusting their strategy to carve out a competitive differentiator for themselves in the new world order of health- care delivery and purchasing. AMCs: No longer business as usual But what is the best competitive strategy for AMCs? Certainly academic medical centers stand out when it comes to treating the most complex pa- tients. They are the only facilities with the breadth of sub-specialization required to appropriately treat the most challenging of cases. "If you have a brain aneurysm, you really want to be in an academic medical center, or if you need a liver transplant, you want to be at an academic medical center," says Andrew Ziskind, MD, manag- ing director and clinical solutions leader at Huron Consulting Group. "Those are the kind of things at which academic medical centers truly excel." However, the large majority of patients treated by AMCs present with more routine conditions that often could be treated at a lower cost at a commu- nity-based facility with similar outcomes. As payment mechanisms evolve to increasingly reward lower-cost, high-quality care, how will AMCs compete? As consumers take on more fi- nancial responsibility for care, will price sensitiv- ity become the defining factor for decisions about most routine care? AMCs have higher cost structures because of the resources required to recruit and retain a cadre of subspecialty physicians within every medical specialty, in addition to training future physicians and carrying out research. The paradox is that while AMCs are best positioned to treat the most complex of patients (which are by nature lower in volume), they need to attract large volumes of more routine cases to cover the costs of maintain- ing access to specialized care. "If you just need a gallbladder removed or a hip replaced, [AMCs] may not be able to be compete with a well-developed community medical center that has engineered cost and safety in," explains Dr. Ziskind. Certainly the brand recognition of a tertiary facil- ity carries weight in patients' care decisions today, but in the future, when cost and quality data is more accessible and transparent, will an AMC's reputation be enough to warrant paying more for the same care? Will patients with routine cases still want to come to AMCs? Only if these hospitals can compete on price, quality and service, say many experts. And, in the future, offering convenient, patient-centered, co- ordinated care will also be a requirement. Lowering the cost of delivering a certain service, though a challenge, is fairly straightforward: re- engineer processes, including clinical pathways, to drive unnecessary cost, waste and duplication from the system. The nation's leading academic medical centers are working aggressively toward this imperative. Dr. Pescovitz says UMHS plans to reduce its operat- ing costs by $200-$250 million, on a $3.2 billion annual budget. In September 2013, the Cleveland Clinic announced it would cut $360 million from its $6 billion annual budget through layoffs and other cost-cutting efforts. Vanderbilt Univer- sity Medical Center in Nashville, Tenn., also an- nounced a plan to cut $250 million from its $3.3 billion budget by the end of its fiscal 2015, as part of its "Evolve to Excel" initiative. Lowering cost is particularly important in price- sensitive markets. In metro Denver, University of Colorado Health has many DRGs priced lower than Kaiser Permanente, the prominent provider of af- fordable care in the western U.S., says Dr. Conroy. Coordinating care and managing the health of a population is more complex. It requires own- ership of or partnership in various sites of care across the continuum. It also takes advanced data analytics, standardized care paths, targeted inter- ventions and team-based care, to name but a few necessary capabilities. Is Academic Medicine As We Know It DOA? (continued from cover)

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