Academic medical centers [10Minutes]
 

Academic medical centers [10Minutes]

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AMCs care for the sick, educate future doctors, and perform cutting-edge research. But with operating margins hovering at an average 5%, and major changes ahead in the way care is delivered, they ...

AMCs care for the sick, educate future doctors, and perform cutting-edge research. But with operating margins hovering at an average 5%, and major changes ahead in the way care is delivered, they need to boost those profit margins. See the probable lay of the land over the next decade, and how AMCs can adapt and survive.

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Academic medical centers [10Minutes] Presentation Transcript

  • 1. 10Minutes Industry Series Healthcare Academic medical centers What should academic medical centers look like in ten years? July 2012 Highlights Major forces blowing across the AMC landscape portend a new direction over the next ten years. As profitability lowers, AMCs must become more spend thrift if the institutions are to endure long term. Telemedicine, collaborative classrooms, simulation technology, and sharing electronic health records can help AMCs reach more patients and students at a lower cost. The long-time AMC research model should be replaced by a system that promotes expediting discoveries directly into clinical practice. Generations of healthcare professionals in the United States have trained and worked at academic medical centers, forging a distinct role in society: caring for the sick, educating future doctors, and performing cutting-edge research. But with AMC operating margins hovering at 5% averages, there is little room for error in bringing this threefold mission into today’s healthcare environment. More than 130 medical schools and at least 1,000 teaching hospitals form the vast AMC network across the United States. Many are among the most prestigious medical institutions in the world. Clinical care produces about 85% of revenue and includes an assortment of commercial insurance payments and funding from federal and state health programs such as Medicare and Medicaid. With major changes ahead in how care is delivered and paid for in this country, any dip in profit margins would threaten not only hospital operations but also education and research. To succeed in the next era of American healthcare, AMCs must fully embrace collaboration, innovation, and technology. This 10Minutes offers a menu of strategies to sustain this American icon at a time of mounting financial pressure.
  • 2. At a glance Five key steps to help AMCs avoid margin meltdown 1 Build the brand by holding faculty a  ccountable for cost and quality 5 Align the research pipeline with clinical and business strategies 4 Become an information hub to realize a return on HIT investment Source: PwC Health Research Institute Analysis 2 Become part of a larger community  network 3 Push the envelope on  new kinds of care extenders to increase effectiveness
  • 3. Reduced government payments, new care models threaten profitability 1. Medical education funding faces potential cuts of up to 60%. Analysis by the government’s Medicare Payment Advisory Commission indicates that current federal subsidies to AMCs are not fully justified and the president’s budget deficit proposal has targeted the payments for reduction. 2. Fluctuating government healthcare programs. Reductions in Medicare and Medicaid (known as Disproportionate Share Hospital payments) are expected as the number of uninsured decrease under healthcare reform. Also, cashstrapped states may be forced to scale back Medicaid programs for the poor. As aging baby boomers swell Medicare rolls, it will be harder to balance rising costs with shrinking payments at teaching hospitals. services offered at AMCs. Bundling of services will further divide inpatient hospital payments. If they do not meet new quality standards, AMCs also face reduced income. 4. Economic recession has taken a toll on grants, contracts, and philanthropy. AMCs may need to find other sources of funding and donation revenue or limit their scope of research. 3. New financial models compete with and challenge AMCs. Both government and commercial insurers are moving from pay per volume models to pay for value. In response, competitive accountable care organizations steer away from the high-cost hospital 03
  • 4. Fault lines appearing on the AMC landscape AMC leaders rank revenue threats* Indirect medical education (IME) .......... 70% Disproportionate Share Hospital payment (DSH) ................................ 61% Medicare basket update .................... 55% State funding ................................... 53% New funding models ......................... 49% Commercial insurers tiering benefits and/or creating narrow networks ......... 39% Meeting new quality standards ........... 38% Grant and contract funding (NIH) ......... 35% Philanthropy .................................... 25% * Percent of AMC leaders recognizing revenue threat Source: PwC Health Research Institute Analysis Many AMC leaders view current health industry shifts as dangerous to their longtime business model. These forces, erupting from many directions, are pressuring AMCs toward more sustainable practices. AMCs that are looking to expand through domestic acquisitions or international partnerships must balance reward with risks. Such alliances may damage the brand, patient culture, or bottom line. Budgetary and political pressures Old structure not designed for new challenges Analysis by PwC’s Health Research Institute shows that up to 10% of traditional AMC revenue could be at risk due to changes in funding sources and operating methods. Although the 2010 healthcare reform law promises to reduce the number of uninsured patients in the nation, changes in government funding and the influx of millions more Medicaid patients will lower operating margins for some AMCs. Fiftyfive percent of AMC leaders surveyed by HRI believe declining Medicare rates are a revenue threat to their organizations. Brand erosion Cited for years among numerous “best hospitals” lists, fewer AMCs appear in recent top rankings as evaluators use more stringent quantitative measures and competition intensifies. With quality data being directly tied to fee reimbursement, AMCs cannot rely on past reputations. Largely decentralized, each department within an AMC is governed separately and personal agendas often trump organizational needs. In the HRI survey, less than 30% of AMC leaders said they are working toward a unified governance structure. So, AMCs will need strong, impartial leadership to focus on budgetminded strategic plans. Although AMC leaders are resistant to developing a single governance structure that consolidates academic departments, more streamlined organizations prove more efficient and profitable in the today’s business environment. 04
  • 5. Strategies for stretching AMC dollars How is your organization addressing funding challenges? 75% 65% The basic business model of academic medical centers has hit a profitability crossroads. To move ahead, they must push toward cost-saving and quality signposts. The best direction forward would also tackle management problems and end the isolation that defies good business practices. Overhaul the workplace Improving quality Focusing on productivity 59% 54% Reducing costs thru shared service, outsourcing Using referral networks It’s hard to control costs in an antiquated governance structure. Instead, AMCs should monitor workflows and instill better time management for faculty. Medical schools should be run as other businesses by requiring employee accountability. AMCs must look at each individual professor and clinician and ask: “What do you do at the institution and what are your goals and productivity in those areas?” Create a unified organization 40% 25% Fund-raising Reducing faculty and staff Source: PwC Health Research Institute AMC Leader Survey, 2011 Only as a unified organization, with each department buying into the importance of lowering costs and increasing quality, can an AMC succeed. the necessary steps to invest in such shared savings initiatives as accountable care organizations and bundled payment models. For one, AMCs must tackle their pricing disparities, which can vary as much as 200% between hospitals. Also, AMCs can trim costs with shared service centers that support the entire organization. This avoids the duplication of effort in administration, technology, and finance often found in AMCs. Connect with the community Although AMCs have been keen on preserving their roles as providers of complex medical care, this has bred a culture of isolationism. The healthcare system of the future will consist of AMCs partnering with community health organizations to drive down costs. Community hospitals represent a lucrative feeder system since, without having to fund research and education, their cost of care is lower. AMC leadership working with doctors, nurses and other employees can identify areas of savings. A unified team can take 05
  • 6. Tapping into technology opens a brave new medical world Ten years from now, today’s methods of attracting and treating patients will be obsolete. Digital-age health systems will have extended care and education beyond the hospital walls. To remain as research and treatment leaders, AMCs will have to leverage technological advances to reinvent teaching, speed up research, and reduce the costs of treatment. A team approach integrates care Telemedicine extends care to more locations Over the next five years, many AMCs are incorporating dental, nursing, and allied health/physician assistant programs into their teaching curricula. Some universities are already integrating classes. Engaging patients through telemedicine has become more affordable and easier to use. For example, AMC physicians can remotely monitor, consult, and care for intensive care unit patients at partnership community hospitals, with greater reach, decreased mortality, and lower costs. Virtual home visits can also provide better access to more patients. Virtual classes via high-definition teleconferencing can train new primary care physicians right where they intend to practice. Nurses and doctors have traditionally been trained in separate schools. But, with new models of payment requiring a team approach, AMCs must change their curricula and mindset. The team approach of integrated care can save costs, reduce errors and foster a high-performing, collaborative culture. systems. Yet many struggle to find the optimal health information technology organizational structure. The technology should be used to transform patient care rather than simply to automate processes. Forming consortiums to share patientspecific data will spur research with a broader range of patients than any AMC could reach on its own. Many clinical trials currently remain unfilled. Sharing data with partner firms can exponentially expand the available patient population needed to conduct research in search of cures. The information age can transform care AMCs can use electronic health records to widely adapt evidence-based practices and to provide predictive analytics that lower costs and improve care. Most AMCs are investing in IT staff to manage data and systems. Sixty-three percent of AMC leaders say they have already hired IT staff to manage their data 06
  • 7. What’s wrong with the traditional AMC research model? Our institute has a very strong commercialization culture embedded in its fundamental DNA. For example, our founding chairman is a very savvy venture capitalist and businessman. Our current president & CEO has participated in several start-up biotech companies. The head of systems medicine developed the ink jet printer and our chief medical and technology officer is a former astronaut, engineer, and emergency medicine trained physician. From inception, we have built the culture that values relationships with government agencies and industry.” Edward Jones, chief operating officer at the Methodist Hospital Research Institute(TMHRI) in Houston It has not discovered the commercial realm. Separating basic and applied science has also impeded scientific discovery. To stay relevant, AMCs must invest in translational research that converts basic scientific findings from “bench to bedside.” Lacks a business sense Although translational research may result in marketable discoveries, commercialization of AMC intellectual property requires tenacity and business acumen. Bringing a product to market requires promotional, fundraising, and relationshipbuilding skills. Venture capitalists and corporate executives, rather than physicians and scientists, should lead AMC technology transfer offices. Physician-led commercialization spin-offs represent a growing movement. AMCs can generate royalties without being part of negotiations. Must strive for excellence Most AMC leaders say they will focus resources on areas of clinical excellence in the next five years, while less than half indicate that the same focus would be applied to research excellence, according to the HRI survey. Rather than allow these two missions to drift apart, AMCs should focus on integrating them. Uniting areas of excellence within the clinical and research missions will create a more appealing profile for philanthropic donations, clinical trials, and targeted funding. Need to understand industry Although lucrative and worth pursuing, industry collaborations can be risky. AMCs must address regulatory concerns, data privacy, and intellectual property rights. Merging two different governance structures can be time intensive and can ultimately fail, especially if management changes for either partner. 07
  • 8. How PwC can help For more information on issues affecting academic medical centers, please contact: Kelly Barnes Partner, Health Industries Leader 214 754 5172 kelly.a.barnes@us.pwc.com Robert Valletta Partner, Healthcare Provider Leader 617 530 4053 robert.m.valletta@us.pwc.com Tell us how you like 10Minutes and what topics you would like to hear more about. Just send an email to: 10Minutes@us.pwc.com. Related reading: The future of academic medical centers: Strategies to avoid a margin meltdown pwc.com/us/AMCfuture pwc.com/HRI pwc.com/HealthReform © 2012 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. 10Minutes® is a trademark of PwC US. PwC US helps organizations and individuals create the value they’re looking for. We’re a member of the PwC network of firms with 169,000 people in more than 158 countries. We’re committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com/us. LA-12-0269 10Minutes are now available in 60 seconds. Download the FREE 10Minutes app. Learn more through videos, interactive graphics, slideshows, and podcasts. Follow us on Twitter at twitter.com/PwCHealth