Critical Role of Academic Medicine: Part II

 

Dr. Emrick's Books and Articles

The Crucial Role of Academic Medicine

PART II:

Academic medical centers (AMCs) play a crucial and unique role in the U.S. healthcare system. They serve as hubs of innovation with a threefold mission: training future health professionals, conducting vital research, and delivering world-class patient care, often for the most complex cases. These institutions not only educate new clinicians and lead medical breakthroughs, but also act as safety-net hospitals for their communities, providing a disproportionate share of charity care—approximately 30% of all U.S. hospital charity care—despite comprising only around 5% of hospitals. This critical mission is their promise—to continually improve medicine and care for everyone—but today, it faces serious challenges from unprecedented financial pressures.

In recent years, several converging trends have pushed AMCs into a period of financial uncertainty. Operating costs have risen sharply due to inflation, staffing shortages, and higher labor and drug expenses, while reimbursement growth has lagged behind. As a result, profit margins have shrunk: for 45 leading AMCs, the median operating margin decreased from 3.7% in 2017 to only 1.5% in 2022. Many prominent centers are now operating at a loss, strained by reduced private insurance payments, gaps in government funding, and the costs of providing uncompensated care to uninsured patients. Workforce expenses have become unsustainable amid nationwide shortages of nurses and physicians, further worsening the financial pressure. If these issues are not addressed, they threaten to weaken the core academic missions. Indeed, one survey revealed that nearly one-third of AMC leaders fear they will have to cut funding for education and research in the coming years to stay solvent. Such an outcome would be disastrous for the healthcare system overall, as it would “negatively affect discovery, innovation, education, and [AMCs’] ability to provide quality care.” The challenge is evident and urgent. Fortunately, awareness of the problem is growing, and so is the commitment to act. Across the country, AMC leaders and policymakers are exploring solutions to ensure these institutions not only withstand this financial storm but also emerge stronger.

The first way to strengthen the sustainability of academic medical centers is by improving operational efficiency from within, and experts agree that this method works best when front-line clinicians take the lead. In a 2023 survey of 100 AMC executives, all reported launching performance improvement initiatives; yet, 88% believed there were still significant opportunities for further improvement. Notably, 83% highlighted untapped efficiencies in areas requiring substantial clinician involvement and change, such as reducing inpatient length of stay, boosting physicians’ productivity, and increasing operating room utilization. In other words, the most significant gains depend on doctors, nurses, and other providers helping to drive workflow improvements. It’s no surprise that “clinician engagement is crucial to longer-term success” in any hospital performance program. Administrators alone cannot identify and implement all the necessary changes on the front lines of care; the insights and support of clinicians are essential.

Encouragingly, many academic centers have already launched clinician-led efficiency initiatives, and some are seeing promising results. Common focus areas include optimizing staffing, streamlining clinical operations, and improving revenue cycle processes. Nearly all AMCs surveyed are working to improve at least 10 different performance areas, particularly in clinical operations—such as reducing patient stays, increasing OR throughput, enhancing the patient experience, and expanding physician clinic access—as well as in revenue management, including improving billing and payer contracting. Several institutions that have adopted a comprehensive, structured approach to transformation have achieved significant financial gains. For example, some AMCs of various sizes increased their operating margin by 5–8% within three years through a mix of cost reductions and revenue growth. They accomplished this by trimming excess costs (e.g., adjusting staffing levels for clinical and nonclinical staff, consolidating vendors for supplies) and boosting revenue (attracting more patients through digital “front doors” and referrals, expanding physician capacity by reducing administrative burdens, enhancing patient throughput, and optimizing coding and contracts). Most importantly, these financial improvements did not occur at the expense of quality or staff morale—in fact, successful programs often report better patient outcomes and a more positive experience for both patients and staff. In Part III, I will present a couple of case studies illustrating how clinicians' leadership improvements are enhancing system performance.

Levine, E., Malani, R., Odden, A., & Schulz, J. (2024, April 4). Ensuring the financial sustainability of academic medical centers. McKinsey & Company. https://www.mckinsey.com/industries/healthcare/our-insights/ensuring-the-financial-sustainability-of-academic-medical-centers