Academic medical centers: Down but not out

With headlines every week reminding us of the plight of America's educational system today, it's no surprise that academic medical systems are in a life-threatening state as well. But don't rule them out as a viable alternative in the medical profession. My research on the subject, prompted by an upcoming speaking engagement, led me to the conclusion that, as Mark Twain would say, the reports of their deaths have been greatly exaggerated.

Several factors are creating challenges for academic medical centers (AMCs):

· Lower reimbursements by managed care organizations.

· An increasing reliance on funding based on patient care vs. research activities.

· The costs and uncertain reimbursement for education of medical and other health care students.

· Budgetary cutbacks by the government.

Last summer, Washington established the new budget-cutting targets for Medicare. The total to be trimmed is $115 billion, $36 billion of which will come directly from budget cuts to hospitals. Academic medical centers, already having difficulty coping with lowered reimbursement from managed care, now face more cuts. At UCLA's medical center in southern California, for example, this new Medicare budget will lop off $10 million from an annual operating budget of $650 million.

· Bureaucratic hassles.

The inefficient bureaucracies present in the state government that controls some hospitals hamper many AMCs. In Kansas, the Board of Regents controls the University of Kansas Medical Center in Kansas City. Because of this control, the Medical Center has to operate like a state university and is precluded from cutting checks on site and otherwise operating as a stand-alone institution.

· Competition from community hospitals.

Revenues generated at AMCs also are down as a result of competition by community hospitals. Not too many years ago, the sickest patients and those needing tertiary and quaternary care sought that care at AMCs because it was not available in the local community. Now many community hospitals have all the same programs as those found in the AMCs, including burn treatment, transplants, and experimental treatments for cancer.

· Indigent care.

In many cities, a great deal of indigent care is provided by teaching hospitals. As the number of uninsured and underinsured continues to climb, this unreimbursed care will become an even larger problem.

These factors all contribute to the death grip that has a hold on many institutions, but it doesn't have to be the end for academic medicine. Academic medical centers are employing multiple methodologies in their struggle to survive, including:

1. Selling to the for-profits.

This trend is not as new as some may think. Thirteen years ago, because of diminishing revenues and expanding commitments that threatened the facility's existence, St. Joseph Hospital (the teaching hospital of Creighton University in Omaha, NE) sold itself to American Medical International, Tenet Healthcare's predecessor. At the time, St. Joseph maintained that it ideally would have preferred to partner with other Catholic facilities in the Omaha area, but was unable to reach any agreement. Ostensibly, the other Catholic hospitals demurred because of the large amount of indigent care provided by the teaching facility.

Tenet Healthcare also has other arrangements with academic medical centers throughout the county. These arrangements include the long-term leasing of the center by Tenet, or a long-term contract providing management of the academic medical center by Tenet. Both relationships allow the academic medical center to access the managerial and systems expertise of Tenet Healthcare as well as other opportunities afforded by economies of scale such as the purchasing of supplies.

2. Merging with other for-profits.

Some academic medical centers are enhancing their ability to survive by merging with non-academic community hospitals. The classic example of this was the merger five years ago of the Barnes, Jewish and Christian hospitals in St. Louis. These mergers created the largest system of hospitals in the St. Louis market and enabled Barnes to maintain its not-for-profit status. It is interesting to note that in the case of Barnes Jewish Christian Hospital, the system chose as its CEO someone with CEO experience at a community hospital. The verdict is still out on the success of this merger. While the merger seems stable, the system has had problems integrating with its physicians, both academic and community-based. In addition, there is marked intrasystem competition between the AMC-based specialists and the community-based specialists.

3. Developing ties with or placing system-owned physicians in community-based feeder systems.

In an effort to increase community referrals, many centers are trying to establish closer ties with primary care physicians based in the community. These ties can either be direct - where the center employs and supports the community primary care feeder clinics - or indirect, where the center develops relationships with primary care physicians already practicing in the community.

UCLA's academic medical center is an example of a system that successfully employs this strategy. In the last year and a half, UCLA has opened up 15 primary care clinics. Many of these feeder clinics are located not in the neighborhoods with a high indigent population, but in the more wealthy areas of Los Angeles such as Malibu and Beverly Hills. Through these clinics, UCLA is being directly fed referrals. As a result, the university health system's revenues increased 9% in one year, the system has generated some $20 million in profits, and 80% of its beds are filled. This is in a part of the country where managed care frequently pays as little as 50 cents on the dollar.

Other centers that have followed the same approach are Johns Hopkins, the University of Pennsylvania, the University of Pittsburgh, the Medical College of Virginia, and the University Medical Center in Jacksonville, FL. In fact, a recent poll by the Association of American Medical Colleges found that 60% of its members are buying up community-based primary care practices.

The University of Kansas Medical Center has placed feeder clinics in the community in addition to establishing relationships with a large primary care-driven community-based independent practice association (IPA). KU owns a smattering of primary care practices. It is currently working with the IPA to explore opportunities for joint contracting, integrating community-based physicians with the academic-based physicians for network development, and educating community-based primary care physicians about the special services available only at the medical center.

In addition, the University is reaching out to the community-based primary care physicians by offering to assist them in developing wellness and alternative medicine programs at their office. Finally, KU is building an outpatient ambulatory care center in an affluent county in the Kansas City metro area.

Specifically, it is KU's hope that the community-based primary care physicians will be more likely to send their patients to a new facility located in a part of town that's growing in population. In an effort to make the new ambulatory care facility more attractive to community-based physicians, KU is enlisting the aid of some community-based physicians in the planning and development of the site.