3 Threats Facing Academic Medical Centers

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Despite academic medical centers' reputation for innovative treatments and the ability to care for complicated conditions, 78 percent of consumers said they would not be willing to pay a higher premium to access care at an AMC, according to the PricewaterhouseCoopers report "The Future of the Academic Medical Center: Strategies to Avoid a Margin Meltdown."

AMCs are facing a few systematic setbacks that could hurt their profitability — up to 10 percent of traditional AMC revenue could be at risk due to external funding threats, according to the report. Since the average AMC operating revenue is 5 percent, these financial threats could completely eliminate profit margins for many AMCs.

The following issues are posing the greatest threats to AMCs today:

Rising budgetary and political pressures. The Patient Protection and Affordable Care Act will change the AMC's payor mix, leaving Medicaid as a larger source of revenue and commercial payors less dominant. Cuts to Medicare's Indirect Medical Education funding could also leave AMCs hurting, as 70 percent of AMC leaders identified this as a threat to their institutions, according to the report. Other pressures include states reducing funding for indigent care and more Americans with health insurance, thus using more health services.

Low quality rankings and imprudent affiliations could harm the AMC brand. When The Joint Commission ranked the top quality performers of 2010, only a few major AMCs were included among the 405 hospitals. While this was only one setback to the brand, AMC leaders may be underestimating the significance of quality standards and rankings.

Only 49 percent of major AMCs felt that not meeting new quality standards posed a threat to their organization, according to the report. With recent legislation strengthening the link between quality and reimbursement, AMCs may put the latter at risk by not aggressively driving quality improvement.

Old AMC structure is not designed to overcome new challenges. "The highly decentralized governance structures at AMCs threaten their ability to respond to the challenges of the current and future healthcare environment," according to the report. Since AMCs are generally comprised of numerous related entities — a medical college, a research center and several hospitals — governance is complicated and change can be slow.

The report found AMC leaders are hesitant to address issues related to AMC governance. When asked how their organizations planned to manage internal and external challenges, 28 percent said by creating one governance structure and 11 percent said by consolidating academic departments or centers. Instead of altering governance structures, more leaders listed streamlining operations (82 percent) or integrating EMRs (74 percent) as strategies to solve challenges..

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