Academic Medical Centers Adapting with New Business Models

May 06, 2019 - Academic medical centers (AMCs) will have to implement new business models to remain profitable and competitive in the wake of healthcare consumerism, new industry entrants, provider consolidation, and technology disruption, PwC’s Health Research Institute states in a new report.

AMCs serve a crucial role in the healthcare industry. The organizations account for $562 billion in healthcare spending and treat some of the sickest and most vulnerable patients in the country. Research shows that AMCs deliver 37 percent of all charity care and 26 percent of all Medicaid hospitalizations, as well as receive on average 38 percent of transfers from hospitals that cannot care for complex patients.

At the same time, AMCs help train the nation’s healthcare workforce and the industry depends on the facilities to develop and test medical and procedure innovations, the report explains.

However, new industry pressures are challenging their crucial role, AMC executives and thought leaders told the Health Research Institute in a recent survey.

New entrants to the healthcare industry are “skimming the cream,” resulting in AMCs seeing sicker and costlier patients, the executives and leaders agreed. Healthcare mergers have also created more powerful non-academic regional competitors, while AMCs are struggling to afford and integrate artificial intelligence, robotic process automation, and other new technologies.

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Furthermore, AMC leaders explain that their organizations cannot quickly respond to consumer demands and other changes in their markets because of their size, complicated missions, complex governance structures, faculty dynamics, higher cost structures, and fixed assets.

Although, AMCs are expanding their clinical missions in response to new industry trends.

The survey found that 30 percent of AMC executives are broadening their clinical mission to include holistic and wellness care.

Seventy-three percent of AMCs also intend to invest in extended care teams that include clinical pharmacists, nutritionists, mental health professionals, and physical and occupational therapists.

Additionally, AMC leaders are looking to add to their research and education missions. The survey showed:

• 80 percent of AMC executives plan to align their research pipeline with clinical and business strategies
• 70 percent of executives intend to improve the health of entire populations in the next five years
• 93 percent of executives said their affiliated medical school is emphasizing training in community health
• 61 percent of executives are already training their current workforce to establish new capabilities, such as digital and data analytics, for how healthcare will operate in ten years

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While AMC executives are investing in new capabilities to remain competitive and profitable, the Health Research Institute finds that the organizations cannot “afford to do it all.” The organizations will have to also invest in new business models, researchers state.

“For AMCs, this evolution is especially important; if they instead choose the status quo, their margins are at risk of remaining small or eroding, meaning they may not have the same opportunity to achieve value around training and research as they do today,” they write in the report.

New business models for AMCs

Researchers advise AMCs to consider a hybrid of two of more of the following business models: product leader, experience leader, integrator, and health manager.

The product leader business model entails an AMC leading their market by providing the most advanced care at the highest quality. AMCs adopting the business model will also focus on research and innovation, like telemedicine, and connect with community hospitals and clinics to receive referrals.

Examples of AMCs using product leader business model include MD Anderson Cancer Center in Texas, as well as Mayo Clinic in Minnesota and Cleveland Clinic, which both work with employers across the country to deliver specialty health services for employees.

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The majority of AMC executives surveyed by the Health Research Institute reported becoming some version of a product leader in the future. Although, they also agreed that being a product leader alone is inadequate.

AMCs may also consider becoming an experience leader. Experience leaders excel at delivering unparalleled patient experiences and the AMCs are known for their ability to retain patients through greater access, convenience, and service, the report states.

For example, the University of Texas Rio Grande Valley is an experience leader because its medical school curriculum is centered on customer experience.

AMCs could also implement the integrator business model, researchers add. Integrators pride themselves on being low-cost providers through risk-based arrangements. The AMCs combine care and coverage to offer greater convenience and affordability.

Kaiser Permanente could be a future integrator, researchers add. The health system/health plan is investing AMCs and their wide scale and scope would make their AMCs prime examples of integrators.

Finally, the health manager business model includes AMCs that will focus on improving the health of entire populations. Health managers are known as for their efforts in population health management and risk-based contracts, as well as their abilities to manage not only acute health needs, but also social determinants of health.

Health managers, like Southwestern Health Resources, are using accountable care organizations (ACOs) to improve population health and transition to risk-based contracts, while newer medical schools like University of Texas at Austin Dell Medical School are primed to be health managers based on their community medicine and population health management focuses.

The combination of product leader and health management was the most popular choice among AMC executives, the survey showed. Some executives also anticipate an evolution over the next ten years in which the organization gradually develops the skills needed for all four business models.

But researchers stress that AMCs should analyze market dynamics to identify the most appropriate business model hybrid.

“Market dynamics play a large role in determining the future operating model of an AMC. Is it trying to compete on a national and international scale in a few select specialties? Or, is it focused on being seen as a leader across specialties locally and regionally?” researchers ask.

“Is it serving a mostly urban or rural area with a growing or declining population? What is the mix of fee-for-service and value-based reimbursement? Who has more leverage in the market—the providers or the payers? How consolidated are providers in the market? How strong and recognizable is the brand?”

AMCs part of health systems may also want to apply different business models to different organizations within the system, they suggest.