Editor’s Note: Partnering with the Association of American Medical Colleges (AAMC) Advisory Panel for Healthcare, Manatt Health has produced a new report, “Advancing the Academic Health System for the Future.” The report focuses on eight primary themes developed from interviews with 13 institutions that are representatives of emerging leaders in clinical care. It serves as a real-world tool for assessing where institutions are today—and how they can move to a sustainable model for the future in a transformed healthcare environment. In the second in our series based on the report, below is a summary of the first chapter on the rapidly consolidating hospital market and the emergence of the system model. To download a free copy of the full report, click here.

Consolidation among hospitals is creating larger integrated delivery systems, many of which also are pursuing vertical integration to become or partner with payers. From coast to coast, the pace of system formation is accelerating, encouraged by health reform initiatives, including Accountable Care Organization (ACO) development and other value-based models, such as episodic/bundled payment programs. The acceleration also is encouraged by increasingly challenging economics for providers, including Medicare and commercial reimbursement cuts, as well as the rapidly changing insurance marketplace. The implications of rapidly consolidating markets are profound, leaving Academic Medical Centers (AMCs) with four main options:

  • 1. Forming a true system of care, through a mix of owned assets and aligned partners in a local and/or regional market.
  • 2. Partnering with others in their region to form a collaborative network model.
  • 3. Merging into an existing system as the “academic brand” for the larger system.
  • 4. Shrinking into isolation.

Systems of Care

Assembling these new large systems of care is one step toward transformation. Making them operate efficiently to deliver optimal clinical services is another. Both steps require large financial investments, necessitating operating scale or new sources of capital. These substantial investments support the myriad of requirements for improving population health, including the development, acquisition and implementation of primary care services, clinical informatics, risk-bearing vehicles (such as HMOs and ACOs), population health management capabilities, health information exchanges, provider health plans, medical homes, community-based services, chronic disease management, hospital-to-home transition programs, remote monitoring and advanced information technologies.

Successful systems include integrated physician networks that can emulate the attributes of high-functioning group practices, including using evidence-based protocols, coordinating around the patient and sharing economic incentives. Success will require both clinical informatics and highly engaged clinical leadership.

These extensive requirements are leading some AMCs to forge partnerships with for-profit healthcare organizations. The combination of an AMC’s specialty services expertise and its partner’s access to capital can be exercised in a joint venture model for acquiring independent hospitals.

In addition to creating regional systems of care, some AMCs are expanding their scale by creating high-value centers of excellence that extend beyond their geographic region and attributed population. By expanding their core complex care services from local areas to regional, national and international markets, AMCs can optimize their local population approach to support the entire system.

Five Levels of Integration

The greatest challenge for any system of care is achieving the high degree of integration required to support effective systems-based collaboration and efficiency initiatives. Health systems need five levels of integration to succeed:

  • 1. Organizational integration, including governance, organizational alignment, brand experience, physician alignment and a shared academic mission.
  • 2. Financial integration, including aligned financial incentives, cost management, confidence in new payment models, population management and economies of scale.
  • 3. Clinical integration, including a continuum of services, access to services, care coordination, medical homes and innovative delivery models.
  • 4. Information integration, including a reporting infrastructure, electronic health records (EHRs), a patient portal, health information exchange and data warehousing/business intelligence.
  • 5. Community health engagement, including community health programs, linkage with Federally Qualified Health Centers (FQHCs), community health status and partnerships with payers.

Implications for AMC Leaders

AMC leaders who want to transform their institutions face significant challenges:

  • The innate conservatism and fragmented operating structure of AMCs often make them averse to the risk-taking necessary to succeed under alternative payment systems.
  • Chairs often are more focused on the success of their own departments than the success of the institution as a whole.
  • Educational inefficiencies are accepted as mission-necessary.
  • Faculty practices are hardwired for fee-for-service in terms of their structure, reward systems and specialty mix.
  • Business rigor is applied unevenly across the enterprise.
  • An inward-looking mentality may overemphasize resource control.

These challenges make preparing for a new paradigm as a healthcare system a serious—and often daunting—undertaking for AMCs. Leaders must become agents of change rather than protectors of the status quo. They must, therefore, rally all the constituents in their institutions around a far-reaching agenda for change. Effective AMC leaders are vigorously developing systems of care and pursuing integration.

In addition, AMC leaders are rebranding their institutions to communicate their system identity. Emory Healthcare, University of Iowa Healthcare, Penn Medicine, UAB Medicine, UCLA Health, VCU Health System, Yale-New Haven Health System and UNM Health System all connote systems of care rather than a hospital, physician group, campus or any defined location. The new brands signal a commitment to developing systems of care with an enhanced identity for the clinical enterprise and extended reach into the community and region.

As AMC leaders move toward a system identity, they must consider the following:

  • Rapid system formation is resulting in larger, more comprehensive and more complex academic health systems. The answer to “how big is big enough?” remains specific to each institution. Many leaders target 1 million to 1.5 million covered lives, in addition to the continued growth of specialty programs for broader regional, national and, in some cases, international audiences.
  • AMCs must determine how to be the locus for rapidly developing networks of physicians—employed and affiliated, faculty and nonfaculty—and other clinical and community partners. These networks are needed to sustain comprehensive systems of care that can take on population health responsibilities, compete with nonacademic systems in limited network models and maintain commitment to the academic mission.
  • Because of the extensive investments required to form and operate a leading system of care, access to capital is a determinant of success. It is likely that many institutions will need to partner with others to achieve the degree of scale and capital needed.