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Academic Medical Centers: Disrupt, Transform and Grab the Mantle of Change

athenahealth Inc. | Published: March 2014

Executive Summary

We convened top academic medical center leaders for our AMC Leadership Roundtable in October of 2013. We also conduct regular discussions with a wide array of health care executives, including leaders of health systems, medical groups, insurance companies, and academic institutions. This white paper shares some of the key themes that have emerged from those meetings.

Academic Medical Centers face huge financial pressures on their clinical, education, and research activities. But health system leaders and physicians cannot sit idle and mourn that things are no longer the “way they were.” The winners of the future state of health care will be those that radically transform their philosophy and approach to achieving their important missions. Leaders must not become paralyzed by the change sweeping the industry, nor can they afford to rest on the value of their brand and reputation. Instead, they must focus on what they have power over, question long-held assumptions, and disrupt entrenched models and mindsets.

We suggest four critical steps:

  1. Align margins to fuel the mission.
  2. Focus relentlessly on achieving and measuring quality.
  3. Reconsider “conventional wisdom.”
  4. Plug holes and pick low-hanging fruit.

Powerful Waves Rocking AMCs

These are tough times for academic medical centers (AMCs). In fact, “tough times” is probably a gross understatement of the headwinds they face:

  • Declining government reimbursement rates
  • Pressure on commercial reimbursement rates
  • Declining share of commercial payers
  • Overall reduction in utilization of acute care services
  • Influx of Medicaid patients
  • Decline in safety net and disproportionate share payments
  • Narrow networks in health exchanges cutting out access
  • NIH funding remaining scarce
  • Philanthropic dollars drying up
  • Challenges with cross-subsidization with hyper-focus on keeping clinical rates competitive

AMCs are facing a perfect storm of turbulent change as they struggle to balance their triple missions of providing medical education, driving life-changing research, and providing clinical care to the communities they serve. More than ever, there is also a magnifying glass in both traditional and social media on both cost and reputation. The public requires more transparency and accountability than ever before for pricing, health outcomes, and community impact.

Radical Course Corrections Are Required

As one set of physicians recently posed the question in the New England Journal of Medicine: do academic medical centers “face a growing risk of extinction?”1 Certainly, the tenor among some leaders is a sense that the sky is falling. The responses to the challenges AMCs face range from outright denial of any problems, to raising the drawbridges in stubborn defense of entrenched strategies. Other leaders are calling for belt tightening, reducing headcount through attrition, or trying to wring incremental savings from contracts or current supply chains.

While these are all understandable reactions, they are not nearly enough to stem the tide of such a profound shift. Change is occurring, and the change will require radical transformations within AMCs. The underlying question is, “will you disrupt yourself, or wait to be disrupted by others?”

Witness other industries where disruption has already occurred: Netflix disrupted Blockbuster and is now taking on the mainstream networks; Apple disrupted Blackberry and Nokia with its iPhone and Windows PCs with its iPad. In health care as in these other industries, leaders who want to shape their own destiny will focus on what they have power over, rather than what they are powerless to control. For example, regulatory, CMS, or market issues may be factors only addressable at the lobbying level. However, there are four very critical steps to success AMC leaders can implement now that will determine their organization’s future.

1. Align margins to fuel the mission

Prepare to rethink cross-subsidization.

Many AMCs have a higher cost base because teaching, training, research, and treating the indigent all load up the cost base relative to a purely commercial enterprise. As one AMC leader explained at athenahealth’s 2013 AMC Roundtable event, “Our cost structures are very high. And even the most efficient academic medical centers cannot get their cost structures down to a good community hospital.”2 Simply chipping away at costs for support or supply chain or even staff will not fix this ultimately unwieldy cost base. Leaders must decide what their core priorities are and how they will be funded. And they will have to assume that cross-subsidization cannot work in the way it worked in the past. Commercial rates cannot cross-subsidize public rates, and clinical work in general cannot subsidize all the other work of the institution at anywhere near the levels that were the norm in the past.

Charts like this one below, which appeared in Time magazine3, directly comparing procedure costs in various hospitals, will not differentiate academic medical centers from the rest or give them a pass based on their unique missions. AMCs must figure out how to drastically change the cost bases underlying these prices. Another AMC leader shared that, “Volumes are down and we have planned that we have to reduce our expenses by about $1 billion, or 25 percent, over the next five years.”4 If others can’t take down the cost level like this AMC is doing, then they might have to move to investing further in the most acute sub-specialty areas where they do not compete with anyone who can undercut them in price. Cleveland Clinic, for example, has focused on expanding regional markets for delivering cardiovascular services so that they can stay specialized, and operate at a higher frequency and higher quality than many other providers which don’t see enough cases to be efficient.

Hospital Prices Vary Wildly

Hospital Prices Vary Wildly

Prepare for an outpatient-centric future. Re-orient around a high performing medical group.

Hospitals have historically assumed part of their mission is to build capacity – bigger and newer buildings are always inherently a sign of success. But now there is overwhelming data showing that care is moving out of the hospital setting. In Health Affairs online, Kaufman Hall consultants Mark Grube, Kenneth Kaufman and Robert York shared study results showing that value-based payment models are causing the significant decline in hospitalization rates in some markets. In Minnesota, for example, Kaufman Hall’s analysis shows that the rate of inpatient admissions per person fell 13 percent from 2006 to 2011.5

MedPAC data also show cumulative inpatient discharges per fee-for-service (FFS) Medicare beneficiary declined 6.0 percent from 2004 to 2010. “Capacity planning and major building projects that are in the early stages need to be rethought and reevaluated by hospital leadership teams. Organizations can no longer sustain the costs associated with overbuilding or duplicating expensive services in many locations,” Grube, Kaufman, and York wrote.6 Note that while many AMCs see themselves as the premier tertiary facility in their market, many will need to make the shift to new models of care. For example, in Philadelphia, there are 7 organ transplant units, and it is not sustainable for this to continue. Shifting the mission to focus more on outpatient than inpatient will make sense for all but a select few AMCs. As one AMC leader remarked, “we need to develop some cohesiveness, strategy and standardization across the outpatient practices as we expect the market to move in that direction.”7Medical groups manage populations of patients—hospitals do not. Though many AMCs are aggressively acquiring physician practices resulting from this shift to outpatient-centric care, which may make sense in the short term, the long term financial goals of this strategy will only be achieved if the employed group is high-performing.

Rally physicians by explicitly connecting the business model to the mission.

Academic medical centers often have a hard time putting talk of margin front and center when they know their mission-driven employees often believe talk of margin and revenue detract from the core work of teaching, research, and providing care. So, AMC leaders often find themselves in a bind. On one hand, if leaders talk about margin, they are seen as only focused on saving a dollar, and encounter detachment from their employees. On the other hand, if leaders want to be seen as agreeable and don’t talk about margin at all, they encounter skepticism from employees who know a real solution isn’t in place to save the organization from an uncertain financial future.

One AMC recently made local news headlines in their city: “XX to cut more jobs, offer buyouts: medical center will trim 250 million from budget by 2015.” The entire article referred to downsizing, cost-cutting, hiring freezes, etc. Nowhere in the article was there a single sentence explaining how the mission would be advanced by this course of action. The danger is that many employees also view cost-cutting in the same way the public and media do – as an end in itself. Contrast the earlier headline with one in the Boston Globe this January: “Partners promises a new model of healthcare; Tells US investors that expansion will cut costs, improve coverage.”8 AMC leaders must own the narrative by transparently explaining not only what areas they might be divesting from or cutting back in, but also what areas they are investing in, making significant new hires in, or how they are implementing new technology to accomplish the mission. It is a key part of the role of AMC leaders to continue to find a way to draw a clear line of sight to their mission. Only then will they have the employee buy-in to follow through on all the organizational changes required by the new priorities. Leaders must rally their people to a vision that embraces change as an essential part of staying committed to the mission.

Real change looks like: Indiana University Health
IU Health, located in Indianapolis, IN, has 3,707 physicians and 18 hospitals in network

Consolidate Consolidated obstetrics between two downtown locations. Historically, one location handled more routine OB, the other handled more high-risk. Initial fears of hurting patient safety or student education subsided after physician leaders took control in shaping the new department.
Go Outpatient Zeroing in on the most effective inpatient access points while pursuing strategic opportunities to move care to outpatient settings in the community. New focus of emergency services will be to “receive, treat, and transfer.”
Lead With Data Service line leaders are reviewing each facility doing open heart surgery, tracking time to step down, readmission rates, anesthesia costs, etc. Better data enables leadership to identify high performers and outliers and to standardize clinical protocols to increase efficiency.
Stop Building Had been building a new inpatient center for several years that would have cost $500 million and added 250 beds. Despite pressure of sunk costs and municipal hopes for increased employment, IU delayed construction based on new strategic goals to address the more immediate need for care out in the community.

2. Focus relentlessly on achieving and being able to demonstrate real differentiation in quality.

Metrics now matter more than reputation.

For the past few decades, there has been a price premium associated with academic medical centers that insurers absorbed because consumers, and the employer groups that purchased insurance for them, insisted on having access to these elite centers of clinical knowledge. The prestige associated with discovering cures, winning Nobel prizes, and having faculty positions at leading universities, meant that patients felt they would get better health care at these institutions than anywhere else. In the past, measuring quality was difficult, and even when one institution developed a measure, it was hard to compare apples to apples across institutions. Today, that is no longer the case as there are increasingly more sophisticated quality measures that buyers can use to evaluate hospitals. As one study concluded, “High-price hospitals, compared to other hospitals, tend to be larger; be major teaching hospitals; belong to systems with large market shares; and provide specialized services. High-price hospitals fared much better than low-price hospitals did in U.S. News & World Report rankings, which are largely based on reputation, while generally scoring worse on objective measures of quality, such as postsurgical mortality rates.”9

Even if the individual consumer does not have the savvy to go on HHS’ Hospital Compare website and analyze the clinical outcomes between hospitals, the employer groups and their insurance brokers can. Academic medical centers have already acknowledged they often have a higher cost base, and therefore higher prices, than other institutions. If they are the highest quality in their market, they may still be able to command that premium. However, if they are at anything other than the top of the metric, it will be only too easy for employer groups to now have enough data to justify going to a lower cost provider group and leaving academic medical centers out of their products. This is already a concern for some of the mid-tier offerings on the newly set up state exchanges. According to a recent McKinsey study, of all lowest price offerings on the exchanges, AMCs are participating in 44%, compared to 91% participation in the highest-price insurance products. McKinsey estimates that “participation of an AMC results on average in a 10 percent increase in premium across network breadths – $303 per member per month for products with AMCs compared to 275 for products without.”10 Exclusion even from highest-level insurance tiers will increasingly become an issue. In the age of data, cost-cutting and heightened scrutiny, AMCs will need to prove value with quality metrics and demonstrate and communicate excellence as a matter of course.

Consistency and transparency in reporting and clinical practice will be key to improving quality.

AMCs often have the most prestigious names in our major cities, but surprisingly, they are not consistently at the top of quality rankings. Many AMC leaders argue that is because they have a disproportionate share of the highest acuity patients and that the rankings don’t reflect that. To the degree that is true, they need to devote resources to measuring acuity and submitting claims accurately so that the rankings are appropriately adjusted for severity of illness. Apart from that, many AMCs need more of a “back to basics” focus on patient satisfaction, infection rates, fall rates, etc., that sometimes get short shrift in the whirlwind of complex care provided in these settings. Additionally, star specialists are often less willing to follow protocols or evidence-based medicine, and may need to learn to “play by the rules” to create consistently high quality outcomes. One AMC leader described that of 19 hospitals at his system, only 9 used common technology systems. Regarding clinical protocol standardization, the same AMC leader said there’s no real standardization between how those hospitals are doing clinical protocols, particularly amongst academic physicians, because “they’re not especially interested in standardized protocols.”11

Real change looks like: Wayne State

Wayne State University Physician Group is located in the Detroit area of Michigan. The physician group employs the physicians affiliated with the Wayne State University School of Medicine, serving several area hospitals. Comprised of 650 employed physicians, including 590 specialists and 60 primary care physicians.

Diversify Patient Base 60% of patient base was downtown two years ago, now 40-50% is downtown, after WSUPG actively increased outreach to suburban areas, thereby improving payer mix.
Invest In Quality Plan to hire a team of quality, informatics, data science, and training personnel to build an “analytics center of excellence.” “We have a fire hose of data and we have to identify what data is most important at the intersection of cost and quality of care.” Payments from payers for hitting quality targets already resulting in positive ROI. Team preparing to handle bundled payments.
Design For The Future New building designs include much smaller waiting rooms as improved patient scheduling and patient access is intended to use less space and lower patient wait times.
Go Virtual Developing telestroke, telepsychiatry options to overcome lack of availability of specialists in this market. Working on offering some hospital partners system-wide solutions for pathology, genomic, biochemical needs. Virtual solutions supersede geographical constraints, make IT investments pay off sooner, and add new revenue potential.

Consistency in reporting and clinical practice will also increase the AMC’s capabilities to deliver population health. This is especially urgent if the hospital is at financial risk in performance contracts with payers. It is equally important even if not at risk in order to avoid CMS penalties down the road and to deliver care in an environment where all reimbursements are expected to continue to decline. Population health management tools must be put in place to a) identify and bring in the patients needing care, b) coordinate care across the health system, and c) analyze results to inform ongoing population health programs.

In terms of “perception of quality”, nobody has further to fall than the AMC. An executive from a large forprofit health system pointed out that when a patient falls out of bed and breaks a hip at an AMC, the family tends to believe, “Boy, good thing we’re at the AMC.” The same event happening at the health system with the less burnished reputation tends to instead evoke, “Boy, I knew we should have gone to the AMC.” However, this perception (and the related benefits to the AMC) won’t last forever if increasing transparency starts to show no advantage in quality.

It is worth noting that only a decade ago, quality in health care referred strictly to clinical quality. Now, however, it is evolving to mean not just quality of outcomes but quality of patient access, coordination, experience, and satisfaction. AMCs have historically not been great at creating “red carpet” experiences for patients. Patients need to be able to schedule easily across the AMC’s entire system and have their data move seamlessly across multiple care settings. If AMCs are creating the best patient access program, proactively reaching out to patients and giving them a red-carpet experience of care through their system, they will build patient loyalty.

Quality needs to be a continuous process of improvement.12

All institutions care about quality, but to justify their often higher pricing, AMCs will need to show real commitment to quality and improvements over time to “stay in the game”. One hospital system asked its lower scoring hospitals to learn from the hospitals that had the best clinical quality data. If the other hospitals were not able to raise their scores, this became a deciding factor to determining which hospitals or units were likely to be closed down upon a reduction in bed capacity across the system. If AMCs are more expensive because they have more resources or because their staff is more skilled, then they need to find a way to have that produce demonstrably superior quality.

For example, one study last year concluded that hospitals with higher nurse staffing ratios had lower readmissions penalties than hospitals with lower nurse staffing.13 Another study concluded that hospitals where more nurses had baccalaureate degrees also had lower rates of post-surgery mortality.14 AMCs need to leverage their unique resources relative to their competitors to show that they produce demonstrably better outcomes for patients.

3. Reconsider “conventional wisdom.”

After AMCs have fundamentally re-evaluated the most critical tasks and priorities to focus on, they need to consider dramatically new ways to achieve them. Consider radical changes to how things have been done in the past rather than just small incremental changes.

Here are some examples:   

  • Medical training: Is there a better way to train? Instead of four years of med school, could it be three? It would reduce student debt and reduce teaching time, and is already being attempted at a few med schools, including NYU and Texas Tech. “In an era when unnecessary medical services are being intensely examined to reduce costs, similar critical attention should be applied to eliminating waste from medical training,” wrote authors Ezekiel Emanuel and Victor Fuchs in their call for medical education nationwide to be shortened by 30% by 2020.15
  • Compensation Structure: Is there a better way to pay? Specialists earn more than primary care, executives make more than specialists. AMCs need to be more transparent and be able to justify compensation, especially if the New York Times writes an exposé on your institution as they just did to a hospital in Arkansas. As the Times reported, dermatology compensation was on par with internal medicine 30 years ago and is now double in salary. Can your health system explain that cost structure to the public, to the press, and to payers?
  • Management teams: Is there a better way to manage? Star researchers came up in the hospital hierarchy through silos and then became heads of siloed units that led to dysfunctional senior teams. Senior management meetings are often really collections of fiefdoms as opposed to real teams. That situation is amplified by hospitals that have more frequently been hiring CEOs from outside health care, who are even less willing to tolerate the politics and culture clashes of these fiefdoms that hospitals often take for granted. This historically common lack of real teaming needs to be improved so that senior leadership is effective at organizational decision-making and change management.
  • Medical Groups Is there a better way to achieve alignment? Historically, many hospitals acquired physician practices and assumed they would gain referral volume, but this did not always follow or not to the levels to make acquisition worthwhile. Medical groups now will need genuine alignment if they are to deliver on population health goals. This will require sharing a vision, establishing proper governance, aligning incentives, and being transparent about standards and expectations.
  • Technology Investments Is there a better way to run IT? Many AMCs historically assumed that if you invested more bodies and more dollars in technology you would have better systems than your competitors. This might have been true in the past but is no longer true today. AMCs are in danger of being stuck in the same mindset they had when they were operating in a very different financial and technological era. Relative to their competitors, AMCs have allowed excessive amounts of customization in the past, always arguing that they were different. This has increased costs, increased risk, delayed time to value and resulted in many institutions boxing themselves into a corner. Sinking huge capital expenditure dollars into legacy software is unlikely to be the best use of resources. Flexibility to thrive in an evolving reimbursement environment will require having a nimble technology platform that can continuously evolve to meet new payment models and programs.
4. Plug holes and pick low-hanging fruit.

Most leaders of AMCs are the first to admit that their institutions are not beacons of efficiency. As one physician leader said, “We do need to make big changes in strategy, but first we just need to plug the holes.”16

Some areas to focus on:

  • Maximize operational efficiency: AMCs need to find additional efficiencies and drive operational performance, through goals like increasing collections, reducing accounts receivable, achieving meaningful use incentives, and decreasing no show rates.
  • Get referrals under control: One AMC leader told us “we didn’t even know how bad our referral rate was until last year; we didn’t have the analytics to look at that so we were just flying blind.”17 This hospital had acquired a large group of doctors, at a cost that many studies estimate to be about a net loss of $150,000 per annum. But data from athenahealth’s cloud-based network showed that 40% of their referrals were still going out of network. Hospitals need to be able to accurately measure leakage and get a handle on referrals.
  • Improve coordination of care across the network: Another leader said, “We need to do a better job of communicating and creating that back and forth and a bit more glue with our referring physician groups.”18 All caregivers at AMCs must be able to easily coordinate care within their provider community through simple data exchange. There must be infrastructure in place to effectively manage patients under ACOs and other risk-based payment models.
  • Making clinical care data usable for research: Better data will also allow for more synergies with research. Once Duke University Health System, for example, migrated to a single comprehensive electronic health record platform, “this allowed us to convert health data from a byproduct of care delivery into a central asset for improving research.”19

Leaders must put systems in place that yield visibility and actionable insight needed to track and influence EMR adoption and best practices, optimize efficiency and productivity, and drive performance throughout the enterprise. AMC leaders know this, but there is still a lot of waste and it is unaffordable in today’s environment. Lean times call for closely managing resources and investments.

How much low-hanging fruit is there, exactly?

Based on average pre/post data from athenahealth’s cloud-based network of more than 50,000 providers:

Collections 8% increase*
No Show Rate 8% decrease**
Days in Accounts Receivable 29% reduction*
Referral Out-Migration 10% boost in in-network result rates (for one health system client)
EHR Adoption rate 97% achieved***
Meaningful use attestation rate 96% achieved in 2012 (compared to just 44% nationally)

* Based on a weighted average for athenahealth clients with valid pre-athenahealth benchmark data that had their 15-month anniversary with athenahealth through 9/30/2012.
** Based on a comparison of the highest no-show rate among clients with athenaCommunicator® and the average rate for appointments without the service for the year ending September 2012.
*** Percentage of athenaClinicals users who close more than 80% of encounters electronically (98% close all of their encounters electronically).


Before they are disrupted by lower cost players who find ways to demonstrate high quality care delivery, AMCs need to move quickly in the areas where they do have differentiated core competencies, differentiated core assets, and more control. The only way to avoid disruption will be if AMC leaders pro-actively drive accountability and results throughout their organizations. The right information systems will allow for constant evolution as data needs change over time. And the right systems will not just make data visible to leaders, but they will influence decision making at the point of care. The right data enables benchmarking and with appropriate cohorts can drive good behavior. Leaders must get really good at communicating differentiated quality—a level of quality no patient wants to be denied access to. And they need 100% visibility and actionable data, as they can’t manage what they aren’t measuring.

Leaders must paint the vision and share frequently, and get the right governance in place. Aligning incentives and ensuring the medical group is high-performing will be critical to organizational success. Leaders urgently need to create appetite and momentum for change, and learn from other industries that have faced disruption. As Mark Laret, chief executive officer of UCSF Medical Center and UCSF Benioff Children’s Hospital, said at the University of California’s Center for Health Quality and Innovation 2013 Spring Colloquium, academic medical centers “must embrace profound, meaningful changes to time-honored, treasured and now increasingly ineffective and unaffordable ways of carrying out our missions.”


  1. “Transforming Academic Health Centers for an Uncertain Future,” Victor J. Dzau, M.D., Alex Cho, M.D., M.B.A., William ElLaissi, M.B.A., M.H.A., Ziggy Yoediono, M.D., M.B.A., Devdutta Sangvai, M.D., M.B.A., Bimal Shah, M.D., M.B.A., David Zaas, M.D., M.B.A., and Krishna Udayakumar, M.D., M.B.A., New England Journal of Medicine, Sept 12, 2013, p. 991.
  2. athenahealth’s AMC Advisory Roundtable event, October, 2013.
  3. Brill, Stephen. “Bitter Pill: Why Medical Bills Are Killing Us”. Time Magazine March 4, 2013.
  4. AMC Advisory Roundtable
  5. “Decline In Utilization Rates Signals A Change In The Inpatient Business Model,” by Robert York, Kenneth Kaufman, and Mark Grube, Health Affairs online March 8, 2013.
  6. Ibid
  7. AMC Advisory Roundtable
  8. “Partners promises a new model of healthcare; Tells US investors that expansion will cut costs, improve coverage,” by Robert Weisman, Boston Globe, January 14, 2013.
  9. “Understanding Differences Between High- And Low-Price Hospitals: Implications For Efforts To Rein In Costs,” Chapin White, James D. Reschovsky, and Amelia M. Bond, Health Affairs, February 2014, p. 324-331.
  10. “Hospital Networks: Configuration on the exchanges and their impact on premiums”: McKinsey Center for US Health System Reform, Dec 14, 2013.
  11. AMC Advisory Roundtable
  12. AMC Advisory Roundtable
  13. “Hospitals With Higher Nurse Staffing Had Lower Odds Of Readmissions Penalties Than Hospitals With Lower Staffing,” Matthew D. McHugh, Julie Berez, and Dylan S. Small, Health Affairs, October 2013.
  14. “An Increase In The Number Of Nurses With Baccalaureate Degrees Is Linked To Lower Rates Of Postsurgery Mortality, Ann Kutney-Lee, Douglas M. Sloane, and Linda H. Aiken, Health Affairs, March 2013.
  15. “Shortening Medical Training by 30%,” Ezekiel J. Emanuel, MD, PhD; Victor R. Fuchs, PhD, Journal of the American Medical Association, Mar 21 2012, p. 1143.
  16. AMC Advisory Roundtable
  17. AMC Advisory Roundtable
  18. AMC Advisory Roundtable
  19. “Transforming Academic Health Centers for an Uncertain Future,” by Dzau, et al., p. 993.