Is Your AMC Ripe for Reform? Seek Greater Teaching Hospital/FGP Alignment in 2011


Long before the recent round of national healthcare reform legislation was proposed, many hospitals and physicians were already scrambling to better align for mutual financial benefit and to grow clinical programs through a number of vehicles, including more aggressive service arrangements, joint ventures for ancillaries, and more recently, comanagement models and hospital employment of physicians. With the passage of the Patient Protection and Affordable Care Act (PPACA), this activity has intensified. Under pressure to manage costs and share risk through models such as the accountable care organization (ACO), community hospitals/systems and physician practices are repositioning for the post-reform era. Noticeably quiet amid all the activity has been the academic medical center (AMC). Do AMCs consider themselves well positioned for reform? Are they procrastinating in the face of unique organizational, political, and economic challenges? This article, Part I of a two-part series, previews one dimension of the AMC that will require redesign in most institutions under healthcare reform – the organizational relationship between the teaching hospital, faculty group practice (FGP), and other affiliated practices.


Uniquely bound by a common mission, teaching hospitals and their affiliated practices have long represented a highly collaborative and, in many cases, integrated model. These entities have demonstrated the ability to partner, share resources, and deliver care through physician-led organizational structures. This, coupled with a diverse mix of services across the care continuum and collectively large-scale infrastructure, leaves AMCs ideally positioned to manage costs and demonstrate quality within the framework of an ACO-like model … right? Many AMCs readily admit that this is not the case. Among our AMC clients, we have found a correlation between reform readiness and two factors: the level of integration within the FGP (pictured on the X-axis in the above graphic) and the extent to which the teaching hospital and FGP are under a common ownership structure or directly share financial risk (shown on the Y-axis above). The graphic illustrates the intersection between these two elements and the action steps required based on the current state of the organization. The AMC categories can be further consolidated into two groups: the fully integrated model, where the academic, clinical, and research functions report to one person and one board and the split model, where the academic and clinical/health system are managed by multiple individuals and governing boards.1 Particularly, among the latter group and in cases where the teaching hospital and FGP are separate, there is a tremendous opportunity to advance from a predominantly contracted relationship to a more contemporary structure that is conducive to an ACO-like model. With the programmatic scale and many core components already linked, this path should be shorter for most AMCs than it is for nonacademic systems and community practices.

New Economics Will Drive Redesign

Shortly after Medicare was implemented, universities/AMCs established FGPs at a remarkable rate to more effectively manage newfound resources. The coming of payment reform, coupled with other related forces, will once again cause a profound trend of redesign within the AMC, namely the realignment of the FGP and the teaching hospital. Like their nonacademic peers, teaching hospitals will seek maximum alignment with physicians as they compete and assume increased financial risk from payors. In fact, many teaching hospitals with open medical staffs have already moved aggressively to directly employ community physicians at an unanticipated pace. Concurrently, teaching hospitals are demanding more tangible value from their agreements with affiliated physician organizations, including FGPs. The anticipated decline in hospital contract income compounded with reduced professional fees will cause FGPs to seek a more formal partnership with teaching hospitals where financial risk is directly shared. AMCs that overcome the political and cultural barriers inherent in pursuing more integrated clinical enterprise models will be better positioned to sustain their tripartite mission. This is contrary to the belief that keeping the AMC component entities separate provides more protection of the academic mission.

There has been a growing trend in pediatrics over the past 5 to 7 years to integrate specialists with children’s hospitals. This movement illustrates the mutual benefit of aligning physicians with an inpatient enterprise focused on the same population and may be a preview of what is to come for many AMCs at a clinical enterprise level. Two of the constructs used to achieve this alignment are introduced in the graphic below. The model chosen for a particular institution, and variations thereof, will ultimately depend on the balance of control among the AMC’s component entities and the aggregate financial opportunity. Both models allow the university/SOM to preserve the academic mission, in an era where the demand for clinical productivity is intense, while giving the hospital more control over the physician clinical enterprise through a more meaningful governance structure. As a whole, the AMC will be positioned to implement an ACO-like model while maintaining balance between the university/SOM and hospital.


AMCs have long been pioneers in innovation and leaders in contemporary care delivery models. As the economic/payment models undergo major changes, AMCs should further fuse the relationship and degree of integration between the teaching hospital and affiliated physician organizations. After all, while the clinical enterprise is not the most important programmatically, it does remain the economic engine for the vast majority of AMCs. In early 2011, look for Part II of this series, which will focus on the strategic, programmatic, and financial benefits of migrating to an integrated multispecialty FGP and how this is likely a prerequisite for greater alignment with hospitals and, in turn, payors, in the post-reform era.


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    This article provides suggestions regarding where, how & why to apply basic yet rigorous process improvement methodologies to create efficiencies & reduce cycle times, which may lead to cost savings.