Whitepaper

Are Integrated Academic Health Systems Better?

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EXECUTIVE SUMMARY

The Issue

Fairly or unfairly, the economic engine of an academic medical center (AMC) is its clinical enterprise, also known as the academic health system (AHS)—namely the combined assets of the teaching hospital, the clinical faculty, and the affiliated or owned nonacademic (or “community”) physicians. On their own, the research and teaching programs are underfunded through their traditional revenue streams and need steady investment from the margin of the clinical enterprise. This critical source of investment from the AHS is at risk for organizations that are not strategically and organizationally well positioned. While the market was challenging enough before the Affordable Care Act (ACA), the headwinds have further intensified for AHSs, as they need to demonstrate they provide higher-quality care at an appropriate cost. This challenge exists for nonacademic providers as well, however AMCs are far more complex as they grapple with the Rubik’s Cube of issues that emerge from a three-part mission (clinical care, teaching, and research) while balancing the dynamics of a three-component organizational structure (teaching hospital, medical school, and faculty group practice [FGP]). Further, AHSs have very little room for error since they face unique business disadvantages in the marketplace, including a less favorable payor mix and a traditionally higher overhead due to their academic mission.

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Recent studies and literature, including from the Association of American Medical Colleges (AAMC) and the Institute of Medicine (IOM), reinforce the idea that the success of each AMC component entity is inextricably entwined with the others; therefore, the components need to find ways to increase collaboration as external market factors continue to present new challenges. Many AMCs are responding and have made or are planning to make significant changes to improve performance. For example, 31% of Association of Academic Health Center (AAHC) members are changing their governance structures or significant reporting relationships. The market has seen major transactions at AMCs such as Vanderbilt or Northwestern in recent years, where the clinical assets are shifting to bring the hospitals closer together with the physician organizations. However, the majority of the AMCs that do not already have a highly integrated clinical enterprise appear hesitant about making major structural changes; many are unsure of the best approach and are unwilling to assume the risk without understanding the tangible benefits of more closely aligning the teaching hospital with the FGP. After all, what exactly does greater alignment or integration mean? If the AHS was fundamentally more integrated, would it result in a better margin and improve the quality of care? This study attempted to address these and other questions by examining the organizational architecture and functional behavior of AHSs and determining whether a correlation exists between their level of integration and their performance.

The Study

The ultimate goal of this study was to determine whether AMCs with more integrated AHSs outperform those that are considered less integrated, with a central focus on the clinical enterprise—the relationship between the adult primary teaching hospital and the FGP. The first step was to analyze the degree of integration demonstrated by 104 AHSs in the United States and categorize each as being more integrated or less integrated based on empirical data and institutional insight. The two groups were then compared based on five primary areas of organizational performance: reputation, quality of care, financial success, research funding, and resident program ranking (i.e., graduate medical education [GME]).

The Results

The results suggest that AMCs where the adult primary teaching hospital and FGP (i.e., the AHS) are more structurally and/or functionally integrated materially outperform those that are less integrated when measured in the aggregate. More integrated AHSs outperform in four of the five performance categories. Financial performance is the one measure where the reverse is true, and this study presents a possible explanation for this variation, including the disadvantaged payor mix of the more integrated AMCs.

Conclusions

The findings presented from this study substantiate the widely held belief that the more an AHS is strategically, financially, and otherwise aligned, the better the results for the whole AMC. Nonetheless, the full integration of a corporate structure (e.g., merger into a single-CEO structure for the teaching hospital and FGP) alone may not be the only pathway to integration nor is it a realistic option for some. In fact, functional integration has proven to be equally effective. Institutions that are not corporately integrated have demonstrated that with the reinforcement of a contemporary affiliation agreement (i.e., a bilateral commitment to perform and share financial risk), a high level of functional integration can be achieved through coordinated planning and execution in a number of areas, such as strategic planning and joint budgeting. On the other hand, full corporate integration through a merger or alternative means may be the best solution at some organizations in order to solidify relationships and ensure that their strategic and financial interests are completely aligned.

Most AMC leaders acknowledge, at the very least, their clinical enterprise should be more integrated to compete in today’s market, but there is often a deficit of political will to pursue such an initiative among key stakeholders. However, the focus on performance must ultimately trump politics in order for an organization to thrive in today’s healthcare environment; and, as this study indicates, AHSs that are more integrated perform at a higher level than those that are not. The opportunity cost of not taking steps to build a more integrated AHS will be high for the clinical enterprise, and will also have a direct adverse impact on the AMC as a whole (i.e., together with the university and medical school) as fewer resources will be available to reinvest in the academic mission.