Academic Healthcare Centers – A Focus on Core Capabilities to Survive and Thrive in the Times Ahead


Legislation, policy, economics, and budget reductions have resulted in a sense of urgency for change among academic healthcare centers (AHCs) and community healthcare providers across the nation. New initiatives, partnerships, and reimbursement models have been designed and piloted across the United States at a rapid pace in the past 2 years.

This article identifies core capabilities that every academic institution should strengthen. We believe that academic institutions with strength in these core capabilities will be successful in the evolving healthcare market, regardless of changes in Affordable Care Act (ACA) legislation and other key drivers.

The many drivers of change in healthcare include:

  • American Recovery and Reinvestment Act of 2009 (ARRA) Legislation1 – The Health Information Technology for Economic and Clinical Health (HITECH) Act provisions include meaningful use criteria, which offered incremental revenue to providers and hospitals that could meet these criteria as early as 2011. Penalties for not achieving these criteria begin in 2015. The Beacon Community Program, of which the Cincinnati market was a beneficiary, was also part of this legislation.
  • ACA Legislation2– This legislation targeted changes primarily in the payer environment, including extending coverage on their parents’ plans for children until age 26, prohibiting limitations on insurance coverage due to preexisting conditions, expanding Medicaid to reduce the number of uninsured individuals, and requiring all individuals to purchase health insurance. Provider programs for CMS will not be mandated, but innovative programs will be offered through the Center for Medicare and Medicaid Innovation (CMMI). CER was established under a program now named the Patient-Centered Outcomes Research Institute (PCORI).

The investments in resources, infrastructure, governance, and operations will be relevant even if the PPACA legislation is repealed in its entirety.

  • ACO Medicare Shared Savings Program (MSSP)3 – The first CMMI program with final regulations in place creates a shared savings-based model intended to improve care for a defined population (Medicare) at a lower cost. Final regulations accommodated many of the responses to the proposed regulations, including issuing a prospective list of Medicare patients based on the past 3 years’ utilization, reducing the quality measures from 65 to 33, and removing the requirement that ACOs share downside risk. The final rule, however, maintains patient choice, which the provider community expressed as being a significant barrier to managing the care of the population.
  • CMMI Initiatives4– As of December 2011, CMMI released five programs, including the ACO MSSP noted above. All programs are intended to foster innovation in healthcare by improving the health of the population and healthcare of patients, as well as reducing costs. We expect CMMI to continue releasing new initiatives.

Furthermore, healthcare is affected by many other influences, such as the economy and political environment. Significant events that will impact our industry include:

  • Failure of the Congressional Super Committee– Medicare reductions were targeted as an automatic trigger that would begin if the Super Committee failed to reach a debt reduction agreement. Automatic annual 2 percent cuts to Medicare reimbursement are expected to begin in 2013 and continue through 2023, yielding $123 billion in spending reductions for the Medicare program. Indirect Medical Education (IME) is likely to be reduced 60 percent (from 5.5 percent reimbursement to 2.2 percent), achieving $10.9 billion in reduced spending over 10 years. All other nondefense departments will receive 7.8 percent budget cuts, including NIH. The NIH impact would be a reduction of $2.2 billion over 10 years, on top of the $330 million in reductions from FY 2011.5
  • Supreme Court’s Review of the Individual Mandate – The Supreme Court will hear testimony on whether Congress exceeded its constitutional authority in requiring individuals to purchase healthcare insurance.The review is expected to begin in March 2012, with a ruling by June. The ruling will have important implications for PPACA legislation. If the individual mandate fails, people will not be required to purchase healthcare insurance. As a result, payers may be able to present a case that they will not have enough volume to offset the risks associated with lifting caps on lifelong insurance expenditures and, especially, not being able to deny coverage based on preexisting conditions. States may also be able to make a case to not expand Medicaid coverage to 133 percent of poverty levels. These are likely implications if the individual mandate is found to violate constitutional authority.
  • Federal Budget Reductions for FY 2012 – The FY 2012 budget was recently extended for 2 months. This only delays further decisions on reductions that are likely for FY 2012 and into FY 2013. While the automatic triggers are current law, it is unlikely that they will proceed without further negotiations and adjustments as part of the political process. FY 2012 reductions may impact physician reimbursement if the sustainable growth rate (SGR) adjustment is not addressed. If current practices continue, physicians will face up to 27 percent reductions in Medicare reimbursement as each budget is approved (which may continue to be months at a time).
  • Presidential Election Year in 2012 – The climate during an election year is always challenging. We can expect to hear much debate on how to address the federal debt and improve the economy. Addressing the debt is likely to include additional cuts to healthcare programs. The results of the November election could be important for PPACA legislation and many other funding programs that impact the healthcare industry.

The best opportunity for AHCs to be compensated for academic activities is to lead the design of new reimbursement and care delivery models.

We expect this activity to continue and perhaps escalate for the foreseeable future. Healthcare provider institutions will participate in new programs at different rates. The climate in each market will differ to the extent that institutions experiment with new business models, affiliations, and the restructuring of care delivery to accommodate more coordinated and patient-centric care models. Markets will also differ based on their population demographics and historical healthcare utilization, as so aptly described in an article by Atul Gawande, M.D., M.P.H., on McAllen, Texas – a small border community with the second-highest per capita Medicare costs in the U.S.6

ECG has identified core capabilities that academic healthcare institutions will need to master in a market where reimbursement will move more toward outcomes-based models and the economy will force a continued focus on “bending the healthcare cost curve.” These core capabilities serve as a guidepost for organizations making their way through our industry’s tumultuous forecast. The investments in resources, infrastructure, governance, and operations required by these core capabilities will be relevant even if the PPACA legislation is repealed in its entirety.

Assuming that the ACA legislation stays in place or that enough remains such that CMMI continues to offer new initiatives, the core capabilities will be needed to achieve the Triple Aim, a concept brought to CMMI by Donald M. Berwick, M.D., M.P.P., the former CMS Director:7

  • Improving the healthcare experience.
  • Improving the health of populations.
  • Reducing the cost of healthcare.

The Triple Aim is built in to all CMMI initiatives to date. Participating in any of the new federal programs requires considering what will be required to achieve the Triple Aim.

AHCs have more to consider than nonacademic entities. Cost reduction initiatives will be pervasive for most institutions but more so for AHCs, as cuts to revenue sources for all missions are implemented (clinical, teaching, and research). AHCs will also need to demonstrate value for the academic mission and incorporate this value into new payment models. The best opportunity for AHCs to be compensated for academic activities is to lead the design of new reimbursement and care delivery models.

Integrated Governance

An integrated governance model is essential to any healthcare institution’s successful response to reform, as the need to coordinate care across a broad set of entities requires integrated leadership and management.

An integrated organizational structure, legal entity alignment, and governance model are critical to achieve an integrated governance model. In addition to those elements, AHCs may want to consider the following components that will further assist in operating as an integrated system through its governance model:

  • Partner institutions that may be part of a new structure (e.g., an ACO) should be represented on the single board.
  • Having one tax identification number (TIN) is ideal for reporting and management purposes. If the AHC is unable to achieve one TIN, it should be prepared to manage and report as one TIN.

Physician leaders should be represented in key leadership roles such that changes in care delivery models have credible clinical leadership, which may be important in leading change.

Patient Engagement

Many industry experts believe that patient engagement is a critical success factor for any healthcare reform-related initiative.8,9 New reimbursement models that include measures of outcomes, quality, and patient satisfaction continue to surface. Many of these measures are not solely in the control of the healthcare provider(s). Incentives that will enable patients to improve their care are very important in most, if not all, of the new reimbursement models.

Patient engagement will become more important as models depend more on patients’ own efforts for maintaining health and participating in appropriate healthcare.

Measures of patient engagement continue to become more robust as we improve the data and systems available to capture and measure patient engagement. Of the 33 final quality measures in the MSSP, 7 involve the patient experience.10 These measures are survey-based and are intended to capture the experience of patients in order to achieve better care for individuals. Patient engagement will become more important as models depend more on patients’ own efforts for maintaining health and participating in appropriate healthcare. Measures of patient engagement (and benefit designs that promote effective patient engagement) are important elements of new value-based reimbursement models, including commercial payer arrangements.

Patient education is a large component of patient engagement and is required to achieve the kind of outcomes and quality measures that healthcare reform-related reimbursement models assume.

Patient engagement can also be effectively activated through community settings, targeted e-mails (disease-specific or demographic-specific), marketing, patient forums, and surveys.

Patient-Centered Care Delivery

Innovation in care delivery is a critical component in healthcare reform, as reflected in both the PPACA legislation and in specific programs that CMMI has already established and will likely continue to develop. In addition to federal programs, commercial programs involving patient-centered care delivery will continue to develop over the next several years.11

Economic drivers and demand for improved outcomes of care are both serving as an impetus for innovation in care delivery models. Patient-centered care delivery as a core capability is founded on supporting processes, operations, resources, and infrastructure.

One interpretation of patient-centered care defines it as convenient and user-friendly for patients. Patient-centered care will be accessible, easy to understand, efficient, and effective in the follow-up and ongoing care requirements that the patient must engage in after he/she has left any of the AHC’s facilities. Patient-centered care that has a system standard will provide a similar patient experience regardless of which facility was accessed, enhancing the user-friendly environment and fostering trust that the provider system knows the patient and can manage his/her care across the entire system.

Care Coordination and Management

Care coordination from a patient’s perspective will span healthcare systems. This translates into a need for any system to consider the internal and external infrastructure that coordinating the care of a population will require – especially if patient provider choice is protected. Systems must be integrated to the point that providers involved in a patient’s care can easily be informed of plans of care, diagnostic tests and interventions that a patient has had, and the outcomes of such activities.

Health information exchanges (HIEs) are the most likely tool to achieve care coordination across health systems.

This means that there is an integrated system for scheduling, claims, and outcomes data within a health system and that there is a functional system in place that spans communities. Health information exchanges (HIEs) are the most likely tool to achieve care coordination across health systems. The internal capabilities must also span data types in a manner that analyses can combine many data sources for a more comprehensive care view of performance and management. This core capability is dependent on the following:

Outcomes-Based Reimbursement

Outcomes, quality, patient satisfaction, utilization, and other performance measures may be assumed in outcomes-based reimbursement models. Providers and payers are starting to look at ways to establish metrics that are consistent across their various contract arrangements. The MSSP lists 33 quality measures organized into the following subcategories: patient/caregiver experience, care coordination/patient safety, preventive health, and at-risk populations.12

Moving toward outcomes-based models will require more integrated funds flow and compensation models that align incentives with outcomes measures.

Performing well in an outcomes-based reimbursement model regardless of the specific model and performance metrics therein assumes an excellent data infrastructure, analytic capability, and patient engagement operation. As in other core capabilities, AHCs should leverage the research mission to improve care and outcomes for more complex patients and illnesses.

Outcomes-based reimbursement models are a significant shift away from a fee-for-service (FFS) reimbursement model, especially for AHCs, where often 20 percent of the care delivered is fairly sophisticated and expensive.

Moving toward outcomes-based models will require more integrated funds flow and compensation models that align incentives with outcomes measures, which are likely to be very different if organized around patient types and/or major treatments or service lines.

AHCs have many options that they can pursue to lead the design of outcomes-based reimbursement models. Many outcomes-based models are already being piloted. These models include bundled payments based on a significant event (e.g., major surgery, a definable period of time for treatment of a chronic condition or set of conditions) as well as a range of partial and full capitation models based on definable patient populations. The PROMETHEUS Payment model has not enjoyed success yet, but it has some worthy methodology considerations to account for higher acuity and variability.13

Informatics and Reporting

The requirements and assumptions raised within most if not all other core capabilities (e.g., care coordination and management, outcomes-based reimbursement models, patient-centered care delivery) depend on robust and effective informatics and reporting.

Reporting requirements will only escalate. As new reimbursement models are operationalized, the demand for timely reporting of the outcomes and performance measures that they are composed of will increase substantially. To the extent that compensation models are aligned with the new reimbursement models through incentives or other approaches, the demand for performance and outcomes data will rise. These internal requirements will grow in a manner that will be difficult to accommodate without an informatics structure that can scale with increasing demand. External reporting requirements will also increase – to payer partners, government agencies, disease registries, research partners, and patients.

Comparative Effectiveness and Outcomes Research

AHCs have an advantage when it comes to CER and outcomes-based research: funds flow, compensation models, and infrastructure are already in place to achieve the academic mission. In this way, AHCs are uniquely positioned to lead new research efforts and collaborations that will create the evidence for improved outcomes and effectiveness of care.

The healthcare market will continue to emphasize cost reduction strategies that improve outcomes in both the federal and commercial payer markets.

CER and outcomes-based research could provide a path for incremental value (and therefore revenue) if AHCs can develop service offerings that can be provided to others inclined to participate.

The PCORI, which was created by ACA legislation and is just beginning to shape its specific priorities and research agendas, will create a new emphasis on CER: the patient. An interview with the head of PCORI, Joe V. Selby, M.D., M.P.H., emphasized the goals of conducting research that is meaningful and useful to patients and that leverages knowledge and databases already in place.14

Research sponsored by the NIH and PCORI assumes an informatics infrastructure capable of translating bench research into clinical applications in a manner that is effective for patients. AHCs must consider their opportunity to provide value and improve the effectiveness of research as a means to sustain the academic mission in an outcomes-based environment.


Core capabilities noted in this Insight are intended to coalesce a set of skills that we believe are required for AHCs to be successful in the market that we anticipate for the next several years. There are many major policy and funding actions expected to occur during this period (including whether or not ACA legislation stays in place as is, is modified, or its key components are challenged or defunded). Despite the many variables, we expect that the healthcare market will continue to emphasize cost reduction strategies that improve outcomes in both the federal and commercial payer markets. AHCs that can demonstrate strength in each of the core capabilities highlighted will be in a much better position for success than those without such strength.