Structuring effective IDS-AMC affiliations - integrated delivery system-academic medical center

Healthcare Financial Management, July, 1999 by Nancy Alfred Persily, Jason Daniel Gottlieb

IDSs able to incorporate academic medical centers (AMCs) into their organizations can realize several benefits, including access to a broad spectrum of specialty services and clinical resources that can be used to develop clinical protocols and reduce variations in care delivery practices across the system. Before pursuing such a strategy, however, IDSs also must be ready to assume the challenges associated with managing AMCs.

To effectively incorporate an AMC, an IDS will need to undertake cost-control initiatives within the AMC, implement an enterprise information system, and transform the AMC's culture to reflect a team-oriented, community-focused approach. Most importantly, the enterprisewide information system should provide a means to seamlessly integrate the AMC into the larger organization.

More than ever before, the healthcare industry is searching for the optimum blend of resources, balance of services, and mixture of products to achieve true integration. As yet, however, no integrated delivery system (IDS) has struck the perfect balance of managed care products, provider networks, and care facilities necessary to provide the appropriate, continuous, community-oriented care that is the ultimate goal of true system integration. Affiliating with an academic medical center (AMC) may be an effective means to achieve this balance. IDSs that adopt this strategy., however, should understand the challenges as well as the benefits associated with affiliating with an AMC.

IDS-AMC Affiliation: IDS Perspective

A significant advantage of AMC-IDS affiliation is the AMC's faculty practice plan, which can function within the IDS as a large, multispecialty group practice and can be aligned with other affiliated physicians and facilities. AMCs, while known for being expensive, high-tech, overbedded facilities, possess many of the components essential to a state-of-the-art IDS. In particular, AMCs already represent every medical specialty. Access to the AMC's broad clinical expertise, research, and educational resources can contribute to more effective care, potentially reducing adverse healthcare outcomes throughout the IDS.

An IDS that assumes the costs of managing an AMC faces significant challenges, however. Perhaps more than any other type of healthcare organization, AMCs are under tremendous pressure to redesign their work processes to reduce expenses. Currently, AMCs typically operate as conglomerations of separate specialty departments that have little or no cross-departmental communication. This departmentalization is an impediment to meeting the requirements of managed care payers, which generally call for increased primary care, fewer inpatient services, and team-based care management.

The challenge of operating an AMC is compounded by the need not only to provide clinical care but also to fund medical research and education. The latter two components of an AMC's mission often are funded, in part, by revenues from the clinical operations (payments by Medicare, Medicaid, and private insurers). Additional support for these areas is provided through government funding in the form of direct and indirect medical education subsidies, as well as monies to support clinical and health services research through the National Institutes of Health (NIH) and other branches of the Department of Health and Human Services.

AMCs also tend to stake their reputations on their ability to provide complex - and expensive - tertiary healthcare services that require state-of-the-art technologies. AMCs tend to receive a disproportionate share of indigent, high-acuity, and/or chronically ill patients, leading in some cases to financial instability.

All of these factors contribute to the need for AMCs to charge higher rates for services.(a) Because of these high rates, AMCs are 25 percent less likely to get contracts with HMOs.(b)

An IDS that affiliates with an AMC, therefore, will need to take steps to make the AMC more attractive to managed care payers. These steps include repositioning the AMC in the marketplace and reengineering its operations to make it a more efficient and effective organization.

Ultimately, the long-term financial benefits that an IDS may derive from incorporating an AMC may offset the costs of managing such an organization. Assuming the IDS can use its continuum of care constructively to help reduce the AMC's costs, the AMC's resources can become a major asset to the IDS. The AMC, through its research programs, can link with the IDS's other affiliated units through an information system to perform outcomes research and other cost-effectiveness studies to enhance the quality of care throughout the IDS, thereby potentially reducing overall costs. Funding for this research and support of the enterprisewide information systems required to support it is available through the NIH and the National Library of Medicine.

In addition, an AMC can be a critical asset in an IDS by helping to coordinate care along the continuum of services for managed care patients. Real-time information to assess the cost of care and the appropriate providers can help the IDS to assume financial risk.