The Changing Nature of the Academic Medical Center

by by Susan Moke

Most current discussions about health care reform focus on how patients receive medical treatment from their physicians, their level of satisfaction with that treatment, how that treatment is paid for, and how health care delivery systems should be organized. But recent health care initiatives--both those born of government programs and of market forces--also have momentous implications for the institutions that train our country's doctors. "More than half of all the revenue that supports the typical academic medical center comes from clinical sources," notes Richard Culbertson, an associate professor of public and environmental affairs at Indiana University-Purdue University Indianapolis. "Trying to maintain that revenue base in the face of shrinking income as the result of managed care demands that medical schools adapt their organizational structures to reflect the changing nature of health care economics."

A number of factors, which include the managed care revolution of the 1990s and Medicare's late 1980s adoption of a resource-based value system, have dictated a move away from what had been for physicians a cost-plus form of payment in which insurers would guarantee individual doctors or institutions coverage of their costs. Thus the typical academic medical center that relies in part on income from faculty practice to carry out its educational mission is finding itself in a distinctly Darwinian situation--it must adapt to the changing health care environment or succumb to the pressures of managed competition. In its recent annual report, the Pew Foundation, a prominent philanthropic organization that funds health services research, predicted that changes in health care economics would cause the closure of twenty percent of our nation's medical schools by the end of the 1990s.

Some members of the Health Sciences and Administration faculty group. From left to right, Ann Holmes, Ming Tai-Seale, Gerard Wedig, Thomas Ross, Frank Vilardo, and Terrell Zollinger.

Culbertson, whose interest is in organizational theory and health care administration, has analyzed the range of possible adaptations of the clinical components of U.S. medical schools and has developed a series of organizational models designed to facilitate the academic medical center's viability in the managed care marketplace. His research also addresses the need for restructuring medical schools' faculty practice plans and investigates how recent market and government reforms potentially impinge on individual physician's clinical, economic, and ethical autonomy. Culbertson's teaching interests include courses in basic organizational theory, a newly devised course on managed and ambulatory care, and a course on integrated health delivery systems.

In an article published in the August 1996 issue of Academic Medicine, Culbertson writes, "As managed care plans replace standard indemnity insurance in the commercial marketplace, the necessity to establish a working economic relationship with these plans will be critical for medical faculty." Failure to do so will, in fact, imperil the survival of the institutions in which these doctors teach. Academic medical centers are a unique sort of health care delivery system. Yet the uniqueness of this system does not mean that it can afford to ignore the changing nature of the larger health care environment in which it functions. In a capitated environment, a premium is placed on availability of primary care providers and limiting referrals to the subspecialists who have traditionally composed the bulk and strength of medical school faculties. "Faculty practice plans," Culbertson says, "must now compete for contracted patients with community providers on a financially even basis due to health insurers' growing unwillingness to pay additional costs for services provided by teaching hospitals and medical schools." Moreover, the departmental structure of most academic medical centers does not facilitate efficiency of clinical treatment. For instance, instead of receiving one bill for services, a patient in a departmentalized medical center may receive a different bill from each of the departments to which she was referred.

"Most medical schools," Culbertson notes, "are meeting this challenge by trying to consolidate their departmental structures into unified faculty group practices." He also points out that student programs as well as faculty practice plans must be adapted to the demands of the health care marketplace. In this era of managed care, when primary care physicians are in greater demand than specialists, more than fifty percent of graduates of American medical centers say they want to go into primary care. Yet a typical medical school has a faculty ratio of eighty percent representation in medical specialties to twenty percent in primary care disciplines. In light of these statistics, if our academic medical centers are to educate new doctors with skills friendly to managed care, curriculum and faculty review seems warranted.

Culbertson observes that U.S. medical schools represent a wide range of organizational structures. With the evolution of medical education in the second half of the twentieth century, medical schools have typically been part of larger, parent universities. Nevertheless, approximately fifteen percent of all school members of the Association of American Medical Colleges are freestanding institutions. Culbertson says, "The range of relationships between medical schools and hospitals to support the clinical component of academic medicine is even more extensive. Patterns of separate ownership are the most common single legal structure, but a variety of joint ownership and partnership structures exist as well. These arrangements defy easy categorization into public/private ownership, urban/suburban, or other ready classifications."

Suggesting an analogy to the major restructuring of the U.S. steel, automobile, and electronics industries in the 1980s as demanded by global competition, Culbertson has published in the November 1996 issue of Academic Medicine four organizational models that depict "current and evolving organizational forms of the relationship of the medical school to the clinical enterprise, with the goal of allowing leaders of individual schools to identify the position of their school within a continuum of alternative organizational forms."

Type I: The Single Ownership, Owned Integrated System is characterized by a controlled clinical delivery system accomplished through merger, takeover, or internal development. This fully integrated delivery system combines hospital and physician resources within the university 1or dominant school structure. The Type I model allows the most complete control to the clinical enterprise, since the parent university is the dominant actor in an integrated delivery system or clinical enterprise. It also exposes the parent university to the greatest level of financial risk.

Type II: The General Partner Organization emphasizes a negotiated clinical environment in which the medical school must form alliances in order to participate in a full range of services. For example, the physicians and hospital may function separately, or the school may be affiliated with a number of unrelated hospitals. The metaphor is that of an "interlocking directorate" with governance by an oligarchy of leaders functioning as members of boards of each participating organization (hospital, faculty practice plan, school). This model's structure is based on interrelationships. It represents significant financial risk on the part of the participating school or parent organization, but also offers the opportunity for sharing profit and loss from clinical activities.

Type III: The Limited Partner organization operates with an open clinical delivery system that the school relates to through affiliations and contractual relationships. Compared to Type II, in Type III the medical school and its leaders exercise lower degrees of influence by lack of power positions in the structure of the governance organizations of clinical entities. The medical school and the university have limited financial exposure by virtue of limited and specific roles in clinical activities.
Type IV: The Wholly Owned, Subsidiary Organization, like Type I, operates in a singularly controlled clinical environment--the medical school is a subsidiary of the larger integrated delivery system. The university's direct control over clinical matters is relatively low. The school has limited potential for producing additional revenues to support its mission, other than receiving external research dollars.

A number of academic medical centers are effectively responding to the demands of managed care. Culbertson comments that "all kinds of experimentation are going on right now. As examples, Tulane sold its hospital to Columbia H.C.A., which is a for-profit organization; there is an impending merger of the University of California, San Francisco, and Stanford hospitals, which was unthinkable at the time I was doing my doctoral work at UCSF; the University of Minnesota hospitals were leased to the Fairview Corporation; and then of course, there is the IU/Methodist consolidation. These are extraordinary changes." Culbertson places the Indiana University Academic Medical Center, created by the merger of Indiana University Hospital, Riley Hospital, and Methodist Hospital, in the Type II category where, according to his organizational map, most of the stronger medical schools in the United States are also located. He believes the majority of medical schools are likely to adopt a "negotiated" model (Types I and II) that allows interdependence with a greater degree of influence over the clinical enterprise than is possible with the more "controlled" (Types III and IV) strategy of adaptation to the external environment.

Culbertson concludes that "the involvement of medical schools with the broader clinical enterprise appears inevitable and necessary. To integrate education, research, and patient care activity, each school must choose an appropriate role and relationship within the health care delivery system to allow for sufficient strategic involvement to sustain its missions. One of the keys in choosing a model for organizational relationships is to balance financial control and risk in a manner that supports the schools' missions."