Academic Medical Centers Are Under Siege. Is the Best Strategy to Go Small or to Go Big and Own the Continuum?

emergencyThe university hospital at my alma mater recently announced an intriguing deal. Jefferson University Hospital, around since 1825, signed a deal with an upstart company called American Well to provide “virtual ED” visits to patients who would otherwise have come to the hospital’s emergency department. A recent article in Becker’s noted:

The American Well technology will be the basis of Jefferson’s new virtual emergency room…Using American Well’s telemedicine platform, Jefferson ED physicians will soon be able to connect with patients while they’re still at home, provide a preliminary analysis and determine if the patient needs to come to the ED or whether an office visit would be better suited to the level of care the patient requires.

This is a fascinating development, because I think it highlights a very interesting conundrum for academic medical centers.

Some background: around the country, academic medical centers (AMCs) are facing significant financial pressures. I recently read an excellent monograph prepared by the consulting firm PWC that highlights three primary threats. These are:

1) Declines in all thee main sources of revenue for AMCs: research funding, government funds, and clinical revenue.

2) A “breakdown of the brand” which highlights a problem of increasing transparency and inconsistent quality at many academic medical centers, as well as brand dilution as uneven community hospitals form alliances with AMCs. PWC notes:

Only 22% of consumers surveyed by PwC said they’d pay more to be treated at an AMC. When The Joint Commission ranked the top quality performers of 2010, few major AMCs were among the 405 hospitals ranked.

3) A highly decentralized governance structure that creates a lack of nimbleness in responding to changing market conditions.

The basic problem, as far as clinical revenue goes, is a problem of “cascading patients”—simply put, care is migrating lower on the food chain. Services which used to be delivered in the community hospital are now done in outpatients clinics. Care which was delivered in an ED or primary care clinic is now delivered online, or at urgent care sites. Simple conditions can be managed at home by consumers with products from the pharmacy.

The cascade of care migration from higher acuity sites to lower acuity ones, with representative cases

The cascade of care migration from higher acuity sites to lower acuity ones, with representative cases

This cascade applies to AMCs as well:   while much complex care needs to be delivered in an AMC, more can more reliably be delivered in a lower acuity facility. This is the crux of the issue for the university hospitals. Patients prefer (and want to pay less) for care delivered closer to home.

From the AMC CEO’s perspective, there are two possible solutions to this problem. The first is to shrink the size of the enterprise to better match the reduced volume that appropriately lands in the AMC. This is potentially successful, but painful given the bricks and mortar overhead to be supported at most AMCs. Worse, there is emerging competition among AMCs for complex but not time-sensitive volume. The Cleveland Clinic, for example, has signed deals with Lowes to do complex heart cases in Cleveland.

The other solution is to own the cascade of care, including inpatient, outpatient, ambulatory, etc. The goal is to gather revenue from across the continuum while owning the referrals. It’s an attractive but tricky strategy because it’s not clear that AMCs have the discipline to focus on emerging areas of medicine that compete with their core competencies.

As Clayton Christensen notes in his study of disruption in the disk drive industry in The Innovator’s Dilemma:

Established firms confronted with disruptive technology change did not have trouble developing the requisite technology… Rather, disruptive projects stalled when it came to allocating scarce resources among competing product and technology development proposals. Sustaining projects addressing the needs of the firms most powerful customers… almost always preempted resources from disruptive technologies…

Jefferson’s deal with American Well is timely– a bold example of an AMC that’s trying to own the continuum while contracting out for disruptive technology. Whether it can survive a model of competing financial interests (by investing in technology that keeps patients out of its own doors) remains to be seen.


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