Academic medical centers are facing tough times. Hospitals and health systems associated with medical schools are some of the most expensive health care institutions to operate because they are designed to deliver complex, specialized care. In addition, revenue generated from their health services must subsidize teaching and research. While this model may have succeeded in the past, now price pressure and the drive for value-based care (as opposed to patients and insurers just paying for the quantity of services provided) are challenging AMCs to find new revenue sources.
Foremost among the price pressures is the fact that, as the entire health system tries to become leaner, many insurers are questioning whether expensive AMCs belong in their networks. Furthermore, the Affordable Care Act and other federal reforms disproportionately impact AMCs because these institutions are often located in urban areas and serve high numbers of Medicaid recipients. For example, 60 percent of AMC reimbursements come from Medicaid, Medicare, or other government programs. As these programs begin to tighten restrictions and rewards based on quality, traditional models of care are being called into question. Together, McKinsey estimates that these and other pressures could reduce AMC margins by 4 to 5 percent—driving many into the red.
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