Academic Medical Organization Maturity Model and Mission Optimization

Medical schools and large academic teaching hospitals, Academic Medical Organizations (“AMOs”), are complex organizations. These organizations can encompass over 40 clinical and research departments and divisions. Each of these departments and divisions is dedicated to advancing the tripartite mission of medical education, research, and clinical service.

AMOs, and their affiliated hospitals and health systems, face enormous environmental, competitive, operating, and financial pressures threatening their ability to sustain, let alone innovate and expand their missions. At the same time, the demand for clinical service is greater than the capacity for providers and healthcare systems.

This operating environment makes it difficult for AMO leaders to prioritize high-impact tactics that will improve the organization’s overall performance in the near- and long-term. Improvements in AMO performance have a direct and positive impact on affiliated hospitals and health systems, most notably in the clinical service and teaching missions. This article proposes an operating maturity model coupled with mission performance optimization activities that can improve an AMO’s immediate and future success.

Introduction

Encompassing both medical schools and large medical education teaching hospitals, Academic Medical Organizations (“AMOs”), are inherently complex organizations. They often consist of 40 or more academic clinical departments, some of which have multiple divisions (i.e., Departments of Medicine, Surgery, etc.), which are all dedicated to the tripartite mission of advancing medical education, research, and clinical service. In addition, each AMO has its own unique operating environment and associated culture. These operating environments range widely from any combination of urban to rural communities, safety-net to affluent patient populations, governmental to privately owned, integrated to stand-alone organization with affiliations to one or more hospitals, and everything in between. It is no wonder that even though every one of these AMOs shares the same aspirations, no two AMOs are the same. As the CEO of one center put it: “If you have seen one academic medical center, you have seen one academic medical center.”¹

Beyond consistency in mission and purpose, many AMOs face the same economic and operating challenges that every healthcare organization in the United States is challenged to overcome. The rising cost of salaries across faculty and staff, supplies and every other operating expense coupled with flat or declining sources of revenue associated with clinical service, research and especially education activities have negatively impacted AMO operating budgets and ability to invest in program innovation and expansion. Political factors such as regulatory reform, proposed reductions to the CMS physician fee schedule and the shift to value-based care continues to chip away at clinical revenue streams for physicians and healthcare systems.² Mounting pressure from traditional and non-traditional competitors in the clinical and research space has increased competition for funding. At the same time, the demand for high-quality care that is equitable and easily accessible continues to increase putting even more pressure on AMOs to balance its medical education and clinical service missions. According to the Association of American Medical Colleges (“AAMC”), “We continue to project that physician demand will grow faster than supply, leading to a projected total physician shortage of between 37,800 and 124,000 physicians by 2034.”³

These myriad of differences among AMOs can make it challenging to prioritize where effort is spent to improve organizational and operations performance to insure the best chances for sustained program performance, innovation, and growth in support of its missions. The authors’ recommendation is a two-pronged approach that simultaneously aligns operating maturity across the AMO (i.e., each clinical department and division) while focusing on key performance indicators for each mission.

AMO Maturity Model

At its heart, the proposed maturity model is a way of understanding where an AMO, or its composite departments and divisions, are on an evolutionary journey from baseline to innovative performance attributes. In many AMOs the maturity is not uniform across the organization. Given the various environmental and operating issues stated above and the diverse level of Dean, Department Chair, and Division Chief administrative expertise, it is common to have developmental variability across the departments and divisions of an AMO. The challenges of developing and sustaining a continuously improving AMO operating model further challenged by the median tenure of (permanent) medical school deans and clinical department chairs is six years.⁴

The summary of the AMO Maturity Model, presented below, encompasses nine domains that span organizational governance, department/division operations, and shared service operations. The detailed version of this Maturity Model is presented in the appendix.

AMC Medical Group Maturity Model Summary

An AMC progresses through 4 stages – from baseline to maturing to optimized to innovative – as it addresses these nine domains:

Governance and Leadership
Culture and Communication
Change and Performance Management
Recruitment, Retention and Deployment
Effort Allocation, Compensation Plan and Funds Flow
Professional Fee Revenue Cycle Management
Financial Management and Performance Reporting
Population Health, Value Based Care, ACO, and Risk Contracting
Operations, Market Share and Affiliations

This Maturity Model is intended to be comprehensive. The first step in using this Maturity Model is to develop an organizational current-state assessment. In some AMOs there are functions that have been centralized or standardized across all departments and divisions. For those functions, leadership can assess where they best sit on the maturity spectrum. For other functions that are not centralized or standardized each department and division will need to be reviewed to assess where they fit into the model. Developing a current-state assessment can be done using existing documents, data, surveys, management reports, and interviews of AMO leadership and other key stakeholders.

The Maturity Model current-state assessment gives leadership a concise and thorough overview of where its operating functions and units sit on this spectrum. This foundational information can then be used to refine the AMOs three-to-five-year aspirational vision, hone-in on certain areas that require immediate attention to bring up to a desired performance level, and identify specific, actionable goals that will move the entire organization forward.

AMO Mission Performance Optimization

Even though the focus, scope, and size of an AMO’s teaching, research, and clinical service missions can differ, the tactics to optimize performance are universal. An AMO’s ability to execute on mission optimization tactics is enhanced by the organization’s overall level of maturity, as described above. However, organizations that are in various stages of evolution are still able to achieve substantial and sustained improvement in mission performance by employing the discipline to vigorously focus on the elements presented below.

Mission Operating Profit and Loss Statements

Utilizing a standard method for routinely reporting the sources/uses of funds and key performance indicators by mission is absolutely critical to consistently setting performance expectations and monitoring success. To be effective, these reports must be understood by AMO leadership, distributed at least monthly, and reviewed at least quarterly by the leadership team. Department and Division leadership annual performance evaluation goals and objectives should include achieving or maintaining specific performance targets associated with performance goals tracked by these management reports.

Central to each AMO mission is faculty effort allocation. The deployment of faculty talent and time by department chairs and division chiefs is the primary driver of a mission’s scope, size, and success in achieving performance goals and objectives. As a result, utilization of a standard methodology to report and monitor faculty effort in each mission is critical to an AMO’s success. The lack of this structural element creates challenges to accurately report mission data required to successfully monitor performance and adjust when required.

Clinical Mission Performance Optimization

The clinical service mission provides multiple benefits to the AMO and is typically the largest mission category utilizing approximately two-thirds of the clinical faculty’s effort in most cases. Clinical service provides funding for the teaching and research missions by way of internal department cross-subsidization, department chair taxes, and dean’s taxes. Clinical service is also vital for undergraduate and graduate medical education teaching. Applied medical research and clinical trials rely on clinical service patient populations to carry out these portions of the research mission. Finally, each AMO’s community relies on the primary and tertiary clinical services provided by clinical service activities of the faculty and associated academic medical center.

As a result, the clinical mission must operate as efficiently and economically as possible. This is challenging in the highly sub-specialized AMO environment. However, there are core operating metrics that can be used to monitor operating performance levels. Each one of the core metrics presented below provide critical insight on the performance of the clinical mission. Together, these core metrics tell a story about what is going well and what areas of the operations require attention.

Core Clinical Mission Metrics

Net Margin/(Investment) per Physician Clinical FTE
Annual Work RVUs per Physician Clinical FTE
Net Patient Revenue per Work RVU
Total Operating Expense per Work RVU
Support Staff FTE per 10,000 Visits and Physician Clinical FTE
Support Staff Expense per Work RVU
Annual Patient Encounters per Physician Clinical FTE
Annual Procedures per Physician Clinical FTE
Physician Annual Base and Incentive Compensation per Clinical FTE
Percentage of New and Established Patient Encounters by Specialty
Average New Patient Appointment Lag Days
Clinic Session Scheduled and Actual Appointment Utilization
Network Utilization (Migration Patterns)
Patient Quality and Satisfaction Survey Results

Teaching Mission Performance Optimization

Every AMO is involved in undergraduate medical education and graduate medical education involving residency and fellowship programs. As such, the teaching mission is a hallmark of every AMO and therefore a critical mission category. Even so, funding for graduate medical education (“GME”) has been flat or declining when adjusted for inflation for decades.⁵ In addition, every GME program has grown over the past 25 years even though the number of resident and fellow FTEs eligible for Federal reimbursement has been, until recently capped at 1996 levels.^{6, 7}

These conditions have put enormous financial pressure on AMOs and teaching hospitals. Even though GME programs are highly fixed cost operations, there are core metrics that can be tracked to monitor the educational, financial, and clinical service efficacy of these programs.

Core Teaching Mission Metrics

Annual GME Program Sources and Uses of Funds Statement
Program Accreditation Status
Number of Medical Student, Residency, and Fellowship Program Applications
Medical School Acceptance Rate
GME Program Match Rate
Medical Examination and Board Certification Pass Rates
Attending Physician Performance Feedback
Medical Student, Resident, and Fellow Satisfaction Survey Results
GME FTEs Within and Above Reimbursement Cap Level
Annual Reimbursement per GME FTE Within and Above Cap Level
Annual Operating Cost per Resident and Fellow FTE
Attending Physician FTE per Resident or Fellow
Clinical Mission Impact
Research Mission Impact

Research Mission Performance Optimization

The research mission is arguably the most challenging. Inflation adjusted NIH funding declined from 2003 to 2015 with a return to the 2003 funding level in 2023. The result is a two-decade stagnation of federal funding for bio-medical research.⁸ This has resulted in the average age of a faculty member receiving their first R01 grant increasing from 35.7 to 43.0.⁹ What has been going on with Indirect Cost Recovery funding?

At the same time, the cost of conducting research has risen steadily fueled by higher faculty costs due to longer ramp-up periods, increased supply costs, and support staff costs. NIH capping research investigator salaries at $212,100 has required internal funding to cover the salary costs specialists involved in research grants.¹⁰

Core Research Metrics

Annual GME Program Sources and Uses of Funds Statement
Annual Research Mission Sources and Uses of Funds
Research Faculty FTE
Total Research Program Margin/Investment per Faculty Research FTE
External Funding Percentage per Faculty Research FTE
Internal Funding Percentage per Faculty Research FTE
Total Number of Peer Reviewed Publications Submitted/Accepted
Average Number of Peer Reviewed Publications Submitted/Accepted per Research FTE
Wet Lab Space Utilization by Externally and Internally Funded Research Activity
Core Equipment/Major Equipment Utilization and Sources of Funding

Bottom Line

Managing high-performing AMOs that are capable of consistently delivering their tripartite mission of excellent clinical service, medical education, and research requires continuous evolution towards innovation and a clear understanding of core performance expectations within each mission. Organizational evolution and achievement of core mission performance standards are extremely complementary and synergistic within an AMO and facilitate value-added affiliations with associated hospitals or health systems.

An approach for the adoption of concepts presented in this article would include the following:

Objective, current-state assessment of the operational maturity of the AMO overall and its departments and divisions specifically.
Identification of operating units that are significantly below the overall organization as well as those that are examples of innovation.
Development of plans to align maturity at the highs level currently in place in the near term and to the next level of the maturity model thereafter.
Refinement of management reporting to encompass core performance targets in an easily understood format that provides actionable data and is routinely distributed and reviewed by the leadership team.
Standardized faculty effort allocation methodology and reporting processes that give each faculty member an understanding of performance expectations and facilitate AMO leadership adjusting faculty deployment when required.
Alignment on core performance expectations for the clinical service, teaching, and research missions that drive excellent quality, financial sustainability, and show strong stewardship of resources.

FTI Consulting Health Solutions has partnered with leading Academic Medical Organizations across the country and welcomes the opportunity to learn more about your organization.

FTI Consulting has and will continue to provide insights based on both our client experiences and market changes impacting Academic Medical Centers. Please contact us for more information about our Maturity Model and explore our Healthcare & Life Sciences quarterly newsletter.

Footnotes:

1: Henry J. Aaron. “The Plight of Academic Medical Centers.” The Brookings Institution (May 15, 2000). https://www.brookings.edu/wp-content/uploads/2016/06/pb59.pdf.

2: Jacqueline LaPointe. “Congress to Halve Medicare Payment Cuts Via Year-End Spending Package: Physicians are Facing a 4.5% Reduction in Medicare Payments Next Year, But Congress’ Year-end Spending Package Would Reduce That to 2%.” Revenue Cycle Intelligence. (December 22, 2023). https://revcycleintelligence.com/news/congress-to-halve-medicare-payment-cuts-via-year-end-spending-package#.

3: “The Complexities of Physician Supply and Demand: Projections From 2019 to 2034.” Association of American Medical Colleges (AAMC) | Prepared for the AAMC by IHS Markit Ltd. (June 2021). https://www.aamc.org/media/54681/download.

4: Joseph Keyes, et al. Have first-time medical school deans been serving longer than we thought? A 50-year analysis. Academic Medicine: Journal of the Association of American Medical Colleges. (December 2010). https://pubmed.ncbi.nlm.nih.gov/20978430/.

5: Candice Chen, Yoonkyung Chung and Stephen Peterson. “Changes and Variation in Medicare Graduate Medical Education Payments.” JAMA Network. (October 7, 2019). https://jamanetwork.com/journals/jamainternalmedicine/fullarticle/2752363.

6: Katherine He, Edward Whang and Gentian Cristo. “Graduate Medical Education Funding Mechanisms, Challenges, and Solutions: A Narrative Review.” American Journal of Surgery. (January 2021). https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7308777/.

7: Phillip Miller. “GME Spending Cap is Finally Lifted - Will This End The Physician Shortage?” Merritt Hawkins. (February 20, 2021). https://www.merritthawkins.com/news-and-insights/blog/healthcare-news-and-trends/gme-spending-cap-is-finally-lifted-will-this-end-the-physician-shortage/.

8: “National Institutes of Health Funding: FY1996-FY2023.” Congressional Research Service. (Updated March 8, 2023). https://sgp.fas.org/crs/misc/R43341.pdf.

9: Sarah Mann. “NIH, Research Community Target Next Generation of Scientists.” American Association of Medical Colleges (AAMC). (November 13, 2017). https://www.aamc.org/news/nih-research-community-target-next-generation-scientists.

10: “Salary Cap and NRSA Stipend Levels Announced in Early 2023.” NIH National Institute of Allergy and Infectious Diseases Funding News Edition. (March 1, 2023). https://www.niaid.nih.gov/grants-contracts/salary-cap-and-nrsa-stipend-levels-2023.

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05. Jun 2023

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