Solving academic medical centers’ existential crisis

Hospitals and health care systems across the United States have long been expected to provide patients with high-quality, cutting-edge care and outcomes — while staying cost-effective. Their shared mission is to continue to improve the care they provide their patients; their shared responsibility is to do so without increasing costs by shifting from fee-for-service to value-based care.

Many negative trends that were happening before Covid-19 emerged, however, have escalated to a breaking point due to record inflation rates, workforce shortages and labor costs, drug costs, and reduced reimbursements.

Academic medical centers like the ones we work in face an even greater challenge, one that is rapidly becoming an existential crisis. These centers are designed to be engines of innovation based on their tripartite missions: educating every generation of health care professionals, conducting essential research, and providing world-class patient care. This remit is enormous, and the bar gets higher each year as the gap between expense and revenue widens, threatening their missions.

Academic medicine is the backbone of research that impacts patient lives. Such medical centers work with government agencies and the private sector, fostering innovations in diagnostics, therapeutics, procedures, health care devices, and more. They are the places where patients go when no one else can diagnose what is ailing them, and receive treatments that other institutions cannot provide.

Academic medical centers in the U.S. are struggling with a mounting, long-term financial crisis that will be ruinous to the American health care system and will negatively affect discovery, innovation, education, and these centers’ ability to provide quality care. Rapid technological change and growing health inequity are compounding the crisis.

Several centers are reporting ongoing deficits, including our own academic systems, Emory Healthcare in Atlanta and Mass General Brigham in Boston. Ours and other hospitals are experiencing the adverse trends of reduced private insurance reimbursement, gaps in government payments for care, and increased labor costs, along with providing care for the uninsured. The Association of American Medical Colleges reports that teaching hospitals in the U.S. (which represent just 5% of non-federal hospitals) provide 30% of all hospital-based charity care in the country. These hospitals are the safety net for their communities, providing care for everyone regardless of their ability to pay. The annual cost of hospital charity care was $28 billion in 2019. Charity care costs well over $100 million annually at each of our institutions.

Labor costs have become untenable, as health systems battle enormous staffing costs combined with worsening shortages of nurses and physicians. In the U.S., the total nursing workforce decreased by more than 100,000 from 2020 to 2021, the largest drop ever observed. And despite the best efforts to grow the ranks of medical students, the Association of American Medical Colleges estimates a shortage of between 37,800 and 124,000 physicians in 2034.

Academic medical centers cannot maintain their mission to care for patients solely based on the existing funding structure and sources. They must embrace an innovative funding approach that will sustain their long-term missions.

On the research side, federal funding has long benefited academic medical centers, seeding ground-breaking discoveries. Unfortunately, increases in the National Institutes of Health (NIH) budget directed to research have not accounted for inflation, and ongoing budget negotiations between Congress and the White House have left the Department of Health and Human Services, the National Institutes of Health, the Centers for Disease Control and Prevention, and other federal health agencies vulnerable to several billion dollars in cuts. Fortunately, those cuts were minimized when President Biden signed a $1.2 trillion mini-omnibus spending bill, which saw “only” $378 million in cuts to NIH from the agency’s base budget, instead of several billion dollars.

Support for research also requires internal institutional changes. Grant funding does not cover all the necessary costs for running a research-focused medical center, including operations (such as infrastructure and utilities) and administration. Nationally, depending on the organization and sources (federal, foundation, and industry), grants may cover as little as 60% of total research costs, leaving academic medical centers to cover the remaining 40%. Depending on the size of an institution’s research portfolio, this difference between can amount to tens or hundreds of millions of dollars annually.

Over the last several decades, academic medical centers have restructured and become more agile. They have taken advantage of their entrepreneurial spirit, which can provide some revenue to investigators and hospitals to help fund research. By having a stake in drug and device development, these organizations can benefit from licensing and royalty revenues. Academic medical centers continue to do their part; but answering the tripartite missions cannot fall to them alone. They must apply the same ingenuity and innovation to their financing structure as they do with their missions.

By embracing a diverse portfolio of public and private solutions, America’s academic medical centers will be able to succeed in the 21st century. There are a number of ways to accomplish this goal:

• Eliminate the burden of facilities and administrative costs by petitioning the federal government and the life sciences industry to include the total costs of research in grant systems. Expanding all grants to include the total cost of a research project, instead of just the costs tied to the research project itself, would relieve academic medical centers of having to cover the difference between total costs and research costs, creating a fiscal cushion that is sorely needed, both for their critical research mission and transformative investments.
• Because academic medical centers need to use revenue generated from caring for patients today to support the research that will benefit patients tomorrow, payers must recognize the complex care they provide and support it through their reimbursement for clinical care. While maintaining a focus on affordability overall, these payment models would account for the other responsibilities these medical centers carry that both directly and indirectly benefit patients and payers. By instituting reimbursement rates to include these missions, payers would have a vested interest in the research that ultimately benefits them and the U.S. public.
• Entrepreneurship makes it possible to identify opportunities that generate revenue to fund academic medical centers’ tripartite mission. Researchers at Emory developed the Covid-19 antiviral medication molnupiravir, and the university was recently listed as a top three worldwide institution in the number of new drugs discovered. By having a stake in drug development, academic medical centers can benefit from licensing and royalty revenues. Research conducted at Mass General Brigham has led to lifesaving treatments for diabetes, lung cancer, blood cancer, autoimmune disease, and more, including Enbrel, Entyvio, and Visudyne. More than 300 spin-off heath biotech and medical device companies (130 of which are in Massachusetts) have been created to diagnose and bring new treatments to patients based on research begun at Mass General Brigham. This approach enables academic medical centers to create new models of drug discovery and development to further support their missions and responsibilities.
• Diversifying the donor base will also help academic medical centers thrive. These centers can cover additional capital costs and research expenses through philanthropic funding from individual and family donors, nonprofits, and private agencies. If academic medical centers nationwide pursue more philanthropic opportunities, they will increase their budgets for some of the most vexing problems in science and medicine today.
• Academic medical centers must strive for a more efficient and integrated system to carry out research. These centers have similar needs for research operations and managing research facilities. Each center currently manages these items separately, and their respective supporting infrastructures have grown disproportionately. Cost efficiencies can be achieved by pursuing system-wide agreements, for example, and working cooperatively when opportunities arise.

It is a “Sputnik moment” for people working in academic medicine, as other countries are making large investments in research and infrastructure. Upgrading the financial foundation of academic medical centers must be a top priority of legislators and other stakeholders to ensure that the U.S. doesn’t fall behind. These solutions can be implemented today and have an immediate impact. By embracing change, they can ensure America sustains its role as the global leader in academic medicine.

Ravi I. Thadhani, M.D., M.P.H., is the executive vice president for health affairs at Emory University and the executive director of Emory’s Woodruff Health Sciences Center. Anne Klibanski, M.D., is the president & CEO of Mass General Brigham.