How academic medical centers can foster greater alignment to advance strategic goals

The highly complex funds flow and diverse partnership structures of today’s academic medical centers (AMCs) make it difficult for leaders to align on important financial decisions. However, the evolution to value-based care and ongoing revenue challenges have inspired them to consider new approaches. As activity within AMCs continue to evolve, CFOs will play an important role in ongoing collaboration to advance strategic goals. 

“Often the CFO is in the uncomfortable position of wanting to support dialogue about advancing the funds flow mechanism or agreement while also being mindful of politics,” said Dawn Samaris, MBA, CPA, managing director at Kaufman Hall, a Vizient company, who led a recent panel discussion on this topic at an HFMA AMC CFO Executive Council meeting.

 “How do you foster a productive conversation in a way that’s not going to be shut down immediately? How do you make sure your decisions are in the best interest of the organization as a whole? That’s where a lot of the conversation should be.”

Advocating for transparency

One way to foster these conversations is to disclose exactly how much the hospital pays to the school of medicine and physician practice plan — and for what purposes those entities use the money, said Samaris.

“What we’re seeing is people trying to create some real transparency around funds flow,” she added. “It’s more important to provide a holistic view. What is the total amount paid to each department or specialty across all payment streams relative to the clinical, academic and research activity produced by the group? These payments should be tied to measurable metrics, for example, work Relative Value Units (wRVUs). And expectations for payments should be set during the budget process to avoid covering undefined losses that may be incurred throughout the year.”

Promoting ever-evolving metrics

In addition, there has also been a trend toward metric-driven physician payments that evolve over time based on reimbursement changes; shared decision-making between the health system, school of medicine and faculty plan; and other factors, said Samaris.

“For example, if you’re payer agnostic, but the reimbursement changes for your governmental payers, do you need to adjust your dollar amount per RVU or measure a different metric, such as net patient revenue?” she said.

Reconsidering the role of individual departments in money management

AMCs have also begun to reconsider whether and how much money should flow directly to each individual department, said Samaris.

 “When less of the money resides at the department level, there’s more of an ability to align decision-making with the health system,” she added.

However, Samaris said this strategy is not without challenges, namely that academic chairs may not want to surrender that level of control. Organizations must think proactively about how to handle this in a way that mitigates tension.

“What we’re talking about with several organizations is this: If you think some of the academic chairs are going to retire or leave in the next couple of years, it might be worthwhile to revise their job descriptions and change some of the dynamics in terms of where decisions are made,” she added.

Following other best practices for funds flow

Other leading practice approaches for CFOs to consider regarding funds flow include increasing:

• Scrutiny of subsidized providers, locations and services
• Use of variable versus fixed funds transfers
• Sharing of risk between parties and funding allocations
• Linkage between strategic plan objectives and funding transfers

Rethinking organizational structure

During the presentation, Samaris also touched on organizational structure and the growing importance of service-line leadership. As activity within AMCs continues to move into ambulatory settings — often in community settings with limited ties to the academic campus — success relies on leadership taking a broad view of the optimal distribution of services and resources across the entire system. Success also requires clearly differentiating the system’s offering from those of its competition in each setting of care. Samaris said AMCs are increasingly moving away from the default of leveraging academic chairs as service line leaders.

“Some chairs may be more interested in research and academics and really want to spend their time in that space versus the clinical and care delivery space,” she said.

Appointing service line directors who devote more of their time to clinical care may help AMCs take a more patient-centric approach to care delivery to prevent patient leakage and care fragmentation, said Samaris.

Thinking holistically about resource allocation

Following best practices for resource allocation also helps CFOs promote healthy dialogue, said Samaris, who asked attendees to consider whether their organization has a truly holistic process.

“If an organization hires three more endocrinologists funded initially by grants, I would argue that needs to be in a resource allocation pool. What does that investment look like relative to going and buying three more MRIs and putting them in an outpatient center? Does your process capture the needs across all different departments?”

Samaris also provided these other best practices for resource allocation:

• Articulate objectives and principles
• Incorporate qualitative criteria as appropriate
• Integrate known process timing
• Leverage a bureaucratic process methodology (e.g., standardized analysis format, rational and consistent evaluation guidelines, uniform decision criteria and formal batch review process)
• Promote governance to ensure systemwide perspectives
• Use corporate finance-based concepts (e.g., net cash available for investment, incremental project free cash flow, weighted average cost of capital and discounted cash flow and risk analysis).

“The healthcare environment is evolving rapidly, and while AMCs have generally fared better than community hospitals, they are facing the same challenges that have disrupted operations and compressed financial performance in recent years,” said Samaris. “By aligning funds flow models and organizational structure with strategic goals, AMCs will be better positioned to achieve those goals and continue to fulfill their tripartite mission of teaching, research and clinical care.” 

Editor’s note: The AMC CFO Executive Council, sponsored by Kaufman Hall, brings together healthcare executives who operate in like environments to discuss emerging issues. If you are a CFO at an Academic Medical Center and are interested in learning more about the council, please contact Andrew Donahue at adonahue@hfma.org.

About Kaufman Hall, a Vizient company

Kaufman Hall, a Vizient company, provides management consulting solutions to help healthcare organizations realize sustained success amid changing market conditions. Since 1985, Kaufman Hall has been a trusted advisor to boards and executive management teams, helping them incorporate proven methods, rigorous analytics, and industry-leading solutions into their strategic planning and financial management processes, with a focus on achieving their most challenging goals.

_{This published piece is provided solely for informational purposes. HFMA does not endorse the published material or warrant or guarantee its accuracy. The statements and opinions by participants are those of the participants and not those of HFMA. References to commercial manufacturers, vendors, products, or services that may appear do not constitute endorsements by HFMA.}