Corporate Compliance

Healthcare reform poses funding challenges for academic medical centers

Compliance Monitor, March 28, 2012

The future of academic medical centers: Strategies to avoid a margin meltdown, a study recently published by PwC, indicates that 10% of traditional academic medical center (AMC) revenue could be cut because of external funding threats.

These threats include lower indirect medical education (IME) funds and reduced disproportionate share hospital (DSH) payments. With operating margins that average 5%, some AMCs may see their profit margins disappear altogether, according to the report.

Approximately 70% of AMC leaders responding to the PwC survey identified the potential reduction in IME funds as a revenue threat. President Obama’s budget proposal includes a 10% reduction in IME by 2013. Alicia Harkness, principal at PwC's Health Research Institute, Tyson’s Corner, VA, says IME isn't the largest bucket in terms of dollar amounts, but AMCs recognize that IME funding is an easy target for policy makers who often contend that it isn't directly related to patient care.

PPACA will begin reducing DSH payments in 2014. The first-year aggregate reduction of $500 million will grow to $4 billion in 2020. Some 61% of AMC leaders recognize this as a revenue threat. Millions of uninsured individuals also will migrate to private insurance or Medicaid in 2014. This means Medicaid revenues will increase and AMCs will need to attract their share of the newly insured patients to make up for declining DSH payments.