Existential challenges ahead: Implications of proposed funding cuts and considerations for academic health enterprises

The path ahead for academic health enterprises is uncertain. While the scale of lost revenue varies by institution, all academic health enterprise leaders will need the support of faculty, staff, and the community to effectively navigate the challenging times ahead. The disruption from discontinued research funding and clinical sources of revenue will put at risk new discoveries and clinical access for some of the most vulnerable populations. In addition, many investigators’ life’s work and decades of effort could be put at risk, further creating fear and uncertainty among faculty and staff.

As a result, leaders should approach faculty with diplomacy and tact. Leaders should pursue engagement and communication strategies to gain faculty support and alignment on the needed changes.

In tandem with these internal communications, academic health system leaders must also galvanize support locally, regionally, and nationally on the importance of their enterprises to the health and economic well-being of their communities. These institutions are among the largest employers in the region, supply the community with health professionals, provide critical health services not otherwise available in the community, and advance discovery that improves lives for generations to come. Leaders must consistently communicate these societal contributions to stakeholders in Washington, DC, and the broader community.

While leaders build the case for change and seek to limit the impact of any potential cuts, health systems must also implement strategies that improve efficiency across the academic health enterprise. 

Academic enterprise performance improvement opportunities:

The academic enterprise—particularly research—has often been spared major performance improvement activities as NIH funding, other extramural funding, and gifts and endowments have grown over the past several years. Depending on the reliance on NIH and other government sources of funding, the historical approach of insulating the research mission from material optimization efforts cannot persist. While enterprise leaders can utilize a multitude of activities, key tools may include:

• Refocus the research enterprise on areas with greater strategic value and lower indirect costs, such as clinical and health services research. Leaders will want to be more strategic about where they invest in comparatively “high-cost” research, such as wet lab research. Moving forward, research leaders should increasingly invest in more “dry lab” research opportunities, focusing on research through computer models and bioinformatics.
• Grow academic revenues that can support the academic enterprise. While NIH funding is at risk, opportunities exist to maximize revenues. These include more aggressively enrolling patients in clinical trials and accessing other research dollars through foundations and the industry. In addition, leaders should seek out less familiar revenue opportunities, such as better monetizing intellectual property and clinical data. Some schools of medicine (SOMs), particularly at private institutions, may also have opportunities to grow their teaching revenues through increasing class sizes and raising tuition.
• Manage faculty effort more aggressively. While faculty are key to academic health enterprise success, greater discipline may be required to manage faculty effort and productivity. For many institutions, this may mean better adherence to rules and standards already in place, such as salary and effort coverage expectations and rule sets on use of grants and endowment funds. Furthermore, for clinician scientists who cannot cover their salary with grants, chairs and clinical leaders should redirect internal physician research effort to clinical effort (as appropriate) to increase clinical capacity.
• Better manage the costs of the academic enterprise through better coordination and sharing across investigators, departments, and even the region. Historically, academic health enterprises have maintained duplicative research and administrative structures across departments and business units. The future will require breaking down historical silos and fostering greater collaboration across the enterprise. This may require sharing research space, scientific equipment and technologies, and research staff—all to better support asset utilization.

Clinical enterprise performance improvement opportunities:

A need to further improve clinical enterprise performance comes after many years of driving efficiency to recover post-pandemic. Despite these ongoing performance improvement efforts, significant opportunities remain. For instance:

• Better utilize available physician capacity to improve access and serve more patients. For most academic health systems, demand for services far exceeds the supply of clinicians available within the network. Generating more clinical activity and physician capacity will be key to accessing the demand within the market and supporting clinical margin growth.

  As a first step, health systems should identify ways to increase clinical effort through better management while also recruiting new clinically oriented faculty to serve more patients. Furthermore, significant opportunities remain to redesign care models and care teams, increasing the number of patients served at a lower cost. This would require delegating more tasks to lower-cost team members, freeing time for faculty, advanced practice providers (APPs), and other providers to see more patients.

• Better utilize clinics, procedural suites, inpatient beds, and other key diagnostic and treatment resources. This will generally be required if more patients are able to access faculty. While leaders have numerous tactics available, they must consider how they better manage care provided at the academic hub while also providing more care within the community.

  For some organizations, leaders must better utilize their entire network, shifting low-acuity patients and certain programs out of the academic hub hospital and into community and ambulatory settings to better utilize available beds and operating room (OR) capacity across the network. Furthermore, operational discipline will be required to support improved patient access and throughput. Ensuring that the health system utilizes all clinical resources (e.g., faculty, beds, staff, exam rooms) to maximum capacity will require better management of length of stay in inpatient settings, improved OR throughput, and more aggressive management of clinical schedules and the associated scheduling templates.

• Reduce administrative costs within departments and across the health system. Many academic health enterprises are defining opportunities to streamline their organizational structures and better clarify accountability and authority across what are almost always complex, matrixed organizations. The current circumstances require increased nimbleness and greater administrative efficiency, which health systems can sometimes achieve by reducing organizational layers and streamlining dyad and triad leadership structures that can slow decision-making.

• Increase the discipline of staff management and staffing model redesign across settings. The staffing challenges of the past several years have reduced the level of discipline around “staffing to demand” and other management processes in some organizations. In many markets, the labor situation has returned to pre-pandemic levels, providing an opportunity for leaders to reintroduce more disciplined, and more efficient, staffing approaches.

  In addition, the movement toward inpatient units staffed primarily by RNs with BS degrees or higher has benefits, but it is costly. Some health systems are beginning to identify opportunities to hire lower-cost workers to perform tasks that don’t need to be done by a nurse. These approaches have the potential to change the skill mix on inpatient units in ways that provide meaningful savings. However, some health systems may be unable to make these kinds of changes due to regulatory or other labor constraints.

• More aggressively deploy artificial intelligence (AI) and other digital technologies to improve provider satisfaction, productivity, and outcomes as well as operational efficiency. AI and other digital technologies are beginning to change the clinical and operational processes in ways that materially improve performance along multiple dimensions. Implementing these tools requires investments, but a growing body of evidence demonstrates that some of these tools can reduce costs and improve provider productivity, satisfaction, and patient throughput and experience.

These changes are necessary but unlikely to sufficiently address the scale of impending financial challenges. Strategic restructuring of the overall academic health enterprise may be needed for long-term viability in some scenarios. In the following section, we identify a few of the potential restructuring options leaders should consider.

Academic health enterprises must pursue revenue growth and cost-saving opportunities while also planning for some or all of the following five imperatives, in the event they become necessary:

1. Eliminate or reduce capacity in poorly performing programs, including potentially closing sites of care that are not sustainable. Programs with poor performance will often reflect a financially challenging payer mix, and their closure may disrupt services to the community. However, if the funds previously used to provide these services are no longer available, organizations may be forced to curtail these services. 
2. Materially shrink the scale of the research enterprise to sustainable levels. Some academic health enterprises are now considering shrinking their research enterprise as the level of support required to sustain these activities is no longer affordable. Broad reductions in research funding may unfortunately require across-the-board reductions in the scale of the research enterprise.

3. Assess merger and partnership opportunities that increase scale to improve efficiency and market relevance. Cross-market merger and affiliation activity may become increasingly common, given that many markets are already highly concentrated. These mergers can be difficult to implement, especially in a highly challenging financial period, but they can provide additional opportunities for savings in both the clinical and academic cost structures.

   Furthermore, academic health systems may need to seek out partnerships with specialty providers that maintain the skills and capabilities to meet patient needs in a financially sustainable manner. Many academic health enterprises recognize the need to partner with providers who can bring expertise in areas such as behavioral health, post-acute care, and other related services.

4. Restructure relationships with university partners to better recognize the differences between operating a health system and a university. Many academic health enterprises continue to share infrastructure with their parent universities even though this approach can increase costs due to the differing business requirements of universities and academic health enterprises. Enterprises need mechanisms to recognize the differing requirements of these activities to improve efficiency, including the potential restructuring of relationships between the university and health system.

5. Share infrastructure across academic health enterprises and local competitors to improve efficiency. Leaders should look beyond their organizations for savings, including greater sharing of scientific resources across universities and medical schools. For example, communities with more than one medical school could achieve significant savings by sharing pre-clinical departments and faculty primarily focused on education.

   Opportunities also may exist to share high-cost infrastructure with other nearby health systems—even while remaining competitors. Digital technology may make it easier to consider development of regional lab, pathology, and imaging services that more efficiently support multiple health systems. Supply chain may be another area that can be managed across multiple health systems within current regulations. 

Academic health enterprises must quickly determine which strategies will provide timely benefits so they can begin work on the most relevant ones.