Funds flow: What you need to know

A new AAMC report looks at how to improve the flow of funds across academic health systems: Who earns the money, who spends it, and how is it allocated among the education, research, and clinical care missions of the institution.
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A few years ago, Janis Orlowski, MD, chief health care officer at the AAMC, was visiting a large academic health system. She first met with the teaching hospital CEO, who told her that they provided a substantial level of funds to support their medical school partner — about $80 million annually — but weren’t quite clear on where and how the school ultimately spent that investment.

Later that day, Orlowski met with the medical school dean who told her about the massive costs associated with maintaining the medical education and research programs — the very programs that brought a high level of innovation, expertise, and success to the system’s clinical enterprise. The dean recognized that the $80 million was significant, but it often wasn’t enough for all of the critical programs they offered.

Clearly, the flow of funds in an academic health system — who earns the money, who spends it, and how it’s allocated among the education, research, and clinical care missions of the institution — is not always well understood, even by those closest to the action.

What’s more, as clinical margins decline and education and research costs rise, the need to integrate the flow of funds becomes more critical.

With this in mind, the AAMC launched a year-long Funds Flow Learning Collaborative (FFLC) to look at how health systems could better align strategic priorities and investment across the entire enterprise. This week, the AAMC released the FFLC’s findings in a new report, titled Next-Generation Funds Flow Models: Enhancing Academic Health System Alignment. Produced in partnership with Manatt Health, it shares insights from 10 AAMC member organizations to provide guidance for academic health systems facing rising costs and declining margins.  

AAMCNews sat down with Orlowski and Christiane Mitchell, MS, AAMC senior director of programs and engagement, to talk about the collaborative’s work, the new report, the changing roles of department chairs, the use of new faculty compensation methodologies, and more.

Why do we need new funds flow models? Aren’t the old models working?

There’s a very old diagram, called a flywheel, that showed if you recruit the right faculty, then they’ll be invested in education and the research that leads to innovation, and that innovation gives the clinical enterprise an edge. It’s a flywheel where the teaching hospital benefits and the medical school benefits and dollars are exchanged.

Thirty years ago, that often occurred as transactions at a department-by-department or section-by-section level. Today, there’s more pressure on the clinical entity where there are fewer dollars, smaller margins, and fewer funds to be shared across the enterprise.

In our learning collaborative, we found that successful academic health systems incorporated enterprise wide management, rather than having the medical school and teaching hospital on different sides of the equation.

Thursday, October 25, 2018

Funds Flow Collaborative

The following AAMC member organizations contributed to the report:

FFLC Participants:

Keck Medicine of University of Southern California

Penn State Health

University of Alabama at Birmingham Medicine

University of Florida Health Jacksonville

University of Southern Florida Health/Tampa General Hospital

University of Texas Southwestern Medical Center

Upstate Medical University

Yale New Haven Health

Contributors:

Penn Medicine

Nebraska Medicine

So how do academic health systems go from a transactional model to a model where there is more strategic direction and more integration?

In some institutions, the CEO of the hospital or health system might also be the dean of the medical school, so they are truly integrated. Other institutions may not structurally have one person over both enterprises, but there are ways to have integration in governance and strategic planning and our report speaks to that.

You’ll see in the report that there are three levels of strategic planning and management involvement that can lead to coordinated funds flow. Level 1 is purely transactional and represents the earliest form of funds flow. Level 2 is where there’s been some strategic shared goal development between the teaching hospital and the school of medicine. And then level 3 is a true integration in the strategic plan. Some people who are at the transactional level want to be at a different level and they’re saying, “Help us understand how you got there.” Others are looking for a way to grow the strategic partnerships in their system, and still others find financial pressures are leading them to be more prudent with resources.

How has the role of the department chair changed as institutions move toward integrating the flow of funds across the enterprise?

In the past, department chairs focused on the needs and successes of their own departments. But as senior leaders in academic health systems, their job is to help improve education, research, and clinical care at an enterprise-wide level. This requires department chairs to think broadly about shared success not only for their department but for the entire system. In an integrated and aligned model, the department chairs are now part of the leadership that determines the institutional-level priorities and strategic investments that will drive their institution’s overall success. The chair is taking on a critical leadership role in these enterprise-wide decisions about what to do with scarce resources.

What can you tell us about faculty salaries and the issue of value-based compensation?

The issue of incentivizing people to thrive in education, research, and patient care — and rewarding people who contribute to the success of the whole enterprise — is an important theme. It’s no longer enough to say, “Here’s your salary. Do a good job.” As we move toward value-based care, for example, the question is: How do you incent faculty to work on clinical quality metrics, in addition to having them participate fully in education and research?

One of the other things we talk about in the report are administrative salaries for physicians. Administrative work shouldn’t be paid as a percentage of what a physician could make as a clinician. Like education and research, it has to be valued for what it is. We need to compensate people appropriately for the job that they’re doing.

Should everyone adopt an enterprise-wide funds flow model?

One thing all the learning collaborative participants found was that past funds flow models may not work in today’s challenging environment. This report broadly shares ideals and practices that were discussed and reviewed by experienced leaders from the participating institutions. What we present are examples and challenges. These are the guiding principles and the best practices of those who have been through the process.