A Message from the AAMC President

Mission-Based Management: Lessons from the Real World

By Jordan J. Cohen, M.D., President, Association of American Medical Colleges
From Academic Medicine, September 1998, "From the President"

I am told that it costs the bank 26 cents every time one of us steps up to use an ATM. This story conveys a truth about banking and most other industries: They cleave to the axiom that one's success depends upon knowing one's costs.

No such axiom for academic medicine — at least not until recently. The phenomenal success of medical schools and teaching hospitals since mid-century cannot be traced to an overriding concern about costs, but rather to an ever-expanding pool of revenue fed generously by double-digit increases in annual NIH budgets, by the remunerative services of clinical faculty, by hefty reimbursements for the high-tech care and the GME programs mounted on the broad shoulders of our teaching hospitals, and by the largess of innumerable grateful benefactors. The spillover financed countless new initiatives, permitted a huge increase in faculty, underwrote our medical education programs, and provided much of the venture capital for our flourishing research enterprise.

But the spillover was anything but tidy. Deal-making, not bookkeeping, was the typical mode of tapping into the revenue pool, deals between school and faculty practice plan, school and hospital, hospital and departments, deans and chairs; and many of these deals were handshake arrangements, unwritten and unspoken. As a consequence, any attempt now to match money to mission is exceedingly difficult. The teaching mission is a prime example. It is so deeply embedded in the deal-drenched cross-currents of most schools that it is often viewed as a byproduct of other activities. Rather than being separately budgeted and funded as a core mission of the school (as advocated more than 20 years ago by the AAMC's GPEP Report), teaching is typically seen as a contribution made by those privileged to hold academic appointments.

But change is in the air. The press on institutional finances — coming from new strictures on patient care reimbursements, increased cost-sharing requirements of research sponsors, and growing regulatory burdens — is forcing medical schools to focus as never before on sound financial management. In evidence is a newly emerging concept termed "mission-based management." At a March 1998 AAMC conference entitled "Managing the Academic Enterprise," a rapt audience of institutional leaders heard their colleagues from several medical schools describe their early experiences with mission-based management practices.

While schools differ some in how they are adopting the principles of mission-based management, all are attempting to identify and account for the costs associated with each medical school function (teaching, research, patient care, community service, administration), and to match those costs with the various revenue streams available to them. Some schools are using mission-based management approaches to achieve consensus on performance measures, productivity standards, and appropriate tracking tools, and then to increase accountability and fiscal discipline through peer-review processes. The aim is to develop timely, accurate information detailing the financial performance of each operating unit within the school and the productivity of each faculty member within those operating units. Mission-based management does not entail eliminating cross-subsidies among programs or requiring that every mission stand on its own bottom. It does entail an understanding of the magnitude of cross-subsidies and offers an opportunity to subject them to institutional review.

The considerable advantages of mission-based management do not come without risks. By focusing on performance benchmarks and productivity indicators for faculty, for example, one may be tempted to stop the analysis after accounting only for those accomplishments that are easy to measure (e.g., research grants obtained, RVUs chalked up). Time spent in teaching and mentoring students, in performing administrative tasks that benefit the institution, and in providing uncompensated services to the community also deserve recognition. Even more easily ignored is the time faculty must have to think, to summon the muses that spawn true innovation and deepen serious scholarship. The pell-mell pursuit of patient-care billings and collections must not be allowed to trump faculty creativity, the sine qua non for continued improvement. The difficult challenge is to find ways to measure what we value, lest we fall prey to valuing only what we can easily measure.

Mindful of these risks, I remain convinced that we must pursue the sound business practices inherent in mission-based management. Simply asserting that "we are not a business" will no longer do. True, we are not merely a business, but failing to be businesslike in implementing management systems that control costs and make the most efficient use of our revenues is indefensible.

The AAMC is advocating vigorously that there be a set of "Shared Responsibility" mechanisms at the federal level to replace those teaching hospital and medical school revenues formerly embedded in the payments we received from third-party payers for our clinical services. To my mind, "Shared Responsibility" and "Mission-based Management" are complementary bookends on our shelf of survival manuals, neither without the other sufficient to brace us for our financially challenging future. What's more, many have argued that our very credibility in requesting additional public support for our societal missions depends on our demonstrated ability to implement the kind of sound management practices already adopted in virtually all other sectors of the American economy. They are right.

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