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A Word From the President: Navigating a Fiscal “New Normal”: Encouraging Examples from the Leadership Forum Summit

AAMC Reporter May 2013

When I became a medical school dean 20 years ago, I quickly learned that the expectation was that I grow the institution through more research funding, more clinical revenue, and more philanthropic contributions. It was all about growth, especially in clinical revenue—and it seemed to work.

Fast forward two decades. At every meeting I have the privilege to attend, including our own AAMC meetings, people are not talking about a future built on growth. They are calling for a new model, one that is more financially sustainable in an era of constrained resources and lower levels of state and federal governmental support. Clearly, we are experiencing a “new normal,” and with it come major fiscal implications.

Unlike our past approach, we simply cannot grow our way into a sustainable future. Rather, the imperative is to “think differently,” as AAMC Past Chair Mark Laret challenged us to do at our last annual meeting. Thinking differently also was the take-home message of the recent Leadership Forum Summit hosted by the AAMC Board of Directors. Titled “Navigating the New Realities of Academic Medicine: Implications and Opportunities for a Sustainable Future,” the summit brought together more than 100 leaders who engaged in deep discussion of how to prepare their campuses for our new fiscal realities and ensure that academic medicine continues to thrive and lead the changes that will improve America’s health. A summary of the proceedings is available to AAMC constituents at

A confluence of factors is driving this imperative for change. Under the sequestration recently allowed to take effect by Congress, the average medical school and teaching hospital stands to lose $20 million to $30 million each year, in addition to the substantial cuts already imposed by the Affordable Care Act and subsequent health-related legislation. Sequestration, in fact, may represent a new baseline of federal support for programs essential to fulfilling academic medicine’s missions, and many institutions will need to remove between $15 million and $20 million in recurring costs each year to make up for ongoing 2 percent cutbacks in Medicare reimbursements and 5 percent reductions in federal research grant support. While the AAMC will continue to advocate strenuously to reverse the cuts to Medicare and medical research funding, academic medicine can and must develop bold solutions that will allow us to fulfill our interdependent missions of medical education, patient care, and research in more cost-effective ways.

Institutions representing a range of geographic areas at the Leadership Forum Summit provided examples of how they are taking steps to build a more sustainable future. Several are restructuring their financial funds flow model into a single, all funds, mission-based model that is based upon quality and other metrics. To distribute school funds to departments more equitably, institutions are implementing transparent and formulaic funds flow models for the research, education, and clinical enterprises. These innovations are showing promising results. After four years of implementing a mission-based funds flow model, one large urban institution saw a $60 million annual deficit turn into a surplus for investment, while substantially growing its research and clinical programs.

Related to medical education, we heard from schools that already are beginning to move away from a lecture-based format by putting more content online and, in some cases, using other institutions’ content as well. Institutions also questioned why medical educators are not “shared,” with schools collectively determining which institution will teach which content. This would free up local faculty to focus on facilitating learning and direct clinical supervision.

Several institutions are making changes to graduate medical education (GME). One organization is looking to reduce or reallocate GME positions to prepare for potential cuts to federal GME support and align with the overall strategic plan of the health system. Under discussion at other institutions is reducing and/or eliminating GME positions that exceed the institutional Medicare caps. The AAMC will continue to press vigorously for expanded GME funding, but programs also must prepare for potential reductions in public support for residency training.

Institutions also are making changes to ensure future research sustainability. In one health system, the research mission largely has been budgeted through a major research institute, separate from the funding of clinical departments. Strong motivation exists at this health system to identify “research mission” funding throughout the clinical campus, particularly given the strong need for expansion of clinical research, including health services research and translational research. This health system is thus creating a “clinical research service line” that integrates research budgeting into the overall operations of the entire health system.

By minimizing administrative costs through efficiencies, sharing services, and restructuring, institutions also are facilitating innovation in their patient care delivery systems. The use of data and analytics to measure productivity, performance, and benchmarks is further strengthening patient care. One institution discussed its “value-based reimbursement” strategy, which prepares physicians for coming changes in health care payment models keyed to health outcomes rather than the volume of services.

Lastly, medical schools and teaching hospitals understand that creating a sustainable future will require a new kind of leadership. Several Leadership Forum Summit participants referenced the creation of leadership programs on their own campuses that benefit faculty and staff throughout the academic medical center. Some of our members even are developing leadership academies with their affiliated business schools to ensure their faculty can meet the challenges facing academic medical centers.

Clearly, the growth strategies that brought us to this point will not get us where we need to go. Creating a sustainable future in this fiscal “new normal” will not be easy, and likely will involve shared pain as we transform. But, as the participants of the Leadership Forum Summit demonstrated, medical schools and teaching hospitals are hubs of innovation that are testing new ways to operate more effectively in today’s fiscal climate and in the decades ahead. The AAMC is committed to being an active partner with you on this journey.

Darrell G. Kirch, M.D.

AAMC President and CEO