June 2001 Bulletin

Mission and margin: The business of academic medicine

Academic orthopaedic practices have traditionally focused on the tripartite mission of teaching, research and clinical practice. In the last 15 years, however, academic practices have quietly assumed a fourth mission, that of economic survival.

In 1960, approximately 3 percent of the revenue for academic practice came from patient care. By 2000, this percentage was more than 80 percent for procedure based practices such as orthopaedics. (See chart for Washington University department of orthopaedic surgery.) In addition, those financial surpluses that are generated by clinical care are used to subsidize research, teaching, and the academic institution through internal taxation.

This is not an isolated situation. The percentage of total revenue provided by clinical practice for orthopaedic surgery departments at other institutions is:

Revenues that are not derived from clinical practice activities (e.g. grants, endowment income, etc.) are restricted, most often, to specific endeavors such as basic or clinical research.

As a result of this dependence on clinical practice revenue, academic practices are subject to the same marketplace challenges as that of private practices including:

In addition, academic practices have the financial challenge of serving a higher proportion of uninsured and underinsured patients than their private practice colleagues. This is due in part to their community service mission, but also is a result of their service areas, which frequently include the inner city neighborhoods of metropolitan areas.

As reported in the AAOS Headline News, April, 2001, the Commonwealth Fund Task Force on Academic Health Centers found that the share of uninsured patients admitted to public academic health centers in highly competitive markets rose to 36.4 percent in 1996 from 23.2 percent five years earlier. It concluded that "over the long run, an increasing concentration of charity care could result in a downward spiral in the financial status of safety net institutions," unless steps are taken to share this responsibility.

How are academic programs reacting to these challenges? In the same way that private practices have embraced better business practices, academic departments have also changed their approaches to managing their businesses. New faculty are recruited for their clinical skills as well as their research and teaching skills. Incentive-based compensation plans have replaced fixed salary plans as a means to reward clinical productivity. The result … a comparison of billing activity between academic and private orthopaedic surgeons shows that gross charge dollars per physician are nearly identical for the two groups.1 The Medical Group Management Association’s (MGMA) recent survey of academic practices indicates that "physicians on the faculty of academic medical centers are spending more time than ever in billable clinical activities and less time doing research and teaching."2

The efforts of many centers extend even further. Practice overhead cost is now continuously examined for opportunities to reduce expense. Individual academic programs have joined together to form multispecialty practice associations in order to use their leverage in negotiating managed care contracts. Patient focused service has become a key strategy to attract and retain patients. The better performing academic practices have worked hard at improving patient access, reducing appointment wait times, and partnering with referring physicians to provide seamless patient care and service.

In an effort to understand these challenges and others experienced in today’s academic orthopaedic centers, Joseph P. Ianotti, MD, was appointed chairman of the AAOS Academic Affairs Project Team. Working with the AAOS marketing department, the team began by obtaining research data through focus groups and questionnaires sent to our members. The messages coming from this research effort were consistent and definitive. Physicians on the faculty of academic medical centers are under stress to become more economically productive while their environment is rapidly changing. Here’s what a physician said in one focus group session: "Every year, my chairman asks me to generate more revenue, write more papers, write a grant, etc. When I was in private practice, I had more free time and earned more money. The economic concerns may have gained the upper hand when a chair encourages an academic (faculty member) to do more spinal fusions and not write a paper."

Faculty members enjoy the diverse activities their academic practices provide–managing complicated cases, teaching and conducting research. But, as focus group responders noted, many of the traditional characteristics of practice in research-oriented institutions are evolving rapidly. One surgeon suggested, "The balance of positives and negatives has changed. Each of us stays on for different reasons. I have a great time teaching residents and fellows. But, that’s clearly being threatened; we have to use physician assistants and nurse practitioners and that leaves residents out. We are chasing revenue and residents are chasing us … we are losing the passions we had for doing what we do."

It’s more than revenue for their programs and personal income that concerns these physicians. They talked about the need to create a structured program for mentoring faculty, a higher level of "grantsmanship–helping researchers master the job of completing applications." They talked of creating an advocacy body for academic institutions that has an effective voice, and a program that supports and counsels young faculty members.

Dr. Iannotti reported that the project team found that a significant majority of the respondents, including those in private as well as academic practice, supported a broad range of AAOS initiatives such as the development of programs to improve resident education and funding, to increase the number of clinician scientists and educators and to support academic training programs.

The project team’s effort has led to the formation of a Council on Academic Affairs, which was approved by the Board of Directors in April. One of the committees serving the Council will be the Academic Business Practice Committee. It will work in cooperation with the Bones Society to develop benchmark data from the university hospital consortium, the Association of American Medical Colleges (AAMC), and the academic wing of the MGMA on best practices and on subspecialty and individual performance regarding volume of patients treated, operative cases, etc.

The committee will explore modern approaches to clinical practice, including rewards systems, expense allocations, the use of grant support, etc. It will develop strategies and programs to facilitate academic/community relations. Also, it will monitor the health of academic practices and will provide information on practice opportunities unique to academics.

The Council will provide the tools that these physicians need to deal with marketplace forces. Because, as has been observed so frequently in other disciplines, "there is no mission without margin."


Richard H. Gelberman, MD

1. Source: MGMA Academic Practice

Faculty Compensation and Production Survey 2000

2. Source: MGMA Newspaper April 15, 2001

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