Why Understanding Health Care Finance is Important Even if You Can’t Balance Your Own Checkbook

Recently, I ran into a former colleague, who now was a medical director for a multispecialty physician group. He negotiates contracts with payers and manages the specialists and primary care doctors. “It’s a different world,” he told me. “No more do we just admit the patient to the hospital. Now, we try to keep patients out of the hospital. No one taught us how to do that in medical school or residency. All of this financial change must really be wreaking havoc with academic health centers (AHCs).”

“Yes,” I said. “The financial strains have caused some AHCs to merge, others to try to expand their markets, and still others to cut expenses and downsize.”

“You guys are smart. I’m sure you’ll figure it out. But don’t wait too long. Things are moving quickly. Well I’m off to a meeting,” he smiled, turned, and hurried away as if to emphasize the speed of change.

I hoped that he was right and that we would figure out what steps to take to address the new financial environment. In our June issue, Stimpson and his colleagues provide an analysis of some of the forces that are creating  strains on AHCs. They discuss the additional costs of training programs and the need to maintain unprofitable service lines that provide necessary training opportunities, the responsibilities for providing costly complex care, such as trauma, burn, and critical care, the responsibilities for continued care of the uninsured, and the need to maintain research programs. While the authors encourage improvements in efficiency, they also note the complex administrative structure at AHCs that can make rapid decisions difficult. The solutions that they advocate include changes in reimbursement strategies, governmental support, and systems changes.

There currently are several new payment models being considered, such as bundled payments, global payment,  and capitated payments, and each has some advantages and disadvantages over fee for service. Regardless of the current local payment environment of an AHC, there are clear imperatives for increasing knowledge and expertise in payment methodology at all AHCs. Not only will this prepare the AHC for changes in their local reimbursement environment, but it will also help with governmental advocacy, since the government is a major payer for clinical care at most AHCs. Students and residents will  benefit from this expertise since they need experience in these new payment systems so that they are prepared for them when they complete their training.

The research and educational missions of AHCs provide substantial economic benefits to their local and regional communities as well as create the unique identity that differentiates AHCs from other health care providers. As the clinical mission comes under increasing financial strain, the ability for AHCs to subsidize the education and research missions with clinical funds will become increasingly difficult. Suggestions, such as those Stimpson and colleagues offer, provide important opportunities to begin conversations with external and internal partners in the academic medical enterprise to take advantage of the talent and expertise at our AHCs. Doing so will help us to “figure it out,” as my former colleague thought we would, even if we are not currently financial experts and even if we don’t balance our own checkbooks.