What are academic medical centers focusing on most amid increasing pressure to improve performance?
McKinsey set out to learn the answers by surveying 100 AMC leaders in the summer of 2023. In a report issued in April, the global consulting firm notes that reimbursements falling short of costs, more alternative care options for patients, inflation-induced cost increases and chronic workforce shortages have hampered AMC financial performance. For 45 AMCs it analyzed, median operating margin fell from 3.7% in 2017 to 1.5% in 2022.
To better understand what AMCs are doing in response, McKinsey asked 100 academic medical centers what operational levers they are currently pursuing, with respondents having options to indicate they have pursued the effort in recent years and are continuing it, are newly pursuing it or increasing their focus on it this year, or not actively pursuing it at this time.
Below are the top 10 operational levers indicated by respondents, along with context to contrast their pursuit of these operational projects and the potential they see for high margin opportunity.
1. Length of stay. Eighty-five percent of respondents said this is a continued area of focus and 12% said it is a newer area of focus for their organizations, and the majority of AMCs — 41% — identified length of stay as the performance area with the greatest untapped margin improvement opportunity.
2. Revenue cycle management. Eighty-three percent of respondents said this is a continued area of focus and 13% said it is a newer area of focus for their organizations, while only 9% identified RCM as the performance area with the greatest untapped margin improvement opportunity.
3. Payer contracting. Seventy-seven percent of respondents said payer contracting is a continued area of focus and 16% said it is a newer area of focus for their organizations. A thin 7% identified insurer contracting as the area with the greatest untapped margin improvement opportunity.
4. Operating room utilization. While 75% of respondents are continuing focus on OR optimization, it is a newer or intensified area of focus for 19% of AMCs. Fifteen percent identified it as the area with the greatest untapped margin improvement opportunity.
5. Patient engagement and experience. Seventy-five percent of AMCs are keeping focus on this performance area, 15% are newly or increasingly focused on it, and a noteworthy 10% of AMCs said they are not actively pursuing it. Only 4% of AMCs see patient engagement and experience as the top untapped margin improvement area.
6. Physician productivity. Sixty-eight percent of AMCs are holding their focus on physician productivity improvements, while 23% are newly or increasingly focused on it and 9% indicated they are not actively pursuing it. Interestingly, while it falls out of the top five priorities, 22% of AMCs see this focus area as the top untapped margin improvement area — second only to length of stay improvements.
7. Organic growth. Sixty-seven percent of respondents said this is a continued area of focus, 23% said it is a newer area of focus for their AMCs, and 10% said it is not an active focus right now. A modest 8% identified organic growth as having the greatest untapped margin improvement opportunity.
8. Supply chain spend. Sixty-five percent of respondents said this is a continued area of focus, 23% said it is a newer area of focus for their AMCs, and 12% said it is not an active focus right now. A thin 4% said supply chain spend is the top untapped margin improvement area.
9. Purchased services spend. Sixty-four percent of AMCs are keeping focus on this performance area, 20% are newly or increasingly focused on it, and a noteworthy 16% of AMCs said they are not actively pursuing it. The modest potential may be why, as only 2% of AMCs see purchased services spend as the top untapped margin improvement area.
10. Pharmacy spend. Sixty-three percent of AMCs are keeping focus on this performance area, 17% are newly or increasingly focused on it, and a significant 20% of AMCs said they are not actively pursuing it. Five percent of AMCs see pharmacy spend as having the greatest untapped margin improvement opportunity.
Alternative revenue streams are the performance area that most AMCs — 42% — said they are not actively pursuing at this time.