McKinsey Health has projected that academic medical center operating margins will fall by 4 to 5 percent by 2019. Growing financial pressures may cause internal conflicts to break out at the interface between research, teaching and patient care as increasingly scarce resources must be allocated and trade-offs made. Some academic medical centers may find themselves compromised by disagreements between leaders of their hospital, medical school and faculty practice plan. And academic medical centers may, because of their high levels of specialization, become even more vulnerable to silo syndrome in which narrow specialty and department interests override those of the broader institution.
Internal concerns can distract academic medical centers from external challenges, including those posed by aggressive community hospitals committed to competing for tertiary patients. A number of other developments bode ill for academic medical centers, including the growth in employment by community hospitals of physicians who generate a significant percentage of the referrals to academic medical centers. Consolidation of insurers will increase the negotiating clout of health plans, further building downward pressure on reimbursement rates, particularly for academic providers who have enjoyed a premium. And the central focus of health care reform will continue to be on reductions in government reimbursement overall.
A growing abundance of comparative data, demands for transparency and relentless pressure to demonstrate value will require academic medical centers to prove they deserve their differentiated positions, higher margins and superior bond ratings. Already, some studies suggest that academic medical centers, despite their significantly higher prices, show little advantage when their outcomes are compared with those of tertiary-level community hospitals. Inability to demonstrate superior clinical performance, particularly related to complex care, could devastate the intrinsic differentiation academic medical centers enjoy.
Hubris is another potentially debilitating affliction. Too often, academic medical centers have demonstrated a propensity to dismiss external realities, including customers and competitors. This attitude, in turn, can cause them to ignore the importance of respectful and responsive relationships with the community physicians who generate their referral base and who have the discretion to send their patients elsewhere.
Change and uncertainty are increasing for all health care organizations, including academic medical centers. Taken together, change and uncertainty generate varying degrees of volatility — the degree to which swings in a situation become wide and erratic as well as prone to cascading into disruptive consequences.
For academic medical centers, the need for strategic thinking that unifies and orchestrates commitments throughout the enterprise will grow as internal and external challenges intensify. More than ever, academic medical centers will be compelled to recognize that they operate in an environment where only the fittest will prosper. Fitness will require using core differentiators, at an overall institutional level, to guide the allocation of increasingly scarce resources toward a focused set of unifying strategies that generate clear advantages in value.
Strategy as the Most Important Obligation of Leadership
A strategy is a plan for getting from the present to a better future in the face of uncertainty and resistance. Absent uncertainty and resistance, there is no need for a strategy. A to-do list will suffice.
Some strategies are more important than others. “Driving strategies” represent the organization’s most important strategies. They represent the handful of things that must be done to secure continuing sustainable advantage.
A goal is not a strategy. A goal is an endpoint. A strategy describes how you intend to get across the goal line. It is a means to the end.