AMC Overview

Academic medical centers (AMCs) weave together patient care, education, and research in a complex ecosystem. Financial arrangements within this interwoven structure present a unique challenge: funds flow between the health system, medical group, and school of medicine is complex, and reliable benchmarks for these types of funding arrangements are scarce. Further, AMCs operate in a highly regulated environment with compliance considerations that range from the healthcare fraud and abuse laws to IRS inurement regulations to the rules that govern Medicaid supplemental payments. 

 

The Three Pillars: Distinct Entities, Shared Mission

At the heart of an AMC lies three distinct entities: 

  1. Health System: Healthcare provider responsible for delivering patient care through hospitals and clinics, generating revenue through patient charges and insurance reimbursements 
  2. Medical Group: Physicians and other healthcare professionals providing care to health system patients, either as employees of or under contract with the health system 
  3. School of Medicine (SoM): Academic institution with physician faculty who train future physicians and conduct research, relying partly on tuition, endowment, and grant funding 

While separate, these entities share a common mission: advancing healthcare through education, research, and quality patient care. Yet, this is where the complexity arises: As each entity pursues its mission, financial resources flow freely across them, blurring lines and creating potential for misalignment.  

To add further complexity, ownership of the three distinct entities varies across AMCs: 

  • Frequently, AMCs are fully integrated, where each distinct entity is owned by one common parent organization, usually a major university.  
  • More often, one or more entity has a separate, non-academic owner (typically the health system, but independent physicians and group practices can hold faculty positions at the SoM as well).  

While funds flow is an important consideration for fully integrated AMCs, designing and documenting compliant financial structures becomes crucial in multi-owner situations. 

AMC Services Arrangements 

While funds flow across AMCs in a variety of ways, the vast majority is usually related to services provided by the medical group and SoM to the health system. In fact, the arrangement between the health system and the medical group can look a lot like a massive, traditional professional services arrangement (PSA) between healthcare providers.  

In our experience, healthcare services arrangements are defined by the answers to the following three questions: 

  1. What services? In the case of AMCs, the faculty medical group/SoM provides the health system with a variety of services, including direct patient care (from both full-time providers and residents), resident supervision, medical directorships, and call coverage, among others. 
  2. Where? The services are typically, but not always, provided onsite at health system facilities. 
  3. Who bills? If the faculty medical group bills and collects from payers for their own professional services, any funding amounts from the health system should be offset by this revenue. 

Unlike traditional healthcare services arrangements, AMCs also have a fourth layer—the academic and research (A&R) mission held jointly by the three entities and primarily housed in the SoM. While the SoM is funded in part by tuition, endowments, grants, etc., A&R mission support from the health system is usually required to help cover SoM expenses. 

Primary AMC Funds Flow Categories 

Conceptually, funding for AMC services arrangements can be broken into three main categories, even if structure and terminology vary widely across AMCs:  

  1. Provider Services 
  2. Operational Support 
  3. A&R Mission Support 

Fair Market Value Considerations 

Provider Services 

The provider services component usually includes a wide variety of services and specialties that can often be benchmarked against traditional academic and non-academic physician compensation surveys.  The medical group has individual agreements with each provider, either employment or contractor agreements but the health system’s arrangement is assessed in aggregate, based on FTEs or wRVUs, by specialty and academic seniority because of the difficulty of assessing each physician’s fair market value individually. Similar to a traditional PSA arrangement between healthcare providers, the medical group is compensated in a lump sum and can compensate its individual providers as it sees fit. The medical group may generate margin on this component of the arrangement if it successfully negotiates favorable compensation terms with its providers.

Operational Support

Operating an academic physician group requires administrative effort, overhead, or operational support (also sometimes called “institutional support”). Since the provider services are rendered onsite at health system facilities, typical office-based overhead rates are inappropriate in most cases, since there is no medical office, utilities, medical supplies, or onsite support staff to cover. Instead, overhead rates for facility-based physician specialties can be used as a starting point. Another relevant data point is rates for facilities and administration (F&A) overhead costs attached to research contracts, clinical trials, and community services, as many academic institutions publicly publish offsite F&A rates. 

A&R Mission Support

The A&R mission support funding component is unique to AMCs and is used to further the growth and expansion of the charitable clinical, teaching, and research missions in the communities the AMC serves. We worked with healthcare financial research firm Scope Research to compile A&R mission support benchmarks for AMCs who report relevant A&R payment detail publicly. We found that the amount of A&R mission support can vary based on a variety of factors, including the size of the supported academic health system and the magnitude of the provider services included in the affiliation. At a high level, the 2022 study found that A&R mission support represented 2.1% of health system revenue, at the median, and 40% of the combined provider services and operational support funding included in the arrangement, also at the median. 

Conclusion 

AMCs are vital to advancing healthcare through their integrated missions of patient care, education, and research. With uniquely complex financial arrangements, AMCs require careful structuring to ensure alignment and compliance across their distinct entities. From provider services to operational support and academic and research mission funding, each component plays a critical role in sustaining the AMC ecosystem. Understanding these arrangements both ensures financial stability and supports the AMC’s overarching goals of improving healthcare delivery, training the next generation of providers, and driving innovation in research. Through thoughtful design and benchmarking strategies, AMCs can navigate these complexities while maintaining their shared mission.