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Governing Academic Medical Center Systems: Evaluating and Choosing Among Alternative Governance Approaches

Chari, Ramya PhD, MPH; O’Hanlon, Claire MPP; Chen, Peggy MD, MS; Leuschner, Kristin PhD; Nelson, Christopher PhD

doi: 10.1097/ACM.0000000000001903
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The ability of academic medical centers (AMCs) to fulfill their triple mission of patient care, medical education, and research is increasingly being threatened by rising financial pressures and resource constraints. Many AMCs are, therefore, looking to expand into academic medical systems, increasing their scale through consolidation or affiliation with other health care systems. As clinical operations grow, though, the need for effective governance becomes even more critical to ensure that the business of patient care does not compromise the rest of the triple mission. Multi-AMC systems, a model in which multiple AMCs are governed by a single body, pose a particular challenge in balancing unity with the needs of component AMCs, and therefore offer lessons for designing AMC governance approaches. This article describes the development and application of a set of criteria to evaluate governance options for one multi-AMC system—the University of California (UC) and its five AMCs. Based on a literature review and key informant interviews, the authors identified criteria for evaluating governance approaches (structures and processes), assessed current governance approaches using the criteria, identified alternative governance options, and assessed each option using the identified criteria. The assessment aided UC in streamlining governance operations to enhance their ability to respond efficiently to change and to act collectively. Although designed for UC and a multi-AMC model, the criteria may provide a systematic way for any AMC to assess the strengths and weaknesses of its governance approaches.

R. Chari is policy researcher, RAND Corporation, Arlington, Virginia; ORCID: http://orcid.org/0000-0002-6805-0974.

C. O’Hanlon is assistant policy researcher, RAND Corporation, and a doctoral candidate, Pardee RAND Graduate School, Santa Monica, California; ORCID: http://orcid.org/0000-0001-6398-5845.

P. Chen is physician policy researcher, RAND Corporation, Santa Monica, California.

K. Leuschner is research communications analyst, RAND Corporation, Santa Monica, California.

C. Nelson is senior political scientist, RAND Corporation, and professor of policy analysis, Pardee RAND Graduate School, Santa Monica, California.

Editor’s Note: An Invited Commentary by D.S. Guzick and D.E. Wilson appears on pages 154–156.

Funding/Support: Funding for this work was provided by the Regents of the University of California.

Other disclosures: None reported.

Ethical approval: This work was determined not to be human subjects research by RAND’s Institutional Review Board on April 14, 2015, and required no review (reference number: 2015-0343).

Previous presentations: A report of the analysis was prepared for the Regents of the University of California and is currently available online at http://regents.universityofcalifornia.edu/regmeet/july15/h1attach.pdf. The report for the Regents is specific to the needs of the University of California and provides no additional assessment or commentary on the framework created to evaluate governance options.

Correspondence should be addressed to Ramya Chari, RAND Corporation, 1200 S. Hayes St., Arlington, VA 22202; telephone: (703) 413-1100, ext. 5216; e-mail: rchari@rand.org.

Academic medical centers (AMCs) in the United States are entering challenging and uncertain times. The ability of AMCs to fulfill their triple mission of patient care, medical education, and research is threatened by increasing financial pressures,1 reductions in government support for medical education, and stagnant levels of research funding.2–4 Some estimates suggest that in the next decade, as much as 10% of traditional AMC revenue streams could disappear because of these and other stressors.3,5

To ensure their survival, the Association of American Medical Colleges has encouraged AMCs to increase their operational efficiencies through consolidation or affiliation with other health care systems.6 Recently, the pace of consolidation in the health care industry has exploded, with the volume of transactions (mergers and acquisitions) increasing by 18% from 2013 to 2014.7 As health care systems grow as a result of these transactions, the challenges of integrating institutions with different identities, organizational cultures, and decision-making processes become more pronounced. These challenges are particularly acute among AMCs seeking to expand into academic medical systems. By system, we mean an entity that has expanded beyond the traditional single hospital and medical school to include other patient care entities, such as clinics and additional hospitals. As these clinical operations grow in size and scope, the need for effective governance becomes even more critical to ensure that the business of patient care continues to enhance, rather than eclipse, the AMC’s medical education and research missions.

AMC governance approaches (structures and processes) provide the support and guidance needed to fulfill the triple mission. AMCs transitioning into academic medical systems need to ensure that their governance approaches have the authority and capacity to support and guide newly affiliated entities and to oversee the functioning of the system as a whole. Lessons for designing governance approaches for academic medical systems may be drawn from the experiences of multi-AMC systems, a model in which multiple AMCs are governed by a single body. In the case of a multi-AMC system, governance approaches need to be strong enough to promote unity among the different AMCs, yet flexible enough to allow each component AMC to thrive in its local environment. Although only a handful of multi-AMC systems exist in the United States (e.g., University of California [UC], State University of New York [SUNY], University of Texas), examining a multi-AMC system may help illuminate important governance issues that also exist in other AMCs, as well as challenges that are particularly relevant to AMCs undergoing consolidation and aiming to create a cohesive whole out of many individual parts.

UC leaders began considering changes to the governance approach of UC’s multi-AMC system in 2013. UC includes five separate AMCs (one each at its Davis, Irvine, Los Angeles, San Diego, and San Francisco campuses), which all operate under the guidance of the UC Board of Regents (UC Regents). UC’s health care operations (i.e., all health care facilities across the five UC academic medical campuses) are collectively known as UC Health. In early 2015, the UC Regents contracted with RAND Health to examine UC Health’s governance approach and make recommendations for potential changes to ensure its continued growth and sustainability. This article describes the development and application of the set of criteria we used to evaluate the strengths and limitations of different governance options for UC Health. We based our analysis on a review of the literature on academic, hospital, and board governance and key informant interviews with leadership at UC (including UC Health) and a selection of AMCs across the United States (see below). Although we designed the criteria specifically to develop recommendations to aid UC decision making, they may also be applicable to any AMC considering mergers, acquisitions, or affiliations and may help leaders understand whether potential governance approaches will improve or hinder efforts to work together efficiently and effectively. In so doing, this article addresses a gap in the literature on developing and choosing among effective governance approaches for academic medical systems.

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Original Governance Approach of UC Health

UC Health comprises the health care entities (e.g., hospitals, clinics) at each of the five UC AMCs. Like other AMCs, the UC AMCs have successfully pursued their triple mission by using patient care revenues to subsidize medical education and research.8,9 With 159,000 inpatient and 4.2 million outpatient visits per year, the five UC AMCs bring in $8.6 billion annually, constituting over one-third of UC’s total revenue10 and contributing nearly one-quarter of UC’s operating budget.11 In 2013, UC Health leadership voiced concerns that the original governance approach did not allow for the quick decision making necessary to maintain a competitive position. Their concerns included delays in the process of recruiting candidates and hurdles to developing business relationships. UC Health leadership was also concerned that the governance approach did not allow the five AMCs to act collectively to leverage economies of scale.

Figure 1 illustrates the original governance structure of UC Health. While the individual AMCs loosely coordinated with each other, they each reported directly to the UC president and ultimately to the UC Regents, which held authority for all aspects of the university including UC Health. The UC Regents had a variety of standing committees, including the Committee on Health Services (CHS), which oversaw UC Health and health-care-related matters.12 The CHS was made up of regents, the UC president, and other UC representatives (e.g., expert advisors, faculty, staff).13

Figure 1

Figure 1

To develop recommendations for UC leadership on how to restructure the governance of UC Health, we engaged in the following process to assess new governance options:

  1. Identify criteria for evaluating governance approaches (structures and processes);
  2. Assess current governance approach using the identified criteria;
  3. Identify options for alternative governance approaches; and
  4. Assess strengths and weaknesses of the options using the identified criteria.
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Assessing Governance of Academic Medical Systems

Identify criteria for evaluating governance approaches (structures and processes)

To identify criteria that might be used to guide an assessment of governance options, in early 2015, we reviewed the published literature on academic, hospital, and board governance and conducted hourlong interviews with 23 AMC or health system leaders at UC and other institutions (17 UC participants and 6 participants from outside of the UC system). We identified 82 relevant articles from the peer-reviewed and gray literature (e.g., white papers, technical reports). We also reviewed documents provided by UC related to UC Health governance, as well as laws, bylaws, and CHS meeting minutes and recordings. Interviews focused on understanding the strengths and limitations of different institutions’ governance approaches, as well as desired attributes of governance approaches in general. Institutions outside of UC (see below) were selected based on the degree to which the literature referred to a particular institution as an exemplar for governance, the extent to which the institution’s governance approach was already discussed as a possible model for UC, and the need to capture variations in possible governance approaches. Our interviews with key informants and literature review revealed two broad goals particularly germane to the governance of academic medical systems: nimbleness (ability to respond efficiently to change) and systemness (ability to act collectively as a whole). Guided by these goals, we identified seven criteria through which to assess a governance system.

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Criterion that addresses nimbleness

  • 1. Timeliness and efficiency of decision making. Although we did not identify empirical studies relating timeliness of decision making to clinical performance, this was a strong theme throughout our key informant interviews. These interviews noted that streamlining the decision-making process could improve the health system’s ability to respond to changing conditions.
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Criteria that address systemness

  • 2. Ability to provide strategic guidance. The literature stressed the importance of focusing board attention on strategic, system-level guidance as opposed to daily management or operational decisions.14–17 Such a focus on strategic issues has been associated with higher hospital quality rankings,14 patient admissions, and market share.17
  • 3. Ability to take advantage of system-level efficiencies. Both the interviewees and literature noted that the ability of a system to identify and leverage economies of scale (e.g., joint purchasing) and scope (e.g., specialization across campuses) can result in greater efficiencies.18,19
  • 4. Ability to maintain alignment across the triple mission. As suggested by the literature review and our key informant interviews, if a governance approach facilitates and encourages alignment and a shared vision across all AMC mission areas, it can help reduce conflict while enhancing sound decision making.20–22
  • 5. Responsiveness to local conditions. Responsiveness to market conditions or community contexts at each campus or entity in the system has been shown to be relevant to most large, multisite medical systems.15 Interviewees emphasized that understanding local factors is crucial to maintaining and growing market competitiveness.
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Criteria that address nimbleness and systemness

  • 6. Expertise. Board member expertise in areas relevant to clinical care and operations is frequently cited as desirable in hospital governance.23 The presence of certain types of individuals (e.g., frontline nurses and/or physicians) on hospital boards has been linked to higher scores on clinical quality ratings.14 Key informant interviewees suggested that more generalized expertise, such as knowledge of running a large, complex business enterprise, is also vital.
  • 7. Feasibility. As a standard criterion for policy analysis, feasibility refers to the costs and perceived risks of making a transition to any proposed new system.24,25
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Assess current governance approach using the identified criteria

To understand the challenges facing UC Health, we conducted an assessment of the original governance approach using the criteria described above. For this needs assessment, we interviewed 17 key UC leaders including deans, chancellors, health system corporate executive officers, and regents (see above).

Our assessment revealed a general agreement that the original governance approach of UC Health did not adequately allow for timely decision making, access to relevant expertise, and strategic guidance. This was primarily due to perceptions that multiple layers of reporting and oversight at both the local level (chancellors) and system levels (regents) delayed decision making, that insufficient knowledge about the health care sector among key decision makers led to suboptimal assessments about the pros and cons of business decisions, and that the frequency and nature of CHS meetings encouraged discussion of short-term operational and management issues over longer-term strategic discussions.

The assessment also revealed that the interviewees had mixed opinions on how well UC Health governance met identified criteria related to systemness. While some interviewees discussed difficulties in capitalizing on system-level efficiencies and maintaining alignment across the triple mission, we noted tension arising from a potential decrease in responsiveness to local conditions. For example, greater centralization could compromise the ability of each campus to respond to local needs and create trusted brands tailored to local markets. However, interviewees also noted that as the individual AMCs expand their reach, their largely distinct markets increasingly overlap. Without coordination and conflict adjudication mechanisms, the individual AMCs may compete with one another to the detriment of the system as a whole.

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Identify options for alternative governance approaches

We explored alternative governance options to address the challenges identified in our needs assessment. In addition to our assessment of UC Health’s original governance approach and literature review, key informant interviews (see above) with leaders at five other AMCs—University of Washington (UW), University of Kentucky (UK), University of Colorado, Johns Hopkins Medicine, and SUNY—and one health system—Ascension Health—guided our development of the following four alternative governance options for UC Health (see Table 1):

Table 1

Table 1

  1. Retain the original governance approach;
  2. Create an expert advisory committee without delegated authority;
  3. Create an oversight board with delegated authority; and
  4. Separate UC Health from UC as its own independent, legal entity.

In addition to these governance options, we also identified three best practices that optimize the effectiveness of any governance approach14 and would be implemented in any of the governance options described above. These practices are continual education and development for board members or members of the decision-making body,26 use of a standard set of performance measures to ensure accountability of the decision-making body,27 and regular self-assessment among members of the decision-making body to allow for course corrections and improvement.28

The options we identified could be laid on a continuum from the minimal (option 1) to maximal (option 4) amount of change from the original governance approach. Option 1, the lowest level of change, entailed maintaining the original approach but instituting the best practices mentioned above. Options 2 and 3 presented a greater degree of change from the original approach. Both proposed keeping the integrated structure of the present system but also engaging additional voices and expertise in the decision-making process. This would occur through the creation of an expert advisory committee or oversight board that would include university and health care representatives from the five UC AMCs, as well as external experts in health care or related fields appointed by UC representatives. The committee or board would engage on issues of health care strategy, mission alignment, performance monitoring, and time-sensitive business matters. The difference between options 2 and 3 is the level of decision-making power granted to the committee or board. In option 2, the committee is purely advisory with no voting power. In option 3, the regents would formally delegate some decision-making powers to the board. Such a creation or consideration of a new committee or board to bring in additional perspectives has been demonstrated by a number of AMCs such as UW,29 UK,30 University of Connecticut,31 and SUNY.32

Option 4 presented the greatest degree of change—that is, UC Health (i.e., all health care facilities across the five UC AMCs) would legally separate from the rest of UC to be its own organizational entity. As a separate entity, UC Health would create its own governance approach, focusing on the issues deemed relevant to its operations. Additional coordination mechanisms would be necessary for UC Health to work closely with the UC universities to ensure that the triple mission remained aligned. Many AMCs across the nation already operate under a similar structure, with separate ownership of the health care enterprise and the university.33 There is some evidence to suggest that formal separations have allowed hospitals to be more competitive and to thrive as businesses.34–36

We note that there is no universal “gold standard” or optimal approach that would work across all institutions.37 One set of case studies on university governance has found, for instance, that governance structure can improve decision-making efficiency, but performance depends on how individuals work within that structure.38–40 Therefore, two AMCs with similar governance structures might perform very differently on our identified assessment criteria as a result of differences in leadership, interactions, and working relationships among key players. Nonetheless, the governance structure does provide the scaffolding that facilitates or hinders performance on the assessment criteria.

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Assess strengths and weaknesses of the options using the identified criteria

Table 2 summarizes our assessment of the four alternative governance options using the seven criteria we identified. For this exercise, we relied on the subjective judgments of four independent raters (R.C., C.O., P.C., C.N.). Given the absence of agreed-on objective benchmarks, ratings for each option reflect a rater’s perception of how that option would perform on each individual criterion relative to how he/she perceived the other three options would perform. Once the independent ratings were complete, we discussed differences in raters’ assessments until consensus was reached, and our resulting findings were used to make recommendations to UC leadership.

Table 2

Table 2

Based on performance across the seven criteria, option 3 (creating an oversight board) appeared to provide the best opportunity for UC to enhance both nimbleness and systemness. Specifically, it was believed that option 3 would increase the timeliness and efficiency of decision making, encourage provision of strategic guidance, facilitate system-level efficiencies, incorporate internal stakeholders across AMCs to ensure alignment across the triple mission, promote a balance of system- and campus-level concerns to foster responsiveness to local conditions, increase health care expertise in the decision-making process, and present a potentially feasible approach without large structural changes.

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Results and Implications

How our assessment informed UC decision making

Ultimately, our assessment helped UC leadership make changes to its governance approach that were approved by the UC Regents.41 Our analysis allowed UC leadership to consider the pros and cons of different options, as well as minor variations of the options. Ultimately, in fall 2015, UC chose to streamline oversight of UC Health through a variation on option 3, in which UC modified the existing CHS (which already functioned as an oversight board) by reducing the number of voting regents but expanding membership to include additional nonvoting campus-level representatives (e.g., chancellors, a member of the Academic Senate with a clinical appointment at a UC medical school) and outside individuals with needed health care expertise.42 In addition, the CHS was granted expanded authority to make certain health care transaction and compensation decisions. Finally, UC leadership also explicitly called for performance monitoring through the development and use of dashboards that assess quality of care, cost, and access to care across the UC Health clinical enterprise.43 They report that these changes have led the CHS to meet more frequently and helped the CHS focus on and discuss strategic issues with a level of depth that was not possible previously.

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Looking forward

The true test of this assessment will be whether changes in the governance of UC Health result in improved performance on the six assessment criteria that address the broader concepts of nimbleness and systemness (timeliness and efficiency of decision making, strategic guidance, system-level efficiency, alignment across the triple mission, responsiveness to local conditions, and expertise). Personal communications from UC Health indicate that significant progress has been made in increasing the frequency with which the CHS meets (improving the timeliness and efficiency of decision making), the level of health care expertise on the CHS, and the CHS’s ability to provide strategic guidance. However, improvements on the other dimensions (system-level efficiency, alignment across the triple mission, and responsiveness to local conditions) remain the primary motivation for changing the governance approach. Although it may take some time before progress reports on these criteria can be made, officials at UC Health believe they are seeing progress on the six criteria.

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Limitations

Our assessment process has limitations that may affect the generalizability of our analysis to other AMCs and academic medical systems. Although we believe the identified criteria could be useful for academic medical systems in general, our assessment focused on one institution with the unique challenge of managing five very different but generally successful AMCs. Although we conducted key informant interviews with individuals outside of UC and reviewed literature across a range of AMC governance approaches, most of our data collection activities focused on UC. Therefore, our assessment may not have come across other important challenges that different institutions might face, such as strained community or labor relations; competition and antitrust concerns; or severe legal, financial, or safety issues. In particular, our assessment did not emphasize legal and financial challenges to governance (although they were implicitly considered in the feasibility criterion). Given that resource management and funding flows across mission areas are sources of potential conflict,38 future applications of this work may warrant addressing these issues explicitly. Moreover, there may be other broad goals, in addition to nimbleness and systemness, worth pursuing; although we identified these two goals as relevant to any AMC seeking to create systems of care, there may be additional goals that we did not identify.

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Conclusions

Through our study of the multi-AMC system of UC Health, we developed criteria for assessing governance options for academic medical systems and demonstrated how they could be used to assess governance options. These criteria helped UC decide how to change their governance approach to enhance their ability to respond efficiently to change (nimbleness) and to act collectively (systemness). As more AMCs move toward consolidated systems of care, a natural tension may be realized between the medical education, research, and patient care missions. Our criteria may provide a systematic way for AMCs to assess the strengths and weaknesses of their governance approaches, which in an uncertain climate are critical for ensuring that academic medical systems can continue to pursue their triple mission.

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Acknowledgments:

The authors wish to thank Jeffrey Wasserman, Susan Gates, Debra Knopman, and David Richardson for their feedback and assistance.

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        Copyright © 2017 by the Association of American Medical Colleges