Abby Burns (00:14):
From Advisory Board, we are bringing you a Radio Advisory, your weekly download on how to untangle healthcare's most pressing challenges. I'm Abby Burns. If you were to describe healthcare in the United States, my bet is you would point to two very tonally different sides of a coin. On the one hand, you might use the word broken. The misaligned incentives, the high cost, the structural deficiencies that we spend a lot of time at Advisory Board trying to help you solve for. On the other hand, I would hope you'd also say it's inspiring when we look at what our clinical and scientific community can do to treat, manage, and cure injury and disease, to push the boundary of what is possible in the field of science and medicine.

(00:57):
There's a reason that we refer to many of our academic medical centers as world-class institutions. They are impressive and impactful, and I would argue integral to how we conceptualize what US healthcare even is. However, that doesn't mean these organizations are immune to the challenges that the rest of the provider industry is facing. To say that AMCs are under pressure is an understatement, and the stakes for what happens to this part of the industry are high for all of us. Today, I want to talk about the state and the future of academic medical centers. To help me do that, I've invited Advisory Board expert, Wes Campbell, to join me. Hey, Wes. Welcome to Radio Advisory.

Wes Campbell (01:38):
Hey, Abby. Thank you for having me.

Abby Burns (01:40):
Your Radio Advisory debut. This is an exciting day.

Wes Campbell (01:44):
It is.

Abby Burns (01:44):
Wes, we are talking today about academic medical centers, and when we were thinking about having this conversation, you were the obvious expert to turn to because this is exactly where you've spent the majority of your career.

Wes Campbell (01:57):
Yeah, the vast majority of my career has been in academic healthcare. My last gig, I was the chief of clinical operations in an academic health system. I've been to a couple of rodeos, seen a couple of things.

Abby Burns (02:08):
Wes, what you have said before is you freely admit to a healthy bias toward academic medical centers as the crown jewels of the healthcare system in the US. I want to lean into your bias a little bit because anyone working in healthcare can sort of recognize, yes, AMCs are important, I appreciate that. But can you just help define point on the specific roles that they play in the industry?

Wes Campbell (02:34):
I readily admit to that bias. It is hard-won, many years in the trenches. You think about academics, clearly the clinical mission comes to mind. Very often we think about quaternary care, but they also create knowledge. They don't just create knowledge, they create knowledge that benefits humanity. They are on the leading edge of developing the resources, the tools, the techniques, the understanding to help us confront the things that plague us in terms of illness and disease, and then they train the clinicians of tomorrow. Every clinician that's out there trained in an academic health system for at least part of their career.

(03:21):
So when you put those three things together, and in my experience, that tripartite mission is one that the academic systems deeply believe in. It's also one of the challenges that they have in terms of balancing. They talk about the three legs of the stool. I can't think of other healthcare organizations in this country that fill all three of those roles at the same time all day, every day.

Abby Burns (03:52):
I think it's also helpful to add in, when we're thinking about the academic landscape, that the size of each of those legs of the stool is different at every institution. The research profile at one organization looks different from the research profile at another. It just speaks to, yes, we're talking about providers, yes, specifically we're talking about AMCs, we're still talking about a pretty heterogeneous group.

(04:15):
Today, I almost want to do a diagnostic of what is happening in this segment of the provider market, and specifically how we should be thinking about the future. Because I think a lot of the challenges and the decisions that AMCs are facing right now are the same ones that non-academic provider institutions are facing, but there's a fair amount of nuance that I want you and I to tease out today, not just for academic leaders that might be listening to think about relative to their own futures, but really for leaders across the provider sector and the industry more broadly, specifically because AMCs play such a multifaceted role in healthcare.

Wes Campbell (04:54):
Yeah. Just to level set, there are lots of teaching hospitals, and all academics are teaching hospitals, but not all teaching hospitals are academics. That's an important differentiation.

Abby Burns (05:05):
As we think about this diagnostic of this segment of the industry, let's start by getting a lay of the land. How are AMCs doing right now, Wes, as we sit in the first quarter of 2026, and what is the outlook for the next few years?

Wes Campbell (05:21):
The academic systems are like any other provider, particularly institutional providers, hospitals, health systems. There are some that are doing very well. There are some that are not doing well at all. When we look at margin performance in academics, we see the median being several percentage points below the national average for hospitals and health systems. They're starting from a different place in terms of the things that we're going to talk about that are coming at them. So that median margin is four or 5% compared to about 8% was the most recent data in hospitals overall. Then of course, the trend when we look at the margin in the hospital, which is a financial engine, and that's one of the nuances in academics.

Abby Burns (06:12):
Can you explain that?

Wes Campbell (06:13):
The number of hands that are in that cookie jar are innumerable, but there's only so much to go around. Academics, just like in community systems, when we take that hospital margin and now we add in all of the other system components, ambulatory, medical group, we start to see it bleed off down to almost nothing. Last year was a pretty busy year in terms of policy and regulation.

Abby Burns (06:42):
To put it lightly.

Wes Campbell (06:43):
Yeah, and we've got a lot of variables at play. The thing that I think about and I worry about for academics is how all of those variables are attenuated on them specifically. It's not just one. It's not just Medicaid eligibility changes. It's not just site neutrality or any of the others. It's all of those things because they lever all of them to generate revenue.

Abby Burns (07:13):
Yes. To your point, Wes, that revenue that the hospital, the care delivery arm of the academic institution generates is used to almost cross-subsidize the other part of the tripartite mission. I think at 63% of school of medicine revenue comes from the care delivery arm.

Wes Campbell (07:30):
Yeah. This has been a trend that's been going on for decades where the clinical revenue streams are the predominant funding source for research and education. Tuition doesn't cover all of the educational costs. Research funding doesn't cover all the cost of creating that knowledge. So the clinical revenue stream now isn't just supporting the cost structure of the clinical staff and all the... I had a CFO friend who called all the equipment they used doodads. It's not just the doodads. It's the training, it's the research that they're doing.

Abby Burns (08:11):
Yep, and I actually want in a little bit to get deeper into the funds flow, because I think that's a really important part of thinking about how AMCs are positioned for the future. For the moment, I think the important takeaway is the clinical revenue is incredibly important to the overall mission of the organization at a time when the clinical revenue is getting squeezed and the margin is getting closer and closer, at the system level, to zero. This is where I want to get into some of the nuance. Wes, you mentioned it's been a busy policy year, if we look at rolling 12 months. I want to get into some of the nuance of how and why some of these specific margin pressures and the ability to sort of pivot the business in response to them look different at AMCs compared to other systems. Why will some of these policy moves hit AMCs especially hard?

Wes Campbell (08:56):
Yeah. We only have an hour, right? So in no particular order, I think keeping in mind that the academics are about 5% of the hospitals in this country, but they provide about 40% of the charity care that's provided in this country.

Abby Burns (09:17):
Wow.

Wes Campbell (09:18):
If you were to go run the numbers on the institutions that received the most dollars from Medicare and Medicaid, the top 20 on that list, 18 of them are going to be academics.

Abby Burns (09:29):
Wow.

Wes Campbell (09:30):
So when we start talking about changes to Medicaid eligibility, and people losing that eligibility and potentially becoming now uninsured, and then also potentially qualifying for charity care, what we're going to see is some of that Medicaid revenue for those previously covered individuals now go to charity care and also bad debt. Those are contra revenue accounts, so they reduce the net patient service revenue, but there's some nuance in that, that has to do with disproportionate share hospitals.

(10:07):
We have changed the way we calculate disproportionate share hospital payment amounts and we're reducing that. This is directionally correct, it is not entirely correct, that at some level, in many cases, the academic wasn't really concerned with whether a patient had Medicaid eligibility and was enrolled or they weren't, they were poor, and it was charity care because they would get disproportionate share payments. It's really a cashflow issue. At the end of the year, there would be a cost report and a settlement based on that, and the total payments would cover a significant portion of the cost of the care. Now that we're reducing the disproportionate care and we're changing the Medicaid eligibility, that math is going to look very different when it comes to the non-patient care revenue that they generate.

Abby Burns (11:05):
I'm so glad that you started us here because I think one of the things that we still hear a lot is this perception of the academic medical center as almost the, quote unquote, "rich cousin" of the community system. The point you're making is actually, and this is something that Max Atkinson and Natalie Trebes mentioned on the podcast earlier this year, actually academic medical centers are a really important part of our safety net. So the changes to Medicaid, the changes to disproportionate share will affect academic medical centers. The other thing I think it's important to mention here related to DSH status is potential impact on 340B, which is integral to AMC margin.

Wes Campbell (11:42):
Right. DSH is one of the qualifiers for eligibility in 340B. If you reduce the number of people that would be covered by DSH, now you potentially impact 340B. I can't overstate the importance of 340B to the revenue stream. I'm only half-joking when I say, if the median academic hospital margin is 4%, 3.8% of that is coming from their 340B program.

Abby Burns (12:11):
Wes, another policy area I want to talk to is probably more specific to AMCs, and that is what's happening with research funding, to the point of we already know that the care delivery arm is cross-subsidizing a lot of what's happening in research. Now we're looking at, last year, a lot of cuts to grants. It's been pretty confusing, to be totally honest, to follow where we stand with research funding, but can you speak to this a little bit?

Wes Campbell (12:33):
Yeah. The National Institutes of Health are the predominant funder of research. There are other funders, philanthropy, pharmaceutical companies, etc, but the vast majority of the funding comes through NIH and we've changed the way we fund NIH research. The issues with overhead allocations and NIH-funded studies aside, what we have seen are studies that were funded, have had their funding pulled. In many cases that's being contested and the final answer isn't there yet. We have also seen changes in the research agenda about what studies will be funded, which in my mind takes the inquiry process out of the hands of the principal investigator and now puts it into a bureaucratic body that's determining what lines of research we're going to pursue, which is a fundamental change.

Abby Burns (13:30):
Yeah. I mean, as recently as this week, the week that we're recording this conversation, which is the week of March 20th, there are changes afoot to the way that NIH solicits research proposals, to your point, putting more authority in the hands of political appointees rather than scientific panels. I think this is a really important one to sit with because of the workforce implication. So yes, there's the revenue implications. If you have your research grants frozen, suspended, canceled, what are some of the second and third order impacts on workforce?

Wes Campbell (14:02):
The workforce and the academic, it looks different. The research enterprise has a separate infrastructure. Usually, in the university setting, it's going to report through the dean to the VP of research. When we start talking about scarcity of funds, whether that's coming from the clinical or the educational and research mission, now we've got to look at the totality of that workforce and make decisions about where we're going to put those people and what it is they're going to be focused on. I think it's fair to say that the number of people would be fewer when there are less dollars available, but we've still got to balance these three missions.

Abby Burns (14:44):
I think there's a whole other element here, when we're looking at what else is happening in the policy landscape that might affect workforce, looking at H1B activity, looking at other immigration reform.

Wes Campbell (14:54):
Yeah, so the changes to the immigration system, the visa allocation process, the cost of the visas.

Abby Burns (15:03):
$100,000 I think is the proposed H1B.

Wes Campbell (15:06):
Yeah, it's going to have a huge impact, because I mean, there are lots that are here on H1B or J1 visas in both the clinical enterprise and educational and research enterprise. A couple of nuances there around the workforce is the duality of existence of the faculty physician who has some role in education or research and in clinical care, and so on an individual level, they're trying to balance those two things out. Then when we think about the workforce for the academics, unlike other hospitals, the house staff are employees of the hospital. The funding for medical education comes through the DRG payments for the acute care, for the Medicare DRG payments. So there's that whole other piece of the workforce that's very unique to academics.

Abby Burns (16:00):
Wes, I'm trying to mentally create the maps and the org structures as you're talking, and it feels near impossible to diagram out the complexity, especially knowing that when you've seen one academic medical center, you've seen one academic medical center.

Wes Campbell (16:14):
Yeah.

Abby Burns (17:22):
One of the things that I am mindful about in this moment of considerable downward pressure on margin that doesn't seem like it's going away, as we look at the next, let's call it one, two, five years, probably beyond, some of the factors that you've spelled out for us about what it looks like to be an academic institution, the degree of bureaucracy included, the financial quagmire when we look at funds flow, that makes it really hard to pivot the business model. I've been anchoring on this idea of provider organizations need to be able to turn quickly and AMCs have the turn radius of a Studebaker. I'm curious to get your take. How do you see AMCs trying to adapt to the environment, position themselves for the future?

Wes Campbell (18:11):
Yeah. I told you I'm biased towards academics, I firmly believe they are crown jewels in American healthcare. They're also, if we're being honest, notoriously bad at pivoting quickly. An academic can go and buy a profitable ambulatory surgery center and turn it into a money loser faster than you can blink. When we look at the pressure dome that's building, we talked about Medicaid and DSH, we're talking off-campus site neutrality, infusion centers. I, for one, am a believer that site neutrality is coming wholesale and literally every academic became provider-based back in 1999 to 2000 to take advantage of the hospital outpatient prospective payment system that Medicare created, bought up practices, infusion centers, all of those kinds of things. The changing or the elimination over the next three years of the inpatient only list, which is inpatient care, acute care, particularly surgical care, is the money driver in hospitals.

(19:19):
Then on top of all of that, the population is getting older. In five years, all the baby boomers are going to be 65. The Medicare population is going to grow. Every academic, in addition to every other community hospital in this country, has gone through the exercise of, could we survive on Medicare rates? The answer is no, absolutely not. I mean, the American Hospital Association put out some data, and of course you have to consider the source when you look at the data, but the cost recovery from Medicare on average for a hospital is 83 cents on the dollar. That is a negative 17% margin on Medicare, is what they're saying.

Abby Burns (19:56):
Add Medicaid into that.

Wes Campbell (19:58):
Add Medicaid into that, add uncompensated care. Now, this clinical revenue engine that is supporting significant parts of the other two missions in education and research, now we've got problems. I would just add that it was around this time six years ago that you know what hit the fan in terms of a global pandemic. I remember it. I have PTSD still. PTSS.

Abby Burns (20:25):
Because you were in a hospital setting at that point.

Wes Campbell (20:28):
Yeah. The number of virtual visits we had done on March 13th was, I don't know, mostly for incarcerated individuals and numbered maybe 10 or 20 across the whole institution. On March 15th, it was 10,000. So they're capable of quick pivots, but it's just not in their nature.

Abby Burns (20:46):
Wes, I love that example because it is possible. We can do it. The tension that is playing in the back of my mind as you're talking about this is academic institutions are known for being innovative. Innovation is in their DNA when it comes to scientific discovery. We look at things like CRISPR gene editing. That was partially discovered at UC Berkeley. When we look at mRNA vaccine technology, precursor to the vaccine that we have today, but a lot of work there done at UPenn. Coumadin, the nicotine patch, I mean there are so many medical discoveries that took place at AMCs. Yet when we think about business model transformation or innovation, how would you compare that?

Wes Campbell (21:28):
My dad was an academic physician, department chair, wrote the textbook in his discipline, all of those kinds of things. Physicians using data and research to make decisions about how they're going to care for their patients and criticizing methodologies, "That sample size is too small. It was biased," whatever it may be, but when it comes to business, one data element and they're ready to go.

(21:51):
One of the fundamental things, and I don't know that this is true in every academic, but in my experience there is a lot of truth to this, academics are literally the thousand points of no. The problem is, there are so many opportunities for an individual to usurp the whole process. I think because of their nature and because the status of the academic physician in the academic health system, because there's a dean, because there's a university president, because there's a VP of research, there's a provost, there's a hospital CEO, all of that, there's a board of the hospital, there's a board for the university, the decision-making around business becomes much less clear.

(22:38):
If you go back to the AHA data and they were talking about, since the pandemic, drug prices have increased overall for hospitals or costs about 13.5%, but in academics it was more like 22%. The workforce, the cost of that, the cost structures in this post-COVID era are permanently changed. Revenue hasn't kept up with it. So knowing what is the right decision to make in this moment for the problem that we're confronting, I think is a lot harder today than it was in 2017 or 2018. Not that it was easy then, but I think it's harder now.

Abby Burns (23:20):
This increase in the degree of difficulty is important to bear in mind when we're thinking about AMCs working to push their business outpatient. That's what we're talking about when we're thinking, how are they pivoting? They're working on really embracing the community provider side of the business. I'm curious, Wes, as AMCs painstakingly work to pivot their business models to meet the moment and survive, even thrive in a future state that looks different, what are some of the ripple effects of the pivots that they are making on the industry more broadly?

Wes Campbell (23:51):
That's a really great question. I think about it in a few different ways. The first is that the vast majority of hospital transfers in this country go from community hospitals to academics. You talk about academics as part of the safety net. I refer to them as the last stop on the safety net train. It's the end of the line in the safety net. So when academics begin to struggle, and many of them are running at full capacity, they're on divert-

Abby Burns (24:21):
Full capacity meaning full census.

Wes Campbell (24:23):
Yeah, and still barely keeping their head above water or maybe drowning despite that volume, which is not unique to academics. I mean, that's happening in a lot of hospitals and health systems in this country. We've got that issue around what the future portends for them. Many academics have pursued an ambulatory strategy, I think as a way of widening the arbiter of the big end of the funnel. We're going to scoop more in so that we get more of the quaternary cases that pop out at the other end. I remember a conversation I had with a hospital COO in an academic hospital in 2010, and I was talking about the need to invest in ambulatory infrastructure. He said, "It's 8% of my revenue. Why should I care about it?" Well, it wasn't that long after that that total Medicare Part B payments equal Part A payments, and so we've got to talk about ambulatory.

Abby Burns (25:17):
Which Wes, just because you timestamped 2010, he was saying about 8%, and we know that for health systems overall, not AMCs specifically, but in 2025, outpatient revenue made up about 57% of total revenue.

Wes Campbell (25:30):
Yeah, it's titrated to the inpatient revenue. The nuance though is, think about an academic health system that does like 30,000 discharges and a million ambulatory visits to have a 55, 45 split on the revenue. The per unit revenue in the acute care is much higher than the ambulatory. Again, with an abundance of respect, having been in academic medicine and a family member was an academic physician, you could go to most clinics on a Friday afternoon and drop a pin and hear it hit the floor. I think there is latent capacity. Academics also tend to approach it, that's a dermatology clinic, that's a neurology clinic, that's a pulmonary clinic, rather than we're going to go put clinical resources where the patients are and what they need, whether that's primary care or secondary level care, but in the same place at the same time, and use these clinical resources more efficiently.

Abby Burns (26:31):
Yeah. There's a lot of operational running room to tighten up the ship. The other thing that I'm curious about is, as AMCs do look more deliberately at outpatient book of business, as they do lean in more on the strategy that, as our colleague Marisa Nives told us the other week, everyone is looking at, which is, "Hey, we need to increase our commercial market share," AMCs are going to be coming harder for the volumes that maybe other providers in their market have been winning for years.

Wes Campbell (26:59):
Yeah. The young population with commercial insurance, the land of milk and honey, and one organization's market share gain is another organization's market share loss. I mean, competition for those patients, we see academics going into distant localities, cities that they don't serve, regions that they don't serve, and buying medical groups, buying community hospitals, building ambulatory delivery sites in an effort to get at those populations and to pull some slice away so that they can feed the mothership.

Abby Burns (27:35):
As we're thinking about the network level or ecosystem view of this, I think it's also important to think of the other side of the coin. Academic institutions need to stay financially afloat just like everyone else. I am interested and I would even say worried about where do they pull back from services they're currently providing and what does that mean for the rest of the industry and for patients?

Wes Campbell (27:58):
Yeah, and I think that's a great question and I don't know that there are easy answers to it. The example that I always use is we see labor and delivery units closing in rural and community hospitals all over the country. You have two patients, not one. It's hard to make the numbers work. But if you're training obstetricians, you can't close the L&D unit. In order to be an academic, you've got to offer the training programs, which means now we've got to start thinking about, well, maybe we could partner with a community health system for these trainees to work there and not do that here. There's got to be some partnership and collaboration. We're starting to see that, community systems and academics working with rural hospitals to try and get some control over the patient migration through the various levels of care.

Abby Burns (28:46):
And also even industry partnerships. How are AMCs working with life sciences companies as, to your point earlier, research grants, research funding are a lot more up in the air. What is the role of not just industry, but industry-academic partnership in continuing the innovation that we've come to rely on?

Wes Campbell (29:03):
And philanthropy, that's an important part of it.

Abby Burns (29:07):
Wes, to close us out, as we look forward, what open questions are you thinking about as it relates to the AMC market across or beyond the next year or so?

Wes Campbell (29:20):
I will be interested to see in the coming couple of years whether there are any name brand academics that do some level of brand partnership or affiliation or merger with a large community-based health system, such that that name gets put in front of the university of name in the academic.

Abby Burns (29:47):
Back to the idea of what are the partnerships, what are the relationships that are spawned from this pressure cooker?

Wes Campbell (29:52):
Yeah, and there are some big systems that have academic faces as well, so that wouldn't be new, but they're much few or in number. I'll be interested to see if those numbers increase. I'll be interested to see as things like site neutrality, potential changes to 340B happen, whether academics begin to divest any of the assets they acquired when they were revenue generating assets. The cancer group that they bought to put in a hospital-based infusion center, when the preferred payment goes away, are they going to be looking to partner differently with community health systems, community physicians on those kinds of things as well?

(30:36):
I'm also interested to see what happens in the coming years, because if history teaches everything, anything that's been done can be undone and vice versa. What I see as a looming crisis in academic healthcare, for all of the things that we talked about, it's going to hit the radar screen, it's going to be screaming at the policymakers in the coming years. Are they going to do anything to mitigate some of these negative impacts? Are they going to change the policy? I mean, there's lots of other things to watch out for, increased operational efficiency, reduced levels of bureaucracy, faster decision making, all of those kinds of things, but those are the things that I'm going to be keeping my eye on.

Abby Burns (31:25):
Well, Wes, thank you for coming on Radio Advisory at last.

Wes Campbell (31:28):
Thank you for having me.

Abby Burns (31:33):
AMCs are facing a barrage of headwinds. A lot of them are common to the rest of the provider market, but a lot of them are uniquely challenging for academic institutions specifically. The degree of complexity and bureaucracy that comes with running an AMC is going to make it really hard for these organizations to pivot. They're going to have to figure out how to translate their DNA of clinical innovation to business model innovation. For everyone else, it's important to remember that the ripple effects of AMCs evolving their strategies to survive and thrive in this market will affect every corner of the healthcare industry, including your business. But remember, as always, we're here to help.

(32:17):
Next week on Radio Advisory. Plans are being asked to improve quality and outcomes, manage utilization responsibly, and deliver a better experience for members and providers all at once. The pressure isn't coming from one direction or even one source. In this conversation, we use Medicare Advantage as our proving ground. It's actually where many of these tensions show up first, or at least most visibly. It's also where there's outsized opportunity.

(32:48):
New episodes drop every Tuesday. If you like Radio Advisory, please share it with your networks, subscribe wherever you get your podcasts, and leave a rating and a review. Radio Advisory is a production of Advisory Board. This episode was produced by me, Abby Burns, as well as Rae Woods, Chloe Bakst, and Atticus Raasch. The episode was edited by Katy Anderson with technical support provided by Dan Tayag, Chris Phelps, and Joe Shrum. Additional support was provided by Leanne Elston and Erin Collins. We'll see you next week.