Market pressures are causing many academic health systems to reevaluate their funds flow models. The amount of funds flow required to support market-based faculty compensation and the academic enterprise has grown significantly at a time when health system economics are under tremendous pressure. Organizations would do well to dig into what they need their funds flow model to achieve and how they will support that. This reevaluation is leading to a shift in mindset and incentives.
To capture the shift taking place in funds flow, Chartis sat down with Mike Shenk and Michael Tsia, Principals in our Physician Enterprise Solutions and Strategy practices.
Chartis: What’s the current situation with funds flow at most academic health systems? How has that changed over the years?
A lot of organizations are in the process of reevaluating their funds flow models. As inflation and rising costs have really started to hit the bottom line, organizations are looking at how they can restructure their funds flow model—not just to reduce the rate of increase in these expenditures, but really looking at it and asking questions such as: Am I getting what I need to get out of the funds flow model? Is it helping me to align incentives to optimize performance? And are the investments I’m making through my funds flow model having their intended effect? Are they going to the areas of greatest strategic need?
Across a number of metrics, funds flow has actually crept up through the years. There are a lot of reasonable contributors. First, there’s growth in faculty compensation—and, in some markets, that actually outpaces the professional fees in many specialties. But there also has been a lot of academic health system growth in new geographies and more broadly into the community, which requires a lot of startup funding.
So what we’re seeing with a lot of clients is a remarkable increase in the funds flow spend compared to 10 years ago.
Chartis: How do you anticipate funds flow will continue to evolve over the next few years?
I think there’s going to be much more interest in evaluating funds flow models because of the economic pressure we discussed earlier. In an environment of scarce resources, it’s critical to make sure your shared dollar is being put to optimal use.
I see funds flow changing in 2 major ways. First, there’s going to be a movement toward more performance-based incentives. There has been a proliferation of funds flow models that try to isolate just one lever. For example, in an RVU model, they want to grow the clinical enterprise by increasing the number of patients served, and departments will be rewarded for improving productivity, growing RVUs, and pushing on that one lever. But that doesn’t always necessarily lead to overall clinical enterprise profitability or success in other key measures related to quality or value. So we’ll see more models that incentivize optimal performance across multiple levers to yield the multivariable outcomes that the enterprise needs.
Funds flow will not be as transactional as it was in the past. It’s going to be much more about moving away from your money and my money to thinking about it as our money.
Second, I think there’s going to be a little bit of a shift in the mindset. Funds flow will not be as transactional as it was in the past. It’s going to be much more about moving away from your money and my money to thinking about it as our money. That requires rethinking funds flow and joining forces to conduct joint planning and to make joint investments, which requires more than just a startup contract or a work RVU payment. It requires things like a shared multiyear provider workforce plan across all specialties and agreement on how we’re going to spend our money and invest our scarce resources to remain successful.
Chartis: Why is now an important time to reexamine how healthcare organizations think about funds flow?
There’s a perception that there’s a lot of waste in funds flow and a perception that if the faculty would just “work harder,” there’d be less of a need. In addition, funds flow has grown tremendously for the reasons we just described at a time when health system economics are under severe pressure. At the same time, we’re seeing unprecedented levels of faculty burnout. So right off the bat, those 2 things don’t add up.
For many health systems, funds flow used to be thought of as a fixed cost of doing business. More and more, we’re seeing folks think about funds flow strategically. It’s important that models incentivize performance across not only one variable but rather all of the important metrics reflecting the strategic imperatives for the organization.
More and more, we’re seeing folks think about funds flow strategically. It’s important that models incentivize performance across not only one variable but rather all of the important metrics reflecting the strategic imperatives for the organization.
What we’ve found is that going in and evaluating the current funds flow model and even, at times, fully redesigning the funds flow model is a really great way for leadership across the academic health system to come together and understand both current and expected performance across a variety of metrics across the entirety of the academic health system.
Chartis: What should healthcare organizations do to start evaluating their current funds flow model and preparing to optimize their funds flow as the healthcare landscape continues to change at a rapid pace?
Health systems should start with a question in 2 parts: First, what do I need to be successful in this market? What are my strategic priorities to achieve my organization’s objectives and comprehensively carry out the mission? The second part of that is: Does the current funds flow model reward the type of behavior needed to execute on that strategy?
Oftentimes, the answer to that question is a little murky, and that’s because most organizations don’t have a clear, well-defined model. Instead, many have a book of deals that was built up over time to address specific funding needs as they were identified. Those numerous deals eventually add up to a tangled web that, instead of driving performance across missions, can actually impede performance at times.
In the absence of that clarity, there are a few ways you can get started. The first is to get the data. How much funds flow is being transferred between the entities? And how much by category? How much has that changed over the years? How much funding is spent on our medical directorships versus startup support versus ongoing clinical support or academic support? How is the funding distributed by department? And more importantly, what is the data telling you, in terms of what kinds of behaviors you are incentivizing?
Understand why you’re doing a new funds flow model. Understand the strategic objectives and be able to tell that story.
The second part is: Set the story. Understand why you’re doing a new funds flow model. Understand the strategic objectives and be able to tell that story. It’s not an easy journey. Whenever you make change related to funding, it can lead to a lot of anxiety. Having a clear story and reason, and having everyone on the same page about why you’re doing this, is really important for the movement forward.
Finally, understand the national landscape. We frequently help clients understand the pros and cons of various models used by peer academic health systems. But those approaches continue to evolve. No funds flow model is set in stone. The benchmarks are changing on an annual basis, and how you adapt to your clinical and operational needs will evolve over time as well. So understand the national landscape and how people are changing their models. And even if you feel like you have a rational system today, it’s worth taking a step back and recalibrating the funds flow model on a regular basis.
Chartis: What are the important considerations for the funds flow model that an organization employs?
While there are perhaps some universal truths across organizations when it comes to the funds flow model, there is no one right model for every organization. A variety of factors, including culture, the organizational history, as well as the market and financial context of that organization, play a role in determining what model will work best at any individual academic health system.
In that context, the process you go through to design the model is really important. It helps set the tone for the new model and how you're going to work together going forward.
The process you go through to design the model is really important. It helps to set the tone for the new model and how you’re going to work together going forward.
It also can help expedite a broader culture change, where the faculty practice is thought of less as a cost center or a loss-leading appendage to the profitable health system business and rather viewed as what it is—the vital organ to the academic health system that really is able to drive performance across the whole organization.
I think that’s right. It’s really about partnership moving forward, and it’s about building a funds flow model that supports that culture of partnership.
Back to the idea of thinking of this all as our money and not your money or my money, how do we apply our shared resources (which are becoming more constrained in certain markets)? How are we going to apply that together and invest in our future?