Health systems and academic medical centers have navigated complex partnerships for decades, and many of the partners argue the reward is worth the risk.
Despite the potential financial challenges of those agreements, as illustrated by the latest development between Fairview Health Services and the University of Minnesota, the affiliations are expected to continue.
Related: Fairview not renewing University of Minnesota contract
Health systems benefit from academic medical centers’ reputation, specialized care capacity and recruitment programs. Academic medical centers can use community hospitals as training grounds for their medical students, bolster their referral networks, expand clinical trials and free capacity for complex treatment by referring low-acuity cases elsewhere.
But it can be difficult to integrate academic medical centers’ high-cost research and education missions into health systems’ daily operations. If systems gain access to an academic medical center’s specialists through a physician services agreement, the contract can be lopsided, especially as economic and market conditions change.
“These have been very stormy relationships,” said Jeff Goldsmith, president of consultancy Health Futures. “They are a tremendous challenge to manage effectively.”
The affiliation between Minneapolis-based Fairview and University of Minnesota illustrates some of those challenges.
Fairview has been working closely with the school since 1997, when Fairview acquired the University of Minnesota Medical Center’s East Bank hospital. In 2018, the organizations and the university’s physician group formed a clinical joint venture known as M Health Fairview.
Last week, the joint venture hit a snag. Fairview said it would not automatically renew its contract with the university that expires in 2026, instead opting to renegotiate. The decision to not renew will not impact patient care, nor result in any job losses, a spokesperson said.
"We have discussed how the current contract with the university is unsustainable for our health system for the long term and challenges our ongoing ability to serve our patients and communities," Fairview CEO James Hereford said in an email to employees.
Fairview, which previously announced plans to cut 250 jobs by the end of the year, recorded operating losses of more than $750 million from 2019 through 2022, and is on pace to report another operating loss in 2023. Some of the nonprofit system’s financial trouble stems from a lopsided contract with the university, industry observers said.
According to Fairview’s latest financial statement, expenses tied to Fairview’s agreements with university physicians were $551.4 million through the nine-month period ended Sept. 30, up from $485.9 million for the same period in 2022. The contract features both fixed annual financial commitments and variable investments based on Fairview’s financial performance, similar to other academic medical center and health system ventures.
“It’s always about the money,” said Dr. Edward Abraham, a partner at consultancy Guidehouse and former dean of the Wake Forest School of Medicine in Winston-Salem, North Carolina. “There are multiple examples of friction where one partner feels like they are not being paid enough or paying too much.”
Health system and university partnerships have gotten more complicated as health systems have grown and as providers grapple with financial pressures such as relatively higher labor costs, which don't seem to be going away, said Dr. Jonathan Jaffery, chief healthcare officer at the Association of American Medical Colleges.
However, those same pressures, particularly labor shortages and health systems' related push to expand their workforce pipelines, will likely lead to more system and university affiliations, he said.
Academic partnerships grow
As the size and scope of health systems have increased, academic medical center partnerships, mergers and acquisitions have proliferated because of the value of a growing referral source, industry observers said.
In the case of Wake Forest, which merged with Charlotte, North Carolina-based Atrium Health in 2020, the school determined it needed to grow its network and be part of a larger system. Atrium, meanwhile, wanted an academic partner, Abraham said.
Similar motivations drove Columbia, Maryland-based MedStar Health's 2000 purchase of Georgetown University Hospital.
MedStar has benefited by extending its recruitment net and Georgetown has been able to train its students across a variety of inpatient and outpatient settings, among other positive outcomes, said Dr. Stephen Evans, MedStar's chief medical officer. But the initial stages of the merger were hindered by a poor governance structure, which lacked equal representation from both organizations, he said.
“These were two big organizations learning how to dance together. It can be a bit clunky. Early on, we didn’t have a good governance structure,” he said. “But we have since built out governance infrastructure, such as jointly populated education, academic and research councils.”
Dr. Neil Weissman, chief scientific officer at MedStar, said he gets phone calls every month from health systems that want to understand how to best partner with academic medical centers. “It is the next wave of academic medicine.”
Houston-based Memorial Hermann Health System has academic affiliations with University of Texas and University of Houston, which opened the Tilman J. Fertitta Family College of Medicine in mid-2022. Memorial Hermann’s academic affiliations have improved its population health efforts in areas such as maternal morbidity and mortality, boosted recruitment and retention and bolstered its relationship with employers, CEO Dr. David Callender said.
The academic medical system, Charlottesville, Virginia-based UVA Health, has been steadily expanding its hospital network through acquisitions and affiliations. Physician services agreements can hinge on whether university-based physicians are willing to travel to community hospitals, UVA Health CEO Craig Kent said. Under those agreements, academic medical center physicians are often tasked with weekly or monthly rotations at community hospitals.
“The first principal behind these affiliations is that all care that can possibly be delivered locally should be delivered locally,” Kent said.
In July, UVA Health acquired a 5% ownership stake in Newport News, Virginia-based Riverside Health System. UVA has helped Riverside expand its cardiothoracic program, UVA is getting more complex care referrals and the organizations have expanded the physician pipeline in eastern Virginia, Kent said. “We want to do more of this,” he said.
