Managed care has dealt a serious blow to clinical psychiatry in academic medical centers. Having previously received above-average reimbursement for services from payers, academic psychiatry now faces stiff competition based on price alone. Contrary to popular belief, the majority of care delivered in academic settings is neither complicated nor highly specialized, and it often is available from other local providers (1). Costs in academic medical centers have been 30 percent higher on average than costs in nonacademic settings. Thus academic medicine has not fared well in the current competitive climate.
In addition to the problem of high costs, academic psychiatry has other characteristics that impede its ability to remain an important component of the mental health and substance abuse service delivery system. The clinical productivity of university faculty and staff tends to be low compared with that of providers in nonacademic settings, and the business management capacities in academic medical centers tend to be weak (2). Timely decision making is thwarted both by organizational complexity and by the diffusion of authority among faculty, departments, the medical school, the university, and the hospital. Psychiatry is often burdened by assessments for elements of the infrastructure of the academic medical center, such as marketing, contracting, and management information systems, that do not address the unique needs of the specialty (3).
Further complicating the situation is the fact that many valued aspects of the academic culture hinder the responsiveness of departments of psychiatry and impede the coordination of their services. The academic culture is typically conservative and risk avoidant. It values tradition and embraces change in a slow, incremental fashion. Faculty independence, a core element of the culture, has fostered rigid boundaries between the clinical programs run by faculty and has heightened tensions in the interface with managed care organizations. Even patients may be viewed as an intrusion if they are not part of research or teaching endeavors.
In the midst of this marketplace turmoil and clash of cultures, psychiatry in academic medical centers has been struggling to adjust and survive. Various departments have chosen diverse paths over the past five to ten years in response to changes in the marketplace. This article identifies the processes of change and the models of change that characterize these attempts at adaptation. The analysis is drawn from a review of numerous sources, including published reports from the psychiatry departments in academic medical centers, presentations by their faculty at three national conferences dedicated to this topic, selected visits to academic medical centers, and efforts to reengineer our own departments. After identifying the processes and models of change, we conclude by recommending strategies for departments to pursue in establishing their unique value in the changing health care environment.
Reengineering academic psychiatry is an exceedingly complex process. From a review of efforts by various departments, we have distilled nine common and, we would argue, essential elements of the process. Although we present these elements in a logical sequence, change is seldom orderly or sequential, and the steps in the process are interactive.
Assembling a team. Organizing a group to lead the process of reengineering is a vital first step (4). New talent must often be recruited to complement existing senior and middle managers in the department and to add expertise in managed health care. One approach to gaining acceptance in the medical center of development plans for psychiatry is to include on the team university and hospital representatives who have strategic planning responsibilities.
Identifying required characteristics of clinical services. This element of the process involves clarifying the characteristics of services that are considered competitive. It often necessitates a concerted effort to reach beyond the isolation of the academic environment and to become informed about the current and probable future demands of the marketplace. Some strategies for gathering such information involve meeting with payers, benchmarking against local competition, and participating in conferences that track national trends in service delivery.
Crafting a vision. As a next step, crafting a vision for the future of psychiatric services within the academic medical center involves defining the relative importance of clinical service delivery to academic psychiatry and its relationship to the missions of research and teaching. It also involves articulating the desired scope of the clinical endeavor and making a decision about the willingness to invest and take financial risk in order to see the vision realized. In crafting the vision, it is important to address the changing relationship of the practices of departmental physicians to the needs and objectives of the hospital and the medical school.
Preparing a strategic plan and business plan. Translating the vision for clinical services into a strategic plan and business plan is a fourth element of the change process. A key step involves selecting the most viable organizational and corporate structures for the varied activities of psychiatry. The challenge is to achieve maximum functionality and flexibility within the constraints on structure imposed by the host academic medical center. Given the current financial strain in academic medical centers, demands are increasing that strategic plans be supported by detailed business plans. These typically contain a market analysis, competitor analysis, market positioning strategy, resource requirements, and financial projections. Reengineering psychiatry in academic medical centers involves importing business models and tools such as business plans into the practice of medicine.
Selling plans to the medical center leadership. Selling the vision and plans to university and hospital leaders requires aligning incentives, as much as possible, between the hospital and the university department. For example, strategies to improve the marketability of services by reducing inpatient lengths of stay can place the hospital component of academic medical centers at a disadvantage by reducing total bed-days. Thus most strategic plans attempt to address decreased revenues caused by shortened lengths of stay by increasing market share.
Arranging financing. Financing for planned changes is derived from multiple sources. Support from the medical center is typically garnered simultaneously with efforts to secure approval of proposed changes. Other potential sources of financing include departmental reserves, investments from partners, and income from proposed contracts.
Selling plans to faculty and staff. Promoting the vision and plans with faculty and staff is one of the most daunting steps in the change process because their resistance often thwarts efforts at adaptation. One intervention is to educate faculty and staff about the marketplace and inform them about the change efforts of other academic medical centers to foster an appreciation of the perils of passivity. Compensation and incentive systems for faculty and staff have been revamped in many academic settings in an attempt to increase both productivity and revenue and to align employee incentives with those of the department.
Implementing the plans. This phase of the process involves countering the numerous roadblocks to change that occur within academic medical centers. Historically, individuals and business departments operating in these large institutional settings have been rewarded for adhering to policies and for avoiding risk. Deviations from past practices are seldom welcome, leading one consultant to refer to the medical center bureaucracy as an array of "business prevention units."
Evaluating outcomes. The final step in this iterative process is to evaluate the outcome of changes and to revise plans accordingly. Changes in market demands, shifts in partnerships and affiliations, and new initiatives undertaken by the larger academic medical center can substantially and suddenly alter strategic plans for psychiatry.
We reviewed reengineering efforts that have occurred at various academic institutions and found that academic psychiatry departments have pursued several models of change. The models are described below along with a discussion of some of the strengths and limitations of each approach. Also cited are examples of departments that have used each model. Some of the models can and have been combined by departments, and some are mutually exclusive.
Transform. This model involves an extensive and rapid process of change that affects almost all levels and aspects of the academic department. Elements of this approach include structural and service reorganization, key personnel changes, enhanced business practices, and revised educational programs. The argument for responding quickly and dramatically to the evolving health care environment has been that such a response can enhance the viability of the department's clinical future and may truly change the culture of the department.
This model has limitations. Comprehensive change is daunting and rarely accomplished. In a review of selected academic psychiatry departments and their response to managed care, Meyer and McLaughlin (5) identified only one department, that of the Dartmouth Medical School, that had undergone a "total transformation" (6). The changes implemented at Dartmouth were synergistic across the department's three missions. Clinical services were reorganized using the "firm model," in which staff and trainees maintained continuous treatment responsibility for patients throughout all levels of care. As clinical services became more competitive, they provided an increasingly relevant venue for conducting health services research on contemporary clinical practice. Simultaneously, the training residents received became more relevant to the current managed care environment (7).
Build. Perhaps the most popular change model in academic psychiatry has been to build new, ambulatory, brief treatment services that remain separate from core department services. The advantage of these "managed care" services, which have been created at academic centers such as the Medical College of Wisconsin (Moffic S, personal communication, 1998) and Yale University (8), is that they are relatively easy to build and require little capital investment. Perhaps most important, this strategy bypasses the extraordinary challenge of attempting to change the core of the existing department and its services.
However, not having to make core changes is both an advantage and a possible Achilles' heel of this approach. Meyer (6) describes it as the "Saturn model," comparing it to the attempt by General Motors to create a division that would develop more efficient business practices that could then be imported into the core of the organization. Like the GM experience with Saturn, the managed care services built by academic departments have implemented nontraditional practices and have generally survived. However, like the Saturn production facilities, these new service units have remained quite separate from the core organization and have not substantially changed their host departments. Furthermore, they have had little involvement with the important departmental missions of research and training (8).
Manage. A change model that has been adopted by a small but significant minority of departments has been to enter the business of managing care. This approach has required creating a business unit to manage mental health and substance abuse services, replete with staff, infrastructure, and a provider network. These business units have almost all been separate from existing departmental structures, operating either as new divisions within the medical center, such as the unit at Yale (9), or separately incorporated organizations such as those at the University of Cincinnati (10) and at the Albert Einstein College of Medicine-Montefiore Medical Center (11,12). The University of Illinois at Chicago has aggressively pursued this strategy, developing an in-house managed behavioral health care operation as well as a separate limited-liability corporation to manage care with partners in the private sector. These ventures cover 370,000 lives.
The advantage of this change model is that academic psychiatry has the opportunity to capture control of utilization management decisions and the revenues allocated for managing care. These new divisions have augmented faculty expertise in managed care and changed practice patterns in the departments by managing utilization of care for some of the patients treated in the departments' core programs. Potential disadvantages include the cost of capitalization, financial risk for the cost of care, and decreased referrals from managed care organizations that view these efforts to manage care as competitive.
Buy. Another model for changing academic psychiatry has been to acquire existing service organizations. Acquisitions can expand a continuum of care quickly, bypassing steep learning curves and costly start-up periods involved in building similar services (13) while bringing a pool of clinical and managerial talent and additional political clout to the academic organization. For psychiatry, acquisitions most often have occurred when a parent academic medical center acquired other hospital systems, including the systems' behavioral health services, in an effort to enhance the market position of the academic medical center. Such was the case at the University of Pennsylvania as it launched a massive effort to create a regional health system through acquisitions (14).
Partner or affiliate. Because few psychiatry departments in academic medical centers have been able to rely solely on their own resources to meet market demands, they have had to search for partnerships and affiliations. The objective of this process has been to place the behavioral health services of an academic medical center in regional or statewide networks that have appeal to managed care organizations because of their geographic reach, or in local networks that attract payers by offering a comprehensive, vertically integrated continuum of care. For example, Johns Hopkins University School of Medicine has entered into affiliations with hospitals, residential treatment centers, and extended care facilities to expand its service line for children and adolescents and patients with dementia (McCabe L, personal communication, 2000).
Academic medical centers have also partnered in order to develop their own managed behavioral health care organizations. Recent examples include the development of the Carolina Behavioral Health Alliance, a joint venture of Wake Forest University, the University of North Carolina at Chapel Hill, and East Carolina University (15); and Western New York Behavioral Health Services, formed through a partnership of the University of Rochester with four providers and a managed care organization (16).
Sell or lease. Divesting the academic medical center of clinical services has been another response to the changing health care environment. Research and education are viewed by many as the true priorities of academia. Selling or leasing academic psychiatry's clinical programs to another organization minimizes the significant financial risks to the medical center involved in the delivery of services and simplifies the academic mission. Continued involvement in clinical care can occur through contracts with clinical organizations to provide services from faculty and residents.
The principal disadvantage of this model has been that the academic psychiatry department loses substantial control over the clinical enterprise and is vulnerable to the successes, failures, and changing plans of the organizations that purchased or leased the clinical programs. The sale of Tulane University Medical Center to Columbia HCA and the subsequent collaboration between Columbia HCA and Tulane at the DePaul Tulane Behavioral Health Center are examples of this approach. Public presentations describing the outcome of this collaboration have been positive (17). However, the legal difficulties experienced by Columbia HCA highlight the uncertainties of this path for academic psychiatry. The lease of the University of Louisville Hospital to Humana, which was terminated because it proved financially unsuccessful for the university, serves as another note of caution (6).
Consult. Because academic institutions have a knowledge base and research capacities, it is often concluded that psychiatry departments are positioned to offer consultation, evaluation, and research assistance to managed care organizations and other purchasers of services such as employers. Academic centers that have pursued the consultation model include the Center for Mental Health Policy and Services Research at the University of Pennsylvania (14) and Cornell University (18).
Despite the apparent possibilities, such collaborations between academia, managed care organizations, and purchasers have not occurred with much frequency and have been fraught with difficulties. Price competition among managed care organizations has reduced their profit margins, limiting the funds available for research and evaluation. More important, the clash of values and cultures between academia and managed care organizations has impeded efforts to jointly formulate and address relevant questions. In addition, with health care changing so rapidly, it has been difficult to devise, implement, and complete consultations in a manner that seems timely, practical, and relevant to those paying for or managing care (19).
Influenced by local history, economics, and politics, psychiatry departments in academic medical centers are pursuing a diverse range of change models in order to adapt to the current health care climate. Although the process must be led from within the department, the success in implementing change is heavily influenced by external factors. The likelihood of success is enhanced under the following conditions: the host medical center is actively reengineering and streamlining business operations; organizational relationships between the medical school, hospital, and affiliated health system are functional; leadership at the academic medical center, medical school, and department level is strong; funds are available to invest in new initiatives; clinical care is a valued part of the academic medical center's mission; competition is present but not overwhelming; and clout with payers is significant. The converse of these conditions can slow or even block psychiatry's efforts to change.
However, there is a broader concern about the efforts of academic psychiatry departments to change. By and large, these departments have attempted to mimic the actions of successful nonacademic providers, offering comprehensive services at discounted prices. The clinical strategic plans have been based on what Krauss and Smith (20) referred to as "received common wisdom," borrowed from providers at large. Given the inherent complexities and high costs in an academic environment, this simple "me too" approach is likely to fail. Academic psychiatry cannot compete and win as a low-cost provider.
To be successful in the long term, academic medicine in general and academic psychiatry in particular will have to define their unique contribution (21). The challenge is to create unique value for the public and for purchasers (20). At least three possible avenues for the creation of such value are worth considering.
First, greater integration of clinical care, research, and training could leverage these activities, yielding higher productivity in each arena. Well-trained staff delivering accessible, state-of-the-art care in a time-sensitive manner could set clinical academic settings apart from the routine care that is available in most service systems. However, providing such excellence requires more than giving lip service to the alleged high quality of care in academic settings. It requires that faculty generate or accumulate a knowledge base that is highly relevant to the current service delivery environment, translate and communicate that knowledge to staff and students, and then ensure that those staff and students offer accessible, responsive, and cost-effective services. This strategy could be particularly effective for specialty services linked to faculty research and training programs, which could position the academic medical center as the preferred provider for the treatment of illnesses such as autism, obsessive-compulsive disorder, treatment-refractory affective and psychotic disorders, and severe personality disorders.
As a second avenue of value creation, academic departments are uniquely positioned to take a leadership role in managing care. To date managed care has been little more than arbitrage—buying services with deep discounts and reselling those services with a margin (22). There is a vacuum of leadership on critical issues in managing care, such as the cost-effectiveness of various treatments, as opposed to their cost (23). Innovation is needed in this arena, such as that occurring at the University of Cincinnati on new models of utilization management that control costs while empowering providers to make level-of-care decisions (24).
Third, academic psychiatry is uniquely positioned within large health systems to advance the integration of behavioral health care with primary medical care and other specialties in the medical center. It has been well documented that individuals with mental disorders present more often in general medical settings than in specialty mental health settings (25) and that mental disorders remain largely undetected and untreated in general medical settings (26). Katon and his colleagues (27,28) have demonstrated that for patients with major depression, collaborative approaches to care that involve psychiatry in primary care settings can produce increased adherence to antidepressant medication, increased patient satisfaction, and improved short-term clinical outcomes.
Academic psychiatry, operating within the crucible of medical centers, may be able to make significant advances in integrating behavioral health treatment with other medical care, delivering improved clinical outcomes for what appear to be relatively small increases in the cost of behavioral health treatment (29). The psychiatry department at the University of Michigan is pursuing this agenda using a three-pronged strategy that includes co-locating behavioral health professionals in primary care, notifying primary care providers about behavioral health interventions via an electronic medical record, and participating in all disease management initiatives of the academic medical center (30).
Academic psychiatry is unique and requires unique solutions to the challenges posed by the changing health care marketplace. The somewhat limited efforts to change made by a number of academic psychiatry departments may in fact be precursors to major transformations. The momentum of change appears to be building.
It is important to recognize that we are only in the adolescence of this health care revolution. Current academic structures, values, and traditions were built over decades, if not centuries. In most settings, they will not be modified swiftly. The process of change is laden with difficult decisions involving the often competing interests of the missions of research, education, and clinical care. It remains the responsibility of the leaders of psychiatry in academic medical centers to ensure that the difficult decisions are made and that efforts to reengineer academic clinical psychiatry are not too little and too late.
Dr. Hoge is associate professor of psychology in psychiatry at Yale University School of Medicine, 25 Park Street, Sixth Floor, New Haven, Connecticut 06519 (e-mail, firstname.lastname@example.org). Dr. Flaherty is professor, head, and chief of services in the department of psychiatry at the University of Illinois at Chicago School of Medicine.