Financial Pressures Facing Academic Medical Centers Today: How Leaders are Responding

Today’s academic medical center (AMC) leaders are reluctant jugglers. In today’s healthcare environment, there isn’t much choice. Expert juggler status has been achieved (or soon will be)! No surprise, there, right? Managing a financial ecosystem that includes optimizing and balancing clinical care, nurturing research in multiple levels of development, and providing a growth-oriented teaching service to learners in multiple career paths, disciplines, and at variable experience levels is like trying to keep many balls in the air at the same time.     

Bad News Doesn’t Improve with Age

Healthcare leaders everywhere are keenly aware of the difficulties associated with identifying and executing the tactics of a financial strategic plan during an era characterized by a deteriorating bottom line due to externally influenced funding cuts. These same leaders have likely, at one time or another, found themselves seated in board rooms hearing sometimes inspiring, sometimes discouraging, conversations, citing phrases like, “There are two sides to an income statement to manage” and “Our success will be defined by growing the top line, not by cutting workforce” and perhaps the one most familiar to AMC leaders, “No margin, no mission.”  

Today, an argument could be made that the quote most identifiable to many AMC leaders navigating the financial pressures of the day and the foreseeable future is “Bad news doesn’t improve with age.” 

With these quotes as a backdrop, this article will focus on 1) identifying those pressures and 2) surfacing corresponding AMC response strategies in today’s climate of significantly reduced revenue in a post-COVID-19 era.

Looking First at the Pressures Hindering the Clinical Mission  

COVID-19 introduced a fog on revenue collection and resource availability/expense that has not yet lifted completely.  

Declining Reimbursement  

Private and government payers are working to lower healthcare costs by creating programs focused on promoting wellness and incentivizing the use of lower cost-of-care environments with efficient use of resources. Proposed federal programs such as site-neutral payments and mandatory value-based care participation have been reported to carry a combined $500 billion minimum reduction in reimbursement. 

Proposed changes to Medicaid have the potential for millions of people to lose coverage. Likely results include increased emergency department visits and rising levels of uncompensated care.

Private payers continue to focus on bundled payment models and value-based care initiatives. AMCs struggle in these payer models due to long-standing regimented workflows utilized by a specialist-heavy workforce. 

AMCs are responding to declining reimbursement headwinds with a variety of countermeasures.

1. Leaning into clinician engagement. AMCs are involving physicians and clinicians in performance improvement opportunities designed to increase operational efficiencies and efficient resource utilization. The motivation is simple: These performance improvement strategies impact physicians and clinicians, and peer leadership is the most effective tool leading to compliance with the tactics underlying the strategy. Examples are numerous and include length-of-stay initiatives, OR utilization and governance, reduction of supply chain variation, and coding.  
2. Value-based care. AMCs are investing increasing amounts of time, money, and effort into primary care and developing lower cost-of-care places of service.
3. Global budget and total cost-of-care model participation. AMCs are focusing on engineering success one fixed payment model at a time.
4. Advocacy. AMCs are working cooperatively with government agencies to influence policy decisions, drive reimbursement increases, and improve funding initiatives.

Charity Care

AMCs continue to provide a disproportionate percentage of uncompensated care. In 2024, the Association of American Medical Colleges (AAMC) reported, based on 2023 data, that AMCs make up only 5% of the nation’s short-term, general, non-federal hospitals yet carry 33% of all hospital-based charity care. 

AMCs are countering charity care headwinds.

1. Public insurance enrollment. AMCs are offering proactive public insurance enrollment at the point of care, particularly in emergency departments.
2. Artificial intelligence. Using artificial intelligence-fueled revenue cycle processes in eligibility screening and denial management initiatives, AMCs are lowering bad debt and uncompensated care.
3. Advocacy. AMC leaders supporting state-level Medicaid expansion can directly—and potentially quickly—reduce the count of uninsured patients.

Workforce Issues

COVID-19 shone a very bright spotlight on the healthcare workforce. Today’s AMC leaders are navigating a decreasing workforce of physicians and nurses.  

The nursing workforce alone decreased by more than 100,000 in one year (2021). Driven by burnout and retirement, 40% of today’s nurses plan to leave the workforce by 2029. Year-over-year nursing salary increases have been slowly declining from the 6% range in 2022 to 5% in 2024 but remain an outlier of increased cost for AMCs.  

The AAMC estimates a shortage of between 37,800 and 124,000 physicians by 2034. Even absent significant salary expense increases, these shortages could manifest in conditions from increased length of stay to further declines in patient access to needed care.

AMCs are battling workforce issues.

1. Cross-training programs. High turnover remains an issue. AMCs can proactively battle this issue by cross-training nursing, clinical technicians, and bedside-care professionals to handle multiple, aligned roles.
2. FTE levels. AMCs are working to understand the work output available to them by position type to proactively avoid over- and under-utilizing key team members.  
3. Metrics. AMCs can track key metrics like absenteeism by team member and turnover percentages, particularly first-year turnover, by position type.   

Pressures Hindering the Research Mission  

COVID-19 proved AMCs were Ground Zero for needed research during a time, at least initially, when funding available through the National Institutes of Health (NIH) was relatively stable.

Funding Cuts.

A couple of years after the COVID-19 research rush, AMCs attempting to incubate research in 2025/2026 are dealing with significant cuts by the NIH. Reductions in count and dollar value of grants are hitting AMCs hard. As reported by the AAMC, in 2025 alone, U.S. medical schools and hospitals saw 1,183 grants terminated and $2 billion in funding cuts. The updated NIH policy immediately capped the indirect cost reimbursement rate at 15% and resulted in potential annual cuts to reimbursement of more than $4 billion.

Reduced funding results in AMC leaders facing the need for replacement revenue streams. Without them, research office personnel—and indeed entire research programs—are at risk. Described simply, institutional subsidies are required to maintain research efforts resembling those of prior years.

Countermeasures used by AMCs mitigate research funding cuts.

1. Pursuit of alternative funding models. AMCs are looking at relationships with private funders as an alternative funding source.
2. Pursuit of non-federal funding sources. AMCs are increasingly reaching out to regionally based funding options.
3. Hiring freezes and legal action. Many AMCs have issued research office hiring freezes. Twenty-two states also sued the NIH and the U.S. Department of Health and Human Services, describing the funding cuts as unlawful. As of the writing of this article, U.S. Supreme Court intervention included an emergency order indicating claims for return of terminated funds should be handled in the Court of Federal Claims rather than the federal district court where lawsuits were filed.
4. Philanthropy. AMCs are engaging in grateful-patient campaigns designed to target funding for specific research initiatives.

Operational Changes

Combine reduced funding with the need to establish replacement revenue streams, and AMC leaders will be required to revise their research portfolio and related budget forecasts to reflect changing priorities. The effect of these changing priorities necessarily results in strategic reevaluation of the AMC research business model.

AMCs respond to the need for operational changes in the research mission.  

1. Performance improvement initiatives. AMCs are looking at streamlining and centralizing research infrastructure and administrative process and workforce.
2. Portfolio strategy change. AMCs are evaluating the financial return on research efforts and related investment. Consequently, projects with the highest potential for commercial viability and more immediate financial returns rise to the top of strategy options designed to mitigate federal funding cuts. 

Innovation Threatened 

Compared to translational and clinical research, reduced revenue streams threaten basic science research most significantly. The evolutional process of research, from fundamental discovery to clinical application, is threatened by changing the operational focus away from an emphasis on basic science funding. The potentially unavoidable outcome is the slowed development of new therapies and technologies.

A slowing of innovation results in delays in advancing diagnostics and treatment planning for patients. Eventually, care quality and patient outcome improvements will be delayed.

A tangible result of stalled innovation exhibits itself in handicapping the success prospects of faculty scientists eager to make major contributions to basic science research. A byproduct of stalled innovation due to funding cuts is the disproportionate cutbacks to high resource consumption and complex research efforts, such as genetics. 

AMCs deploy countermeasures to research innovation threats.  

1. Collaboration. AMCs are forming research alliances with shared resources, shared data, and shared infrastructure to reduce costs and simultaneously improve grant competitiveness.
2. Improved contribution measurement. AMCs are increasingly focusing on grant submissions that highlight and emphasize high level potential for clinical or societal impact.
3. Philanthropy. AMCs are evaluating promising high-risk or early-stage research aimed at securing donations from individuals and private foundations.  

Pressures Hindering the Teaching Mission   

A less well-known outcome of COVID-19 is the changed expectation of learners. Hybrid models, combining online education with face-to-face instruction, have grown in popularity amongst students post-COVID-19. 

Strained Resource Availability.

As has historically been the case, tuition continues to fall short of funding the actual cost of educating a medical student.  

Agreements structured to share teaching workforce between health systems and medical schools have become transactional in nature, making efficiencies hard to achieve.

Changes to student loans, such as removal of the Graduate PLUS loan program effective July 1, 2026, and lifetime caps on federal student loans, impact students’ ability to afford medical school.

AMCs respond to strained resources in the teaching mission.

1. Virtual platforms. Virtual platforms allow large numbers of learners to access a small faculty workforce on a real-time and asynchronous basis.  
2. Faculty resource strategy. Economies of scale are realized through faculty involvement in virtual learning environments.
3. Efficiency. AMCs can develop teaching mission efficiency councils involving faculty physicians and health system leaders.
4. Measuring. AMCs are tracking key metrics that can be used to better manage teaching resource consumption. Examples include cost per learner, virtual course adoption rate, and faculty-to-student ratios. 

Faculty Engagement

Increasing demands for clinical productivity needed to augment AMC revenue streams continue to lead to faculty reluctance to work with learners.

Faculty compensation models that fail to incorporate education as a significant compensation lever decrease faculty willingness to prioritize education work efforts.  These compensation model “misses” diminish opportunities to build a faculty workforce that prioritizes teaching learners.

Pay disparities between academic and non-academic roles persist and can make it difficult to recruit and retain faculty needed to meet teaching demand.   

AMCs navigate headwinds facing faculty engagement in the teaching mission.

1. Compensation models. AMCs are creating compensation methodologies that recognize and reward teaching activities by establishing teaching relative value units (tRVUs). Activities typical of tRVU credit include participation in curriculum development, participation in the clinical competency committee, and service as a resident/fellow mentor or small group instruction leader, among many others.
2. Volunteer community-based faculty. Community-based volunteer faculty extend teaching opportunities, teaching workforce availability, and teaching sites.
3. Information mining. AMCs can create and issue a teaching interest survey instrument to identify faculty intrinsically interested in graduate and undergraduate medical education.
4. Methodology. Developing a teaching methodology that allows for a degree of autonomy in teaching methods (with appropriate oversight) helps AMCs make teaching more appealing and supports faculty and community-based faculty recruitment.

The Common, and Perhaps Most Worrisome, Thread of These Financial Pressures  

Financial performance of the clinical, research, and teaching missions is inexorably connected. One mission cannot prosper when another mission suffers, and responsibility for financial success individually and in a consolidated measure rests squarely on AMC leaders. The interconnectedness of this financial ecosystem is both a strength and a weakness. When the cumulative bottom line is good, each mission has opportunity to flourish, but when the cumulative bottom line is poor, all missions suffer.  

The worry that keeps AMC leaders awake at night is the snowball effect of a significantly reduced revenue stream in any one, or several, missions, injuring the composite whole. As an example, reduced reimbursement in the clinical mission influences increased attention on clinical productivity. Increased attention on clinical productivity reduces protected research time and a reluctance to spend valuable productivity time with learners. Reduced research time leads to unsuccessful grant applications. Reduced time with learners is reflected in declining learning environment survey results, and resident match scores go down. Resident match scores fall and faculty recruitment success—retaining the best and brightest—stalls. 

Similar scenarios play out when revenues and resources needed by the research and teaching missions suffer a significant decline. Like balls dropped by a juggler, one influences the success of the other. 

The interdependence of the ecosystem can be a strength, and it can be a weakness. With new energy and focus on countermeasures, AMCs can successfully keep the many balls in the air.

Juggle on, AMC leaders, your cross-mission responsibility is immense!