The “For-Benefit” Academic Medical Center: A Solution for Survival

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Abstract

Academic medical centers (AMCs) are the backbone of the U.S. health care system. They provide a disproportionate share of charity care and serve as a training ground for future physicians. Yet, AMCs face profound economic challenges, from changes in funding to changes in the health care market. To survive, many AMCs will need to form integrated health systems, a process expected to cost tens, if not hundreds, of millions of dollars. Nearly all AMCs are structured as not-for- profit entities, which places restrictions on their ability to forge partnerships, pursue joint ventures, and access private capital, often essential elements for forming such integrated systems. An alternative model known as the “for-benefit” corporation can allow AMCs to retain their important social mission and the other advantages of their not-for-profit status while allowing them flexibility and access to both investment and philanthropic capital. To pursue the for-benefit pathway, AMCs have two options—either they could work within the constraints of existing laws to restructure themselves as for-benefit entities, or they could create, under federal law, a new for-benefit AMC model, allowing for the orderly conversion of not-for-profit AMCs. Essential components of a for-benefit AMC include a social purpose, access to multiple forms of capital, the use of earnings to support its purpose, transparency, aligned compensation, and tax exemptions. Restructuring an AMC as a for-benefit entity enables it to both advance shareholder value and further the public good.

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