The University Record, July 22, 2002

Fifth year of ‘positive margins’ for UMHS

By Kara Gavin
UMHS Public Relations

The U-M Health System (UMHS) ended its 2002 fiscal year with a preliminary positive margin of $10 million on an operating budget of $966 million for its hospitals and health centers. It’s the fifth straight positive operating margin for UMHS under CEO Gilbert S. Omenn, who will step down July 31 to return to research. And it comes despite continuing reimbursement pressures from public and private insurers, and new contracts with higher-than budgeted increases in financial compensation for UMHS nurses and medical residents.

Regents approved a blueprint budget for the 2003 fiscal year of just over $1 billion that forecasts a positive operating margin of 2 percent, with increases in numbers of patients served, and in nursing and allied health staffing levels.

“We have completed another strong year and have a good plan for the next,” says Omenn, who was appointed in 1997 as U-M’s first executive vice president for medical affairs. “I’m personally proud to have led the Health System during a time when we tapped the creativity and innovative spirit of all our people to keep our ship on course while many of our peers were having trouble.”

Hospitals and Health Center (UMHCC) executive director Larry Warren says, “Everyone involved in our efforts to improve quality and cost effectiveness, and to put patients and families first, deserves credit for this result. As we look to 2003, we must continue to find new ways to build upon this strong position and grow our clinical capacity.”

Among the top goals of the 2003 operating budget is investment in key areas to further enhance the quality of patient care, the capacity for more patients and patient satisfaction levels. Proposed initiatives include additional use of surgical space, and continued partnering of physicians and nurse leaders on each inpatient service in “dyads” aimed at jointly finding new ways to improve service.

Another goal is to maintain the UMHS workforce, including recruitment and retention strategies for nursing, technical and allied health staff. The proposed budget calls for 139 more nursing positions.

“We try to stay ahead of the staffing shortages in many health care professions by offering competitive salaries and outstanding benefits to attract and keep excellent people,” says Omenn.

A third major goal for 2003 is increased partnering between U-M Medical School physicians and UMHHC staff. Under the UMHS model, the Medical School physicians see and treat patients at UMHHC facilities, and are involved in the design of clinical care processes. UMHS also includes M-CARE, a managed care organization with nearly 200,000 members.

For fiscal 2003, which began July 1, Omenn and Warren say they hope to further increase physician involvement and to encourage collaboration among all UMHS faculty and staff on ways to achieve the operating margin while increasing quality, productivity and patient satisfaction.

They also hope to invest UMHHC funds in key programs and facilities for the future. Some such plans will be presented in coming weeks to incoming President Mary Sue Coleman, and will require regental approval.

Though UMHS has been able to maintain a healthy bottom line during a very difficult time in health care, Omenn warns that the future will continue to be quite challenging.

“We are fortunate to have reached good agreements with our two largest private sector payers, Blue Cross Blue Shield of Michigan and M-CARE, but the state and federal funding prospects for Medicaid and Medicare are still troubling,” he says.

Just over 25 percent of the care delivered at U-M hospitals and health centers, as measured by charges, is for Medicare recipients, while 10 percent is provided to children and adults insured through Medicaid. Another 25 percent is provided to Blue Cross Blue Shield of Michigan members, while

M-CARE accounts for 9.6 percent, and all other health plans and payers combined make up the remaining 29.2 percent.

Budget projections show that cuts in fiscal 2003 to the state Medicaid budget and certain components of the Medicare rate will cost UMHS $9.7 million in revenue. The rising cost of medical supplies and pharmaceuticals will cost millions more.

Omenn notes that the situation is the same at major teaching hospitals and academic medical centers across the country. “Our nation is still waking up to the predicament many health care institutions find themselves in, and to the potential for the cracks in our health care safety net to get wider, not narrower,” he says.

“We cooperate fully in sharing best practices with other hospitals in this region. All of us need our political and business leaders to make a strong commitment to the health of our nation’s leading health care institutions as an investment in the health and welfare of the American people.”