The University Record, May 22, 1995

The Future of Health Care Delivery at the University of Michigan:

A report from the Health Affairs Advisory Committee (1994-95)

Committee members: Frank Ascione, Pharmacy; Marjorie Becker, University Hospital; Robert Bender, LSA (Biology); W. Monroe Keyserling, Engineering; W. Paul Lang, Dentistry/Public Health; Margaret Lomax, Medical Center (Anatomy & Cell Biology); Jean Loup, SACUA Liaison, SILS (Graduate Library); Marilynn Rosenthal, CASL (Sociology) U-M-Dearborn; Lillian Simms, Nursing; James Sisson, Medical Center (Internal Medicine), Chair; Dean Smith, Public Health

During the current academic year, the Health Affairs Advisory Committee of the Senate Assembly has looked at how the University and the Medical Center (i.e., the Medical School and the Hospitals) and, indeed, all the health science units are coming to grips with the challenges of health care delivery. To this end, members of the Committee have been enlightened by Medical School Dean Giles Bole, Executive Director of Hospitals John Forsyth, Director of M-Care Peter Roberts, Vice Provost for Health Affairs Rhetaugh Dumas, School of Dentistry Dean J. Bernard Machen, and School of Nursing Dean Ada Sue Hinshaw.

It is not news to anyone that the changes in the health care system are rapid, far-reaching and, at times, approaching crisis. No national solution to health care will be forthcoming in the near future. Although Congress did not adopt a health care policy in 1994, the United States health care system is set on a course toward managed care. Increasing numbers of Americans are enrolled in a variety of managed care plans that include health maintenance organizations, among others. Of particular importance is that capitation dominates many of these programs.

In capitation, the providers of health care take on much of the insurance risk through pre-paid plans. This contrasts with fee-for-service plans where an insurance company takes the risk. In addition, capitation provokes aggressive competition for the patients such that those organizations that acquire relatively few patients will fail, in a pattern analogous to that seen in business.

Capitation already makes up over one-half of the medical care in California. About 5 percent of the medical care in Michigan is now capitated, but projections are for 50 percent or more within two to three years. These projections are based on the predicted outcome of the coming labor negotiations between the auto workers and the auto companies. A cost-cutting agreement is likely to include capitation and set a precedent for southeastern Michigan. Managed care in general and capitation in particular demand the most economical medical care. Academic medical centers will have great difficulty offering medical services at competitive prices while at the same time fulfilling their traditional missions of teaching and research.

What is the risk of managed care and capitation to the University? Effects of these changes will be felt in at least three important areas.

First is in financial risk. There is much at risk not only to the Medical School but also to the entire Medical Center and to the University.

Information provided by Dean Bole showed that the Medical School budget for fiscal year 1994 was 381 million dollars. Forty percent of this budget, about $150 million, was derived from medical service plans. That is, $150 million came from fees paid by patients for medical care. The annual budget of the Hospitals is $600 million. Both the Hospitals' financial status, involving this $600 million, and the 40 percent of the Medical School budget are directly at risk when there are changes in health care delivery.

The second important area is the jeopardy of academic missions in the Medical School and, in fact, in all of the health science units of the University. Research monies are at risk because many of the investigators rely on the Medical Service Plans for part of their salaries. Thus, research, including that in collaboration among the health science units, can be diminished if medical care dollars become squeezed. Teaching in the Medical School is not fully supported by the 13 percent of the budget derived from general funds of the University; medical service plan dollars make up the shortfall. Educational programs, including some of those carried out in other health science units, are endangered. Many will suffer if money is less and patients are fewer.

The third area affected will be the medical care given to the faculty. M-Care now covers about two-thirds of the University faculty and staff. If M-Care, an organization of the University, cannot survive intense economic competition, then some other health delivery program must be sought.

How will capitation affect Medical Center activities? The Center must be able to draw patients from a broad population not only to sustain financial stability but to maintain the teaching and clinical research programs.

Estimates provided by Mr. Forsyth, Executive Director of the Hospitals, point out the large number of people who must be potential users of University Hospitals for some aspects of medical care if current medical services are to be sustained. The transplant service requires 5.1 million covered lives (people or potential patients), 54 percent of those conceivably available. And more traditional services from Pediatrics to Ophthalmology require 2.3 to 3.4 million covered lives.

In these estimates, not all patients will be covered by M-Care. Some will be under contract to come to University Hospitals only for tertiary and other specialized care. Nevertheless, a very largenetwork is required, an organization not previously seen. The Hospitals, under Mr. Forsyth, are moving briskly in this arena. Yet, the Medical Center must organize its staff and services, and especially its most sophisticated (tertiary and quaternary) patient care services, to be more attractive to purchasers than any competing network.

But competition, based largely on economics, will be fierce. And University Hospitals begin with a distinct disadvantage. In addition to meeting the prices of the market place, the Hospitals and the Medical Service Plans are obligated to continue support of the Medical School. This support is likely to exceed the $150 million per year now provided. It will take prescience and wisdom to meet the challenges.

In this regard the Health Affairs Committee has asked whether the administrative structure of the University as it relates to the Hospitals, Medical School and all health schools is optimal for giving responses and leadership in these rapidly changing times.

A dual system governs the Medical School. In academic affairs the Medical School is governed as all other schools and is responsible to the provost and executive vice president. However, in medical affairs, that is the care of patients, the Medical School and the Hospital were for a number of years responsible to Vice Provost for Medical Affairs George Zuidema who was, in turn, responsible to the president of the University. There have been a number of questions on how well this administrative structure worked. With Dr. Zuidema's retirement last year this structure changed. Dr. Rhetaugh Dumas has become the vice provost for health affairs. Dr. Dumas interprets her role as that of 1) staff to the provost, working with heads of health science units and the Hospitals to promote and expedite collaborative initiatives in such areas as planning, program and policy development, and special related projects; and 2) an executive officer of the University working as a member of the President's staff on the full range of administrative matters of the University and linking those related to health affairs as appropriate.

The administrative structure must optimally organize the University to meet the insistent and formidable demands of health care. These demands particularly include: the altered proportions of fee-for-service and contracted care negotiated with insurance companies; a shift in many services previously provided for inpatients to outpatients; the refusals of purchasers of health care to support education and research; and the teaching of new knowledge and skills to the many students who must practice their professions in a new environment. Not only must there be prompt adjudication of differences between the Hospitals and the Medical School and among the health science units, but there must also be leadership. A leader must be invested with authority to make decisions that are both visionary and wise.

All health science units must be harnessed to ensure that economic, educational and political actions are coherent and cohesive for the University. Two general plans are possible: 1) the leader could be one who bridges only the Medical School and the Hospitals, a resurrection of the Zuidema hierarchy, or 2) the leader could oversee all health science units. There are advantages and pitfalls to both schemes. The Committee has not yet come to a conclusion on the optimal administrative structure.

The Health Affairs Advisory Committee acts on behalf of the Senate Assembly and the faculty at large and as advisor to the vice provost for health affairs. As such, the Committee welcomes opinions and proposals on health affairs. After further deliberations with knowledgeable people, the committee plans to issue a position paper on the administrative structure to govern the health science units.