The University Record, June 25, 1996

Regents approve Clinical Delivery System budget

Last Friday the Regents approved the Clinical Delivery System's 1996--97 fiscal year budget, from which $60 million has been trimmed as part of a three-year plan to cut operating expenses by at least $200 million. As part of the reduction, 541 employees have received layoff notices but fewer than 200 are expected to go without a paycheck. This cost-cutting effort reflects the Health System's challenge to become more cost-competitive with local, state and regional hospitals and medical centers while maintaining the highest quality of care.

"The good news is that we accomplished our 1996--97 objective of reducing FTEs to a level comparable with the best peer academic medical centers. The bad news is that our cost per case is still significantly higher than that of local and regional hospitals," says John Forsyth, president and chief executive officer of the U-M Health System. Factors that influence the Hospitals' 30-percent higher cost structure include educational costs, the complexity of medical cases and being a leader in the application of new technologies.

With an anticipated increased penetration in managed-care cases, inpatient activity is expected to remain flat. The Health System's outpatient activity, in contrast, is expected to swell this year by about 13 percent.

To help cover the new $921 million operating-expense budget, effective July 1, room rates will increase slightly for the second straight year, by 3.6 percent. But even with the increase, today's general-care private room, at $564, still costs $20 less than it did in 1990.

"With this rate increase, we remain in the middle of the pack for southeast Michigan hospitals," says David N. Southwell, financial director of the Health System.

Under the new budget, the U-M projects a fiscal year 1997 operating margin of $3.8 million and $45 million in excess revenue over expenses.

Also on July 1, the Health System will complete its first year of operation as a Clinical Delivery System, or CDS. Under CDS, all clinical revenues and expenses generated from managed care and fee-for-service patient care are combined into a single pool. The gross patient revenue, minus provisions and bad debts, is shared by the U-M Hospitals and Medical School. The Medical School in turn distributes funds through its physician group practice to each of the clinical departments to cover physician salaries and professional development.

The financial stability of the U-M Hospitals is reflected in its AA bond rating with both Moody's Investor's Service Inc. and Standard & Poor's. Only one medical institution in the nation has a higher rating.

The U-M Health System and Medical School's commitment to high-quality patient care and academic excellence is reflected by a number of honors and awards received during the past year.

In March, for the second consecutive year, U.S. News & World Report ranked the Medical School among the nation's top 10 research-oriented medical schools. Of 125 schools evaluated, the U-M placed ninth, an improvement over the previous year's survey, in which the school ranked 10th.

Also earlier this year, some 200 U-M physicians were listed in the "Best Doctors in America: Midwest Region, 1996--1997," published by Woodward/White Inc.; and 17 U-M physicians were included in American Health magazine's "Best Doctors" issue.