The University Record, July 22, 1998

1997-98 medical budget shows gain; '98-99 budget will be tight, Omenn says

By Sally Pobojewski
News and Information Services

In spite of shrinking revenue sources and intense competition among Michigan health care providers, the U-M Hospitals & Health Centers will close the books on FY '98 with a $26 million operating gain--according to Gilbert S. Omenn, executive vice president for medical affairs.

Omenn presented a report on the Hospitals & Health Centers budget for FY '98 and proposed a new FY '99 operating budget to the Regents on July 16. The new budget was approved unanimously.

Increasing patient volume, especially for outpatient services, should push FY '99 revenues up to more than $975 million--a 2.9 percent increase over last year, Omenn said. But the extra physicians, nurses, support staff and supplies required to care for additional patients--along with $15 million in new funding allocated to fix the Year 2000 computer problem--will push expenses up more than 5 percent to nearly $974 million.

Overall, Health System administrators projected a painfully-thin $l.5 million operating gain for the new fiscal year--a "grocery store-type margin," according to Omenn, which will force the Health System to intensify its cost reduction program while continuing ongoing efforts to improve the quality of patient care.

"The fact that our revenue continues to grow is remarkable given the level of competitive pressure we face from payers, employers and competing institutions," Omenn said. He explained that revenue pressure will intensify over the next five years as the Hospitals & Health Centers absorb $216 million--or about $40 million annually--in projected reimbursement reductions from Blue Cross Blue Shield of Michigan and Medicare.

During his budget presentation, Omenn announced a new organizational structure designed to align academic, clinical and business functions across the entire Health System--which includes all three hospitals, 30 outpatient health centers, the Medical School, M-CARE and the Michigan Health Corp. "Our goal is to manage all financial issues within the context of an overall strategic framework," Omenn said.

Other new Health System initiatives cited during the budget presentation included:

• Partnership Health, a new managed care plan being tested as a pilot program for employees of Ford Motor Co.

• "Kids Care," a joint initiative with Detroit's Henry Ford Health System, will serve Michigan children with serious, chronic medical problems.

• Increasing community involvement with other health care institutions and state and county public health departments to improve the health risk profile of Michigan residents.

• Recruitment incentives to attract new, highly-qualified faculty to the U-M Medical School.

• Efforts to measure and improve patient satisfaction with medical care received at the Hospitals & Health Centers.