The University Record, July 19, 1999

U’s Hospitals, Health Centers stay in black while others bleed

By Jane R. Elgass

“The big picture,” Gilbert S. Omenn told the Regents July 15, “is that we are healthy, financially viable and have been able to meet our academic mission while other academic hospitals are bleeding.”

In presenting the Hospitals and Health Centers’ proposed FY 2000 budget, Omenn noted that the “academic mission is critical to our role and guides our investment strategies. We have many different kinds of customers—patients, their families, physicians who refer patients, those who pay, insurers and the government—and the main message is that we have done remarkably well” when compared with several years ago. “Everybody in the Health System deserves credit,” added Omenn, who is executive vice president for medical affairs.

In presenting activity figures, Omenn noted that the hospitals continue to squeeze length of stay, noting, however, that early discharge can be a problem and presents “a delicate balancing act.”

Of the 1.2 million clinic visits in the past year, about half were to the Taubman Center and Mott Hospital, with the rest to 30 health centers, which are more convenient for many patients.

Omenn also cited the delicate balancing act played out in assuring that there are enough patients for student education. “We need patients, but we do not want to stomp on others’ turf.” The Cancer Center, for example, has several arrangements with other health care providers and there are several joint programs in which the University participates as a research arm at no cost to the other participating institutions.

“We see lots of potential for increasing patient activity statewide,” he said.

The Hospitals and Health Centers recently have focused heavily on cost reduction and several things drive those efforts:

  • Contract with Blue Cross Blue Shield of Michigan (BCBSM), negotiated in October 1997. Reduced inpatient operating and capital reimbursement (-$111 million) and additional discounts for BCBSM Managed Care products (-$5 million), coupled with improved outpatient reimbursement (+$35 million) for a net cumulative income reduction of $81 million over five years ending in 2001.

  • Changes in Medicare reimbursement, resulting in a cumulative loss of $150 million in income over five years ending in 2002. This includes a reduction or freeze in most rates, followed by below-inflation adjustments (-$67 million); grouping of outpatient services, paid as a fixed price, expected to be below cost (-$36 million); and reduction in indirect education reimbursement and cap on direct education reimbursement (-$47 million).

    The education reimbursements, Omenn noted, are particular to academic medical centers, which, coincidentally, get the most complicated patients.

    Omenn presented a proposed operating budget showing $864.1 million in total operating revenues, against $856.9 in total operating expense, with a net gain of $7.2 million.

    Several assumptions drive the projections:

  • Rebasing operating budgets at 96 percent of base budgets as a result of greater efficiencies.

  • Increases in discharges (4.5 percent) and clinic visits (1.8 percent).

  • Room rate increases of 3.6 percent and ancillary service rate increases of 3 percent, keeping the University in line with St. Joseph Mercy Hospital. Average length of stay is expected to remain at 5.8 days, the FY 1999 level.

  • A competitive salary increase program of 3 percent to 3.7 percent.