The University Record, July 17, 2000

Health System enters new fiscal year with strategic vision and budget

By Kara Gavin
Health System Public Relations

Gilbert S. Omenn explains details of the Health System’s strategic plan at the July 13 Regents’ meeting. Regent David A. Brandon is on the right. Photo by Paul Jaronski, U-M Photo Services
As the University begins its 2001 fiscal year, the U-M Health System (UMHS) last week unveiled a streamlined budget proposal and new strategic plan aimed at keeping one of the nation’s leading health care institutions in positive financial health for the foreseeable future.

Gilbert S. Omenn, executive vice president for medical affairs, presented the budget plan and strategy report to the Regents July 13, highlighting UMHS staff efforts to cut costs, increase efficiency, continue to grow inpatient and outpatient services, and plan for the future in a time of reduced reimbursements for medical care.

Omenn also summarized the Health System’s projected financial performance for fiscal year 2000. The UMHS will finish 2000 with a positive operating margin of $5 million on revenues of $859 million, he reported. This gain is the result of budget re-examination within all UMHS departments, which were asked to find opportunities to trim their spending throughout the year.

For fiscal 2001, the Health System projects revenues of $887.1 million and expenses of $869.2 million, resulting in a $17.9 million operating margin. This forecast factors in $32 million in cuts that UMHS managers made to their fiscal 2001 budgets, including eliminating programs, reducing overtime, cutting the use of temporary employees and canceling hiring for 450 posted positions. Four hundred and twenty-five positions remain open at the Health System.

About 35 employees, of the 9,605 Hospitals and Health Centers staff, have been notified that their present positions have been eliminated by the reduction-in-force required by these budget cuts. Efforts are being made to facilitate placement of those staff elsewhere in the Health System or the University, or outside the University.

The positive forecast for FY 2001 anticipates a continued rise in clinic visits, to more than 1.3 million; a slightly higher number of hospital admissions; and a decline in length of inpatient stay to 5.67 days. Combined with budget cuts, these factors should help the Health System avoid the operating deficits that have plagued other hospitals and academic medical centers following payment reductions from private insurers, Medicaid and Medicare.

Helping guide these changes is the new UMHS Strategic Plan, the result of a year of systematic discussion by staff from throughout the Health System. It provides a common vision for the Hospitals and Health Centers, the Medical School and its Faculty Group Practice, the M-CARE managed care organization, and other areas of the University that work with the Health System.

“A chief goal of this plan is to promote fiscal soundness by making wise decisions in how to structure our operations and how to measure their success,” Omenn said. “The current financial realities facing the entire health care field, and academic medicine in particular, make strategic planning and timely action all the more important.”

Among the key initiatives outlined by the strategic plan:

  • Improving service for patients and their families through improved systems and programs, with appropriate measurement.

  • Continuing clinical redesign to keep patient care and M-CARE premiums competitive no matter what changes in reimbursement arise.

  • Expanding and developing comprehensive care centers for certain populations and diseases, including cancer, cardiovascular, women’s and children’s, transplant and depression.

  • Optimizing use of existing facilities and systems, including space reallocation and information systems.

  • Improving the Medical School’s research ranking, including its level of funding from the National Institutes of Health, and space devoted to research.

  • Periodically enhancing the Medical School curriculum, including better integration of basic science and clinical education.

  • Boosting the ability to attract and retain top faculty, staff and students at all levels.

  • Streamlining the decision-making process throughout the Health System.

  • Intensifying the use of metrics, or measurement criteria, to help in planning, budgeting and rewarding performance.

  • Increasing efforts to attract philanthropic support for both the Medical School and the Hospitals and Health Centers, to offset the changes in clinical revenues and invest in new facilities and programs.

    Altogether, the strategic plan aims to integrate all activities within the Health System, encompassing patient care, education, research, technology development and community service. The plan provides a framework for individual department and divisions to use in their own planning.

    “We have done well to stay in the black in the past several years while so many other academic and community hospitals were laying off large numbers of staff and still incurring big deficits,” Omenn said. “However, just to keep our noses above the water line, we must improve our performance by nearly $40 million each year by obtaining greater net revenue from increased activity and better collection rates, and by decreasing expenditures per unit of service. That will be true for as far into the future as we can imagine.”

    The Association of American Medical Colleges estimates that the typical teaching hospital will lose $45 million in the next two years, and that 40 percent of those hospitals are already in the red.