Office of the Vice President for Global Communications

Thursday, June 20, 2013

UMHHC budget: Break-even year, investments pave way for strong FY '14

A record number of patients turned to the U-M Health System in the last year for their care, and expressed record-high satisfaction with their experience — resulting in a solid fiscal year performance achieved in a challenging environment. The forecast is for an even stronger year to come.

In a presentation June 20 to the Board of Regents, U-M Hospitals & Health Centers CEO Doug Strong predicted break-even financial performance on revenues of $2.37 billion for fiscal year 2013, which will end June 30.


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In that period, patient care activity grew 4.1 percent, revenues grew more than 9 percent, and surveys showed record-high patient satisfaction ratings. Final results for the UMHHC fiscal year will be available later this year.

The regents Thursday approved a budget for fiscal year 2014 that aims for a positive operating margin of 0.8 percent, with a 6.3 percent growth in revenues to $2.5 billion, and a plan to serve 4.5 percent more patients.

Rising to the challenge

Strong credits the collective efforts of Health System faculty and staff, guided by a strong strategic plan, for the year-end results and the projected positive performance for next year. He praised the Health System community for high performance in the face of large-scale change, and an extremely challenging health care environment.

"Despite a number of factors — including federal budget sequestration, pressure from all reimbursement sources, an increase in unreimbursed care for the uninsured, high hospital occupancy and the implementation of a new computerized system in our outpatient settings — we continued to provide excellent care to more patients while maintaining our commitment to research and education," Strong said.

He noted that the rollout of MiChart, a comprehensive electronic health information system, in U-M's 40 outpatient locations and central billing included one of the largest-ever one-day activations of such a system in the nation. Its impact on expenses was larger than predicted, but it has begun to pay off in many ways.

Looking forward, Dr. Ora Pescovitz, executive vice president for medical affairs and CEO of UMHS, noted that the forecast for FY '14 will depend on continuing the entire Health System's focus on expense management. Changes at the state and federal level also pose significant — and not entirely predictable — challenges for UMHS.

"We remain hopeful that Michigan will increase access to Medicaid under the Affordable Care Act. At the same time, we anticipate at least a $12 million reduction of Medicare reimbursement due to federal budget sequestration for the new U-M fiscal year," she explained.

"This fall, we will see how many uninsured Michiganders will take advantage of the health insurance exchange and federal subsidies, giving them the coverage that can improve their health and allow providers like us to be reimbursed for their care. We have factored these items into our 2014 budget based on estimates," she says. "But unpredictable factors, combined with other pressures, make it even more important for us to invest strategically and manage expenses to the best of our ability."

Reaping the benefit of strategic investments

In addition to MiChart, the value of other investments began to show in FY '13 — including a newly opened facility for children's and women's care, and adult emergency department expansion. These investments were made possible by past positive margins on clinical activity.

In calendar year 2012, the first full year of operations in the facility that opened in December 2011, 11 percent more children and pregnant women came to C.S. Mott Children's Hospital and Von Voigtlander Women's Hospital than in the previous calendar year.

The new building's dedicated pediatric emergency department, and a larger adult emergency department in University Hospital were timely as emergency visit demand increased by 9.6 percent.

Investments in the renovation of inpatient areas in University Hospital, in using portions of the new children's/women's facility for adult care, and in the Taubman Center, a key multispecialty outpatient building adjacent to University Hospital, have also improved capacity and access to more patients requiring care and treatment.

Another kind of investment — strategic partnerships with others — also bore fruit in FY '13.

The master affiliation agreement between Trinity Health-Michigan and UMHS, announced in March 2012, has led to the opening of a new jointly operated inpatient unit for older adults at Saint Joseph Mercy Hospital-Ann Arbor, and more beds made available for U-M patients admitted at Chelsea Community Hospital.

Also in 2013, UMHS signed a formal affiliation agreement for pediatric specialty care and air medical service for Sparrow Health System, launched a new Accountable Care Organization that involves more than 1,800 physicians across Michigan, and expanded the Pioneer Accountable Care Organization that includes U-M physicians and physicians in two other local groups. Taken together, U-M's two ACOs are helping improve care and contain costs for more than 106,000 Michigan Medicare beneficiaries.

High quality and safety

Strong noted that in FY '13 U-M was the only hospital in the country to be included on four lists for top performance: U.S. News & World Report's national Honor Roll of Best Hospitals, Truven Health/Modern Healthcare's 100 Top Hospitals, the Leapfrog Group's Top Hospitals list and the top 10 hospitals for patient safety from UHC, a consortium of academic medical centers. UMHS reports data about its performance on key quality and safety measures at

Investments in patient safety and use of "lean" thinking to improve operations, allow UMHS to provide care of ever-higher quality, even as demand for that care rises, he says. The introduction of a new care management framework this summer will enhance that effort.