The U-M Hospitals and Health Centers unit (UMHHC) of the U-M Health System (UMHS) will end its fiscal year financially strong despite challenging times, thanks to continued demand for its patient care, and an aggressive strategy of building and innovating for the future.

At a June 16 meeting of the Board of Regents, Health System leaders presented forecasts showing that UMHHC expects to achieve an operating margin of 2.1 percent on revenues of $2.1 billion for the fiscal year that will end June 30.

Despite an economic environment that continues to challenge health care institutions in Michigan and nationwide, UMHHC has achieved 15 straight years of positive operating margins for its three hospitals and 40 outpatient locations. These results help fuel the U-M Health System’s three-part mission of patient care, education and research.

“In the last year, inpatient and outpatient activity have increased approximately 3 percent versus the year before, as we have served patients from every county of Michigan and many other states and nations, and increased our productivity while containing cost growth,” says Doug Strong, the chief executive officer of UMHHC.

“All of us involved in clinical care and administration at U-M should be immensely proud,” he continues, “that we have achieved this despite pressure on payment rates, increases in charity care and bad debt, and the continued trend of patients shifting to government payers — all while meeting the demands of building for our future growth and providing excellent care today.”

With the new fiscal year that begins in July, UMHS will launch two massive undertakings that have been under development for years: the opening of the new C.S. Mott Children’s Hospital and Von Voigtlander Women’s Hospital facility in late fall, and the first phase of MiChart, a comprehensive information technology system for U-M clinical care and billing.

In the fiscal year 2012 budget that regents approved June 16, UMHHC forecasts a 3 percent positive operating margin before the costs of activating these two projects, but a 1.1 percent negative operating margin when those activation costs are included.

“These two projects, and others such as our Emergency Department expansion, will prepare us to serve even more patients, and in a more efficient environment, for decades to come,” Strong says. “Together with our partners in the U-M Medical School and its Faculty Group Practice, we will be well-positioned for the coming implementation of health care reform. But we must continue to pour our energies into innovative approaches to contain costs and improve efficiency and productivity.”

The Medical School’s Faculty Group Practice, which includes all of the physicians who see patients at UMHHC facilities, shares responsibility for achieving positive financial results — especially in the outpatient centers, which it manages.

“These challenging times mean we must be more strategic than ever in how we grow, pursue new partnerships across the state, and further integrate our research and education efforts with our clinical care,” says Dr. Ora Hirsch Pescovitz, UMHS CEO and executive vice president for medical affairs. “Clinical revenues, together with philanthropy and investments, are essential to fuel our continued growth and national prominence.”

“Our past strong financial performance and capacity for growth and investment have helped us maintain our current credit ratings, and allowed us to obtain financing for major projects such as the new hospital and MiChart at reasonable interest rates,” says Robin Damschroder, interim chief financial officer. “But to maintain that rating, we will need to work ever harder and confront the ‘new normal’ for revenue growth.”

Says UMHHC Chief Operating Officer Tony Denton, “We are committed to managing an increasingly efficient health care enterprise, while also focusing on quality, access, safety and the ideal patient care experience. I am proud of the teamwork shown over the past year, which is vitally important to our continuing success as a leading academic medical center.”

In addition to the Hospitals & Health Centers and the Medical School, UMHS also includes the administrative group for the North Campus Research Complex, the EVPMA administration and shared services departments serving all of UMHS, as well as the Michigan Health Corp. that allows UMHS to partner with outside entities.

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