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Quiet giant: How the University of Michigan Health System tackles a changing landscape

Illustration by Alicia Kovalcheck
Illustration by Alicia Kovalcheck Buy this photo

By Barry Belmont, Opinion Columnist
and Ian Dillingham, Daily Staff Reporter
Published September 30, 2013

Within the University lies a giant — quiet and unnoticed by many students as they run between classes, dorms and dining halls.

The University of Michigan Health System consists of 29 departments, about 3,000 faculty and staff members and about 1,800 medical, graduate and postdoctoral students. Some departments, such as Internal Medicine — with over 700 faculty — are larger than every other school and college at the University. Accounting for nearly half of the University’s operating budget, it’s approximately 200 times larger than the entire Athletic Department financially.

But amid the changing national healthcare climate, UMHS must now take new and innovative approaches to maintain the financial security of a $2.6-billion enterprise.

Making Cents of Change

“In a way, the present and the future are sort of using the same words.”

Doug Strong, chief executive of the University of Michigan Hospitals and Health Centers, faces the challenge of turning visions of the future into reality while managing all patient-care operations conducted by the University.

“In terms of patient care, our assignment goal and our daily work is to improve quality and efficiency at the same time,” Strong said. “We’re under significant, but appropriate financial pressure — external pressure — to really do both things.”

In addition to these external pressures, UMHS was financially strained in recent years through the construction of the C.S. Mott Children’s Hospital and Von Voigtlander Women’s Hospital, which opened in December of 2011 at a project cost of $754 million. In the 2012 fiscal year, UMHS saw a 0.5-percent loss on its operating expenses after drawing in $2.1 billion in revenues, according to the University’s financial report.

However, the construction of the new facilities is a necessary part of growing the health system to accommodate the typical 4-to-5-percent growth in patient volume per year.

“We built that building to last 40 or 50 years so we expect to take it on at a loss and build it up over time,” Strong said. “We’re very much on track for that, it’s filling up on schedule.”

“We’re investing ourselves for the future — short-term pain, long-term game.”

In addition to construction, he said the hospital’s health record system update — contracted to the Wisconsin-based Epic Systems Corporation — contributed to the financial concerns.

The new system was implemented over several months, and intended for use by the University’s approximately 1.9-million clinic visits per year.

“It caused us to slow down because it was complicated and people had to learn it,” Strong said. “As a result we were suffering more financially than we had been previously … as we speak we are resurfacing from that.”

Despite its not-for-profit status, UMHS must still generate revenue to fund such expansions. While the hospital can raise prices on some services to compensate for losses, many prices are dictated by Medicare or other national insurance programs and, therefore, cannot be negotiated by the University.

In order to reduce costs, UMHS is working to reduce waste, error, and duplication — estimated to account for as much as 30 percent of healthcare costs nationwide, Strong said.

“If you cut that in half … it means we probably need less physical structures,” he said. “We’ll probably be investing less in big new hospitals … and more in ambulatory facilities because it may be less necessary.”

Technological innovations are also expected to decrease costs by allowing inpatient cases to be treated on an outpatient basis, he added.

While maintaining the day-to-day operations of the University’s hospitals and health centers, Strong must also keep a watchful eye on the state of healthcare reform on a national level. Beyond the scope of the Affordable Care Act — or Obamacare — Strong said the nature of healthcare in the country is changing at a fundamental level.

“The national issue is that healthcare costs have been increasing much faster than the rate of inflation for a long period of time — that’s the cost curve that people want to bend,” Strong said.

Americans have made choices as a culture that mean higher healthcare spending, he said. “But the chorus around us is saying that it’s too much, and that is felt in the state of Michigan.”

Despite the implementation of the ACA, the future of healthcare reform appears uncertain. House Republicans have voted to defund the legislations upwards of 40 times, and it was the main point of contention between the two parties that resulted in the government shutdown.

Regardless of the implementation of Obamacare, Strong said change is necessary on a national level.

“The national incentive is to use too much. And I think experts say there’s huge variations actually in care patterns,” he said.


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