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UMHS warns of budget deficit in e-mail

By Matt Jackonen, Daily Staff Reporter
Published December 7, 2012

The University of Michigan Health System is operating on a budget deficit and must cut its expenses by June, its top leaders warned staff in an e-mail sent Thursday.

The e-mail — sent by Ora Pescovitz, the University’s executive vice president for medical affairs; Douglas Strong, CEO of the University of Michigan Hospitals and Health Centers and University Medical School Dean James Woolliscroft — noted that UMHS is functioning amid a substantial amount of debt that may total more than $200 million by the end of the decade. The deficit leaves UMHS with a “larger than expected financial challenge,” according to the e-mail.

The e-mail, which was obtained by The Michigan Daily, suggested that UMHS hospitals and health centers and the Medical School must “considerably reduce operating expenses for the remainder of this fiscal year to offset this deficit.”

Leaders of the HHC and the Medical School have been given the task of developing plans to manage spending, the e-mail noted. Thus far, plans include “attrition management; reductions in appointment effort, overtime, temporary staff and contract labor; and savings from improvements in supply chain efforts.”

The Medical School also underwent what the e-mail describes as a “stress test” to see how departments would run on less funding, which allowed department leadership to decide what could be cut.

“All of our leaders have responded with plans that will significantly reduce our negative margin,” the e-mail said. “But more work remains. We have not closed the gap between our expenses and our revenue for this fiscal year, and our challenges moving forward are growing.”

The e-mail blames “fiscal pressures” on the federal and state governments that could potentially result in less funding for UMHS, which compounds the current deficit problem.

“The fiscal pressures on our federal and state governments are very real, and the actions taken by government will hit our Health System — and all hospitals and medical schools — hard,” the e-mail said.

UMHS had already been examining ways to better use its resources. UMHS spokeswoman Kara Gavin wrote in an e-mail in June that the Affordable Care Act would force UMHS to become more efficient.

“We have been very focused on using ‘lean thinking,’ a concept borrowed from the auto industry, to optimize clinical and support functions for better efficiency, quality and patient experience,” Gavin wrote. “We also continue to find ways to save money through energy efficiency improvements — 15 projects completed in 2011 are expected to save $528,000 in energy costs this year alone.”

Similarly, the e-mail from Pescovitz, Strong and Woolliscroft encouraged the idea of “lean thinking” when allocating funds in order to reduce the deficit.