ANN ARBOR, MI - The University of Michigan Hospitals and Health Centers has finished another fiscal year in the black and has completed its fourth consecutive year of increasing its operating margin, a sign of the medical center's strong financial health as it continues to expand to meet patients' needs.

In a presentation today to the U-M Board of Regents, U-M Health System leaders reported that the UMHHC unit of UMHS has had another strong year financially, with preliminary figures indicating an operating margin of 5.1 percent on revenues of more than $1.31 billion. That exceeds the previous year's margin of 4.1 percent, as well as the margin of 4 percent that had been budgeted for this year.

“Our patients increasingly want access to our services, and we are accommodating this greater demand while maintaining overall high quality and safety,” says Robert Kelch, M.D., U-M's executive vice president for medical affairs and CEO of the U-M Health System. “Our outstanding staff and faculty continue to perform at an exceptionally high level to produce these results.”

The Regents also approved the budget for fiscal year 2006, which includes a goal of more than $1.4 billion in revenues and an operating margin of 4 percent. One of the goals and targets outlined in the UMHS Strategic Direction is that the UMHHC achieves an average operating margin of at least 3 percent per year during the next 10 years.

“The positive operating margins we have experienced allow us to reinvest in projects such as those that will add clinical space in coming years,” Kelch says. “The clinical expansions respond to rising patient volumes and needs, while other projects will provide state-of-the-art research and education space.”

In the next couple of years, the UMHS leadership also will focus on creating capacity with existing beds while awaiting the opening of the new U-M Cardiovascular Center and other expansions in 2007 and later. This will be accomplished with length-of-stay initiatives and optimizing the flow of patients through inpatient and outpatient rooms, and at the Emergency Room.

“Our budget for 2006 is assertive but achievable,” says Larry Warren, executive director and chief executive officer of UMHHC. “We are the hospital of choice for many people and have a faculty and staff who understand the importance of working together to meet the expectations our patients and their families have of us. In that regard, we are uniquely positioned to meet our patient care objectives. Our clinical activity has grown because of the quality of care we offer, and we will continue to serve our patients with the highest quality of care even as we increase efficiency.”

The strength of UMHHC finances is particularly noteworthy given the hurdles faced by health care providers in the difficult health care climate. UMHS faces increasing pressure to keep rates low, potential reductions in Medicaid and Medicare reimbursements, the need to serve the uninsured, and inflation in the cost of supplies, employee benefits and pharmaceuticals.

UMHHC has reached its current financial position in part by hiring top people, particularly nurses and other health professionals. UMHHC also has partnered with private and public insurers to demonstrate the value of our care and to streamline administrative tasks.

“The annual increases in the cost of health care are a major concern for governments and employers,” says Doug Strong, UMHHC chief financial officer. “Like all hospitals, we must meet the challenges of high health care costs and high levels of utilization while still maintaining and improving quality of care.”

The three U-M hospitals – University Hospital, C.S. Mott Children's Hospital, and Women's Hospital – had 43,345 patient discharges in fiscal 2005, up from 42,345 in the previous year. Another 38,869 surgical cases, both inpatient and outpatient, took place in U-M operating rooms. Meanwhile, the many U-M outpatient clinics and health centers in three counties handled 1.62 million visits.

At the June Board of Regents meeting, U-M leaders presented a new master plan for UMHS that provides a framework for long-term expansion opportunities. The plan lays out approximately 3 million gross square feet of potential buildings, including approximately 1 million square feet of clinical space for the women's and children's replacement hospital project approved by the Regents in April. That facility, currently being designed, is scheduled to break ground in 2006 and be completed by 2011.

Other facilities that are currently under construction or were completed recently include:

• The Biomedical Science Research Building , scheduled to open in early 2006 at the southern edge of the current medical campus, and providing 470,000 square feet of research laboratories, life science support facilities and a 300-seat auditorium.
• The Cardiovascular Center , scheduled to open in 2007 at the heart of the medical center with a 350,000-square-foot clinical building and adjoining 465-space parking deck.
• The East Ann Arbor Ambulatory Surgery and Medical Procedures Center, a 46,000-square-foot outpatient diagnostic and treatment facility on the East Ann Arbor medical campus that will open in 2006.
• The Rachel Upjohn Building on the East Ann Arbor medical campus, which will house the U-M Depression Center as well as outpatient psychiatry and substance abuse clinics, and will open in late 2006.
• A new cyclotron facility for Medical School research involving short-lived radionuclides.
• New medical imaging facilities at University Hospital and C.S. Mott Children's Hospital.
• An MRI machine and CT scanner at the East Medical Campus on Plymouth Road that will open next year.

The Board of Regents also will consider proposals at today's meeting to allow the expansion of the Kellogg Eye Center building and new cancer services at UMHS's Canton Health Center.

Philanthropic gifts, in addition to UMHS financial resources, fund many major projects. Under the Health System's portion of The Michigan Difference, the university-wide $2.5-billion campaign, the Charles Stewart Mott Foundation has given $25 million to UMHS to help construct a new, state-of-the-art building for its children's and women's health services; donors Bill and Dee Brehm have given $44 million to fund an initiative aimed at accelerating the search for a cure for Type 1 diabetes; and other contributions and fund-raisers are further helping UMHS reach its goals.

In addition to projects related to expansions and new buildings, UMHS also has undertaken efforts with the goal of improving safety and efficiency, and reducing waste. For instance, a computerized orders management system will be implemented soon, allowing employees to enter, process, fill and carry out all hospital-based orders for medications, procedures and other care.

UMHHC's financial stability also is reflected in its excellent bond ratings with both Moody's Investors Service Inc. and Standard & Poor's. This bond rating is among the highest in health care systems across the industry and reflects a strong and sustainable financial position.

Written by Katie Gazella

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