Remedies for Troubled Times
The U-M Health System faces the nation’s economic crisis
When the U-M Health System was forced to reduce its workforce by 250 full-time equivalencies (FTEs) in December 2008, it became clear that even health care wasn’t immune to the nation’s economic meltdown.
Since FTEs include part-time and contract workers, the net job loss was limited to about 50 individuals. Nonetheless, “That’s 50 people who got the equivalent of a pink slip,” says Doug Strong, director and CEO of the U-M Hospitals and Health Centers. “It’s a wrenching experience to do that in this economic climate.” Avoiding any more such experiences is one of the chief aims of the U-M’s multifaceted response to the crisis.
Fortunately, the Health System had a head start, partly because it’s had to adapt for some time to the state’s distressed economy, but mostly because years of prudent planning and resource stewardship have built a foundation that can weather the storm.
“We’re as well positioned to meet the current and future challenges as any academic medical center in the nation,” says Executive Vice President for Medical Affairs Robert Kelch, M.D., “because of our resources, our previous planning and especially because of the talents of our people. It’s raining outside, but we’ve got the best roof in the world.”
The roof won’t hold without maintenance, however. With uncompensated care in Michigan increasing by almost 70 percent in the last three years, a reduced rate of increase in demand for services, and a drop in the combined value of the Medical School and hospital endowments of more than 20 percent in the last six months, the remedy is unlikely to come from the revenue side. Thus, says Strong, “Unless we change our expense per case, we experience financial deterioration.”
“Even before this crisis, we couldn’t continue business as usual,” says Medical School Dean James Woolliscroft, M.D. “I challenged our leadership last May to work through what a 25 percent cut to their budget would mean, to get people to focus on what’s mission-crucial.” The Michigan Quality System, based on “lean manufacturing” principles, engages the people who do the work in identifying opportunities to reduce waste and improve efficiency. In addition, says Woolliscroft, as part of the overall Health System plan, the Medical School is “about 80 percent of the way through a strategic plan for our clinical mission, and we have in the works a strategic planning process for our whole educational mission.”
Another thing it’s going to take is a 25 percent reduction in the annual capital budget. “We’re trying to get by on investing less in existing buildings, new clinical equipment or new information technology, as a way to conserve cash,” says Strong. In the longer term, projects on the drawing board will get closer scrutiny, although there are no plans to slow or stop projects already under way.
Kelch says he’s regularly asked why the U-M is building a $750-million children’s hospital in such troubled times. “That confuses wise capital investments that position you to be strong in the future vs. short-term avoidance of operational decisions that must be made no matter what,” he says. “That would be a panic, where you’re so short-term you can’t see the wisdom of making sure that 10 years from now you have the right facilities. To do that would be very short-sighted.”
Woolliscroft points out that the Medical School has been through more than a couple of depressions, panics and other bumps in the road in its 160-year history. “Guess what, there will be more in the future,” he says. “We just need to stay focused on how we make the place stronger.”
—JEFF MORTIMER
