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Posted on Thu, Dec 6, 2012 : 4:49 p.m.

Read the email to University of Michigan Health System employees on expense cuts

By Staff

The text of the email sent to a University of Michigan Health System staff Thursday afternoon is below.

The email is from Ora H. Pescovitz, U-M executive vice president for medical affairs; Douglas L. Strong, CEO of U-M Hospitals and Health Centers; and James O. Woolliscroft, dean of the U-M medical school.


University of Michigan Hospital in Ann Arbor.

University of Michigan Health System photo

A message from Dr. Pescovitz, Doug Strong and Dean Woolliscroft

There is much political conversation about the country being at a fiscal cliff - a precipice of tax increases and spending cuts that will occur Jan. 1 unless the federal government gets its financial house in order.

We also find ourselves at a significant crossroad for our Health System, where larger-than-expected deficits now require us to focus intently on ensuring we have a positive margin for this year so that we have a solid foundation to weather expected financial pressures in the years ahead.

Our expenses after the first four months of our current fiscal year, which began July 1, are greatly exceeding our revenue, which leaves us with a much larger than expected financial challenge. Both the Hospitals and Health Centers and the Medical School need to considerably reduce operating expenses for the remainder of this fiscal year to offset this deficit.

One month ago, we asked leaders of each unit of the HHC and each academic and administrative area of the Medical School to consider how best to reduce expenses. The approaches were different for those two parts of our Health System, given how different the business and operations are for each.

HHC leaders were asked to develop detailed expense management plans to adjust to new revenue realities. Those plans included attrition management; reductions in appointment effort, overtime, temporary staff and contract labor; and savings from improvements in supply chain efforts.

In the Medical School, each of the departments underwent a “stress test” by looking at expenses should there be an additional 10 percent reduction in revenue to each unit. Each of the department leadership teams considered hard choices about what programs and projects could be reduced or cut to remain solvent, including support for unfunded research and targeting clinical areas where revenue could be enhanced. The Faculty Group Practice asked each of the Ambulatory Care medical directors to bring their margin back to at least the level of FY12; their detailed plans exceeded this goal.

All of our leaders have responded with plans that will significantly reduce our negative margin. 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.

By the end of the decade, the Health System may be facing a $200 million annual gap in our clinical margin. In the Medical School, the challenge to secure research funding will continue. 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.

Across-the-board cuts to reduce the federal budget deficit (also known as budget sequestration), could be the path our legislators take. If this happens, we will see a decrease in National Institutes of Health and medical education funding, potentially significant reductions in payments for hospital outpatient services and decreases in physician reimbursement.

These external forces make it more important than ever that we take meaningful and sustainable actions now to improve our operations and financial performance to prepare us for the financial pressures that will continue. The work we do now to create a positive margin for this fiscal year is the first phase of our cost-reduction efforts and will position us well, but we know that we must continue to look for more ways to improve processes, throughput and efficiency across our Health System, as we are doing through reductions in length of stay, improving capacity and access, expense management and revenue growth. In research, we are consolidating service contracts to reduce expenses, streamlining repairs to laboratory equipment and are using lean thinking to reduce the post-award management of externally-sponsored research.

Our strategic plan continues to be our roadmap: a combination of investing in growth in key areas and recognizing what we must stop doing to help improve our operating performance. Our rich history, excellence across each part of our mission and abundant assets afford us an opportunity that few other academic medical centers have to weather this period of financial uncertainty. But it will require diligence, hard work and undeterred focus to ensure we never stop seeking ways to improve.

We are committed to moving our Health System forward - strategically, strongly and effectively. We appreciate all you are doing to ensure The Michigan Difference continues to be more than words, but the palpable result of our commitment each day to make a lasting impression on all who come here for care, research and education.

Ora H. Pescovitz, M.D.
Executive Vice President for Medical Affairs, U-M CEO, U-M Health System

Douglas L. Strong
CEO, University of Michigan Hospitals and Health Centers

James O. Woolliscroft, M.D.
Dean, Medical School
Lyle C. Roll Professor of Medicine



Fri, Dec 7, 2012 : 6:58 p.m.

And....this is why I go to Henry Ford Hospital. I have never had a good experience at UMHS. I don't need to see 3 interns before I see the actual MD and repeat my story.

Martin Church

Fri, Dec 7, 2012 : 5:48 p.m.

Just wait till the affordability Act (big joke there) fully kicks in in 2014. already we have seen the payouts from Medicare cut for those who return to the hospital in less than 20 days Next Doctor payments will be cut for these same people. (the Population of Medicare Recipt.) will only grow as companies who provided insurance take the penalty instead of the mandatory insurance. But then again this is what Congressman Dingell has been advocating since 1956. single no pay medical costs. and don't blame the Freedom to work bill. Unions will not go away but will be held accountable by their membership. do the work and people will stay in the unions. Don't do it and say good bye.


Fri, Dec 7, 2012 : 1:38 p.m.

Well, part of this can be placed on the so called Affordable Care Act, affectionately known as ObamaCare. ObamaCare mandates hospitals and doctors to switch over to electronic medical records which costs milliions upon millions to implement, reductions in payments of services provided by hospitals and doctors, taxes on hospitals for purchasing durable medical equipments needed for taking care of patients, etc. This is just the beginning.


Sat, Dec 8, 2012 : 11:40 a.m.

How about the costs of the new hospital, recognized as the key driver ? But thn again, everything comes back to Obama or you oesntunderstand it ?


Fri, Dec 7, 2012 : 1:05 p.m.

Cut costs sure, but then overwork the employees even more than you already are. Great business model.


Fri, Dec 7, 2012 : 12:22 p.m.

Don't worry Dr. Pescovitz. Our legislature just passed a Right to Work bill which Governor S'nerd'er is sure to sign. Now you can fire all your union nurses who don't want to take the pay cuts that you and your cronies will be so kind to offer up in order to become more 'efficient'.


Fri, Dec 7, 2012 : 11:58 a.m.

The saddest part is the people at the bottom will get cut, have to work harder and probably not get raises. While those who led into this shortfall will get their bonuses, raises and trips paid for handsomely. What a system.


Fri, Dec 7, 2012 : 11:50 a.m.

Last week: "The health system is expected to pull out of the red and into the black in 2013: The fiscal year 2013 adopted budget has a 0.5 percent positive operating margin built in, with $2.39 billion in projected revenue and $2.379 billion in expenses." A month ago they knew things were bad. Last week they knew it also. Last week's story included MISINFORMATION INTENTIONALLY PROVIDED TO THE PRESS.


Fri, Dec 7, 2012 : 4:12 a.m.

MiChart, the new system in Ambulatory (office visits) has decreased time available for Ambulatory patients so they can't see as many patients as before, thereby reducing revenue.


Sat, Dec 8, 2012 : 11:36 a.m.

False - patient throughput has increased, not decreased. Where I'd you get you false data? Source???


Fri, Dec 7, 2012 : 3:07 a.m.

UMHS is such a wonderful place to work for: 1. professors, selling drug trial results to hedge fund manager , moving NIH research funding to private start up. 2. Trainees, watching child porn during "on call", publishing research paper without doing experiment.


Fri, Dec 7, 2012 : 2:15 a.m.

TOO Bad. The cash cow is sick! They are no better than many of the people that lost their homes because they thought they deserved 3 cars a boat, sea doo, ski doo. etc.


Fri, Dec 7, 2012 : 2:07 a.m.

Quote from Dec 2, 2012 Ann article by Amy Biolchini. "Administrators knew the opening of the new facility would set the health system back, and initially projected that it meant they would be operating at a 1.1 percent operating loss for the 2012 fiscal year. At the end of June upon the ending of the 2012 fiscal year, health system officials announced that they were over their $2.25 billion budgeted expenses by $11.3 million -- a margin that was better than expected, meaning an operating loss of 0.5 percent. The health system is expected to pull out of the red and into the black in 2013: The fiscal year 2013 adopted budget has a 0.5 percent positive operating margin built in, with $2.39 billion in projected revenue and $2.379 billion in expenses." So how real is this anticipated financial deficit? Seems like it was played down just 4 days ago.

say it plain

Fri, Dec 7, 2012 : 12:44 a.m.

Wow, as @neighbor points out, you can see the problems inherent to how we do medicine here in the US, yikes! Overtreat, underserve, and game the system to make the most of an unpredictably-sized civic largess. The research aspect of it will always be subject to the whims and whimsy of the day's academic and federal-based establishment, but I can't help imagining that the dark and multi-faceted worlds of insurance regulations and of corporate-political (and the hyphenation reflects a monstrosity of its own!) wranglings create a terrible set of 'priorities' for our healthcare institutions!


Fri, Dec 7, 2012 : 12:33 a.m.

Ironically, what you don't hear about are the bloated expenses on 3 new helicopters, a switch to ERIC electronic medical records with all of its botched billing hiccups which are months behind, and the insane amount of political power struggles wasting numerous man hours. The Michigan difference is clearly outlined- decrease stay times (regardless of what is best for the patient), increased capacity (so that they can increase the amount of people with decreased stay times), and revenue growth (clearly the most important mission of any 'nonprofit'... are a corporation without shareholders).


Sat, Dec 8, 2012 : 11:33 a.m.

And how old were the prior helicopters, and what was their remaining life? Their maintenance costs? What about the need to have electronic health records to comply with the ACA, the efficiencies of centralized billing and online patient access, electronic prescriptions, etc etc. Normal transition issues with huge system conversions are common in any environment. How one sided is your perspective? Please.


Thu, Dec 6, 2012 : 11:53 p.m.

And whatever happened to Sidney Gilman?

Amy Biolchini

Fri, Dec 7, 2012 : 2:22 p.m.

Dr. Sid Gilman has retired of his own will and his endowed professorship ended at the time of his retirement. UMHS has stated he does not have a pension, and declined to discuss the details of his benefits specifically.

Clarence Worley

Thu, Dec 6, 2012 : 11:30 p.m.

Will Ora take a pay cut to that $739,000.00 a year salary?

Joe Kidd

Thu, Dec 6, 2012 : 11:01 p.m.

I wonder what the combined total compensation of the three people listed at the top of the article adds up to. There is a big part of the problem, bloated pay. Also a look at the expenses incurred by doctors who go on trips for supposed work related trips might open up some eyes. Some people seem to be gone as much at they are at work.

Get over it

Fri, Dec 7, 2012 : 2:11 a.m.

Do you think you could do there job?


Thu, Dec 6, 2012 : 10:43 p.m.

Maybe they could start small like no longer treating the minions to Zingerman's lunches all the time. People who work there can see all the waste, but then again, why complain if you are the ones being treated?


Fri, Dec 7, 2012 : 4:08 p.m.

I worked as an ICU RN for 25 years at the UofM Hospital, and I was not only not treated to Zingerman's lunches all the time, many times I never got lunch at all, let alone a bathroom break! My coworkers and I went through "riffing" in the past, and I have a sense of "deja vu all over again"! And my understanding is that the electronic medical record system is universally despised, but hase to be accepted.

Ron Granger

Thu, Dec 6, 2012 : 10:32 p.m.

You know what that is all code for? Hospital gowns will be getting smaller.


Fri, Dec 7, 2012 : 9:21 p.m.