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Posted on Sun, Jun 2, 2013 : 5:58 a.m.

U-M Health System delays 2 multimillion-dollar projects as it shifts priorities in tight budget year

By Amy Biolchini

Editor's note: The specific target of the cost-containment plan has been corrected.


The former C.S. Mott Children's Hospital Friday on the University of Michigan Health System's Ann Arbor campus. After it was vacated in 2011 when the new Mott Hospital opened to patients, officials have used the building as overflow office space while plans are developed to turn it into a new Neuroscience Hospital.

Courtney Sacco |

The University of Michigan Health System has put the brakes on planning for two multimillion-dollar projects on its Ann Arbor campuses as a result of shifting priorities in a challenging budget year.

A $163 million retrofitting of the former C.S. Mott Children’s Hospital facility to create a new Neuroscience Hospital has been delayed, as has a $17.5 million renovation of a building at U-M’s North Campus Research Complex.

Both projects received approval by the U-M Board of Regents last year and were slated to move forward immediately.

However, UMHS revised its long-term financial planning goals in the first months of this year -- and the capital investments required for the Neuroscience Hospital and the building at NCRC were shifted to the back burner for three years, records show.

UMHS has an annual budget of about $3 billion, which accounts for about half of U-M's overall budget.

U-M's general fund has a cost-containment plan has a targeted reduction of $120 million over the next five years, according to documents obtained by an FOIA. In the 2013 fiscal year, the fund requires ongoing reductions and re-allocations totaling $30 million.

Creation of the Neuroscience Hospital is a part of UMHS’ adult inpatient capacity expansion project -- and it is already denoted on an official map of the health system’s campus as such even though the project hasn’t happened yet.

The change to the campus map was made after the regents approved the project in April 2012, said Pete Barkey, director of public relations for UMHS.

Plans called for the renovation of about 163,000 gross square feet of the old Mott, former women’s hospital and Mott expansion. The old Mott facility is about 500,000 square feet.

Eight operating rooms, a new imaging suite, 95 patient beds and a 25-bed intensive care unit are planned as a part of the project.

An additional 104,000 gross square feet inside the old Mott are also slated for conversion into office space for faculty and staff.

The Board of Regents appointed Hobbs & Black Architects to the Mott backfill project on April 19, 2012. This March, the project was removed from the health system’s list of projects in active planning -- which Barkey said was due to a number of factors that officials took into consideration.

“It is a part of a very large, overall picture,” Barkey said. “We revised the timing of it … but it’s still very much on the table.”

Vacated by patients in late 2011 upon the opening of the new Mott Hospital, the former children’s facility wedged inside the middle of UMHS’ Ann Arbor campus is being used by various departments displaced by other renovation projects.

Though there are parts still being unused, most of it is being utilized as office space by staff and faculty. The health system’s inpatient child and adolescent psychiatric department is still in the former Mott facility, as well as its outpatient Pediatric Speech Language Pathology, Physical Therapy and Occupational Therapy services that occupy part of the second level.

At NCRC, about 68,000 gross square feet in the east wing of Building 20 was slated for renovation. Infrastructure in the building dates to its 1956 construction date. Lab facilities -- last updated in 1995 -- were also slated for upgrades.

The $17.5 million project will be funded out of U-M’s Medical School budget, and was initially given a projected completion date of winter 2014. Officials touted the project as an investment in NCRC’s research space and as a continued commitment by U-M to repurposing the former Pfizer facility.

However, the health system’s review of its finances and capital investments this year caused the renovation to be delayed for up to three years as well.

UMHS has continued to invest in capital projects:

  • $55 million renovation of the Taubman Health Sciences Library
  • $39 million dedicated to outfitting the interior of the new Northville Health Center that’s under construction by a private developer at the corner of Seven Mile and Haggerty roads
  • $3.6 million renovation of a 17,413-square-foot space at 2205 Commonwealth Blvd. in Ann Arbor for Pediatric Speech Language Pathology, Physical Therapy and Occupational Therapy services
  • $2.34 million for a new wound care clinic in 9,325 square feet of the Domino’s Farms Office Park on Frank Lloyd Wright Drive in Ann Arbor Township

However, priorities change as new financial investment opportunities present themselves, Barkey said.

“We’re making significant investment in capital projects,” Barkey said, noting that the health system expects growth in the Ann Arbor market and elsewhere.

Other major capital projects on the health system’s radar include a new facility for University Hospital, which officials have previously said could be underway in about 10 years.

“It’s still one of the many things under discussion,” Barkey said. “We’re working toward that goal.”

Barkey declined to discuss the financial investments the health system chose to prioritize over the neurosciences hospital and NCRC renovation, or to comment on the budget outlook for UMHS.

One year ago, the organization was planning to end this fiscal year with a 0.5 percent positive operating margin. For the past two years, the health system has operated on a deficit -- mostly as a result of the $754 million price tag to construct the new Mott Hospital.

“Meeting the financial targets will always be a challenge in our ever-changing environment. I do appreciate the fact that this is a constant conversation within the health system …” said U-M President Mary Sue Coleman in an August 2012 letter to health system CEO Dr. Ora Pescovitz, obtained by an FOIA request.

“The expansion of patient care brought about by rebuilding Mott was central to our overall strategic plan, another success I attribute to your leadership,” Coleman wrote to Pescovitz. “…Since the health system is such an important component of the overall University budget, it is really important that you keep closely aligned with our progress and opportunities in the new health care environment.”

pescovitz red jacket 11.09.jpg

Ora Pescovitz


Midway through its fiscal year in December, there were signs that the health system was facing trying financial times: Its bond rating was downgraded and Pescovitz emailed health system employees asking them to look for ways to cut expenses.

Friday, Pescovitz published a post to her blog, Medicine that Speaks, that made mention of the issues the health system is facing.

“This year, we have faced significant financial challenges, and when we put out a call to action, you stepped up and implemented improvement strategies that have already had substantial positive impact,” Pescovitz wrote. “We have more work to do and we need to prioritize ongoing good stewardship of our resources, but based on what we’ve already accomplished in these last several months, I am confident that we will weather the storm brought about by increasing competition, sequestration, health care reform and other challenges. This is not easy work, and it takes great courage.”

UMHS will publicly unveil its fiscal status June 20 at the Board of Regents meeting.


The map of the health system's Ann Arbor campus. The former Mott Hospital has been relabeled the Neuroscience Hospital.

Courtesy UMHS

Amy Biolchini covers Washtenaw County, health and environmental issues for Reach her at (734) 623-2552, or on Twitter.



Tue, Jun 4, 2013 : 9:40 p.m.

Most of these issues have been known to be on the horizon for years. Management is for the most part not capable of dealing with negative news or passing it up the chain.


Mon, Jun 3, 2013 : 10:50 a.m.

I'm not touching the general discussion of "does UMHS need to spend so much", but did you see Wayne County's under construction $200M jail has been reduced in size and is still estimated to cost over $300M (and climbing)? So they're thinking of scraping the construction. UMHS may have challenges, but at least we're not seeing whoppers like that in Washtenaw County.


Mon, Jun 3, 2013 : 10:14 a.m.

I have been a patient at UM on numerous occasions and have had outstanding medical care.


Tue, Jun 4, 2013 : 9:43 p.m.

That is great but not universal . I have had both awesome and very bad care.just because you wear a UM on your coat does not make you excellent. The bell curve mostly holds.


Mon, Jun 3, 2013 : 1:13 a.m.

"UMHS has an annual budget of about $3 billion, which accounts for one-third of U-M's overall budget." Amy, I understood that the U's total budget was about $6 Billion. Isn't that right? If so, $3B would be about half the total. From memory only, $3B sound about right for UMHS.


Sun, Jun 2, 2013 : 9:50 p.m. If you want to understand what is wrong with the health care system and what is driving high costs, read the above article from the NY Times. UMHS has one of the highest costs for a hospital in MI, and yet they think that "cost containment" is cutting 120 million over 5 years out of a 15 billion budget. A drop in the bucket. I agree with other posters that their billing system is chaotic.

Laurie Barrett

Sun, Jun 2, 2013 : 8:42 p.m.

UMHS is strong medically but administratively, it's a bit sick. It has "congestive administration failure" -- like CHF -- an over-sized heart starving out the lungs to force-feed blood to clogged vessels. It needs a heart transplant. Over-sized, just-barely-life-sustaining administration throughout the entire organism. It's alive, but not healthy. So, medically classy; administratively tin horn and wearing out. Maybe a couple more progressive Regents . . . ?


Tue, Jun 4, 2013 : 9:48 p.m.

I like the analogy, sadly some of the medical ain't healthy either.


Mon, Jun 3, 2013 : 11:02 a.m.

I'll agree with the administrative incompetence.


Mon, Jun 3, 2013 : 7:02 a.m.



Mon, Jun 3, 2013 : 2:44 a.m.

Trust me, you don't even know the half of their administrative incompetence...


Sun, Jun 2, 2013 : 9:36 p.m.

I may disagree with whether or not they are strong medically but you hit the nail on the head in terms of where the problem lies, the administrators. If you look at the child porn case it wasn't the doctors who failed to pursue it, it was the administrators. I would name names but the censors would remove my comment. The doctors took it to the Compliance Office, who sent it to the lawyers. Between the two of them, they put on the brakes. The problem has not been fixed and the Regents should release the report of the external investigator.


Sun, Jun 2, 2013 : 6:21 p.m.

I look forward to the day when quality of care becomes a focus again at UMHS. Until that time, the institution will continue to lose its high-need, frequent patient base (and revenue stream). There is so much untapped potential there, both in facilities (the model of 8am-5pm care is archaic and wasteful) and human resources (too many residents and fellows caring for patients who should be in a research lab with no patient contact, allowing the best docs at bedside to do what they are passionate about). It will be interesting to see where they are financially, and in terms of reputation, in five to ten years.


Tue, Jun 4, 2013 : 9:49 p.m.

Right on....wish you wre wrong...

Nicholas Urfe

Sun, Jun 2, 2013 : 4:49 p.m.

How can this non-profit, non-tax paying hospital system charge so much more than other institutions and still be in such a financial hole?


Sun, Jun 2, 2013 : 9:29 p.m.

@Joe- it is true that they take some indigent patients but they greatly exaggerate the amount. When they calculate how much unreimbursed care they give they don't use the cost to the hospital but rather the charges. They use the full list price, which almost no one pays. They blow up the prices and then give all of the third party payers big discounts. My eye surgery had a list price of more than $30,000 but the insurance price was only $10,000.


Sun, Jun 2, 2013 : 6:27 p.m.

Maybe because other hospitals don't take patients without insurance, like UofM does.


Sun, Jun 2, 2013 : 5:39 p.m.

The hospital system is not only non-tax paying but the reimbursement rates for teaching hospitals are significantly more than other hospitals. On the physician fee side, you are subsidizing doctors who spend most of their time on research. On the hospital fee side you are paying for buildings, advanced technology and support staff that are only partly for patient care and otherwise they support research programs. Not to mention the inflated salaries of administrators.

Nicholas Urfe

Sun, Jun 2, 2013 : 4:48 p.m.

Given this terrible financial planning and performance mismanagement, combined with the child porn scandal, will any umich hospital execs not be receiving their bonuses?


Tue, Jun 4, 2013 : 9:51 p.m.

No....probably get paid more....


Sun, Jun 2, 2013 : 9:42 p.m.

Doubtful. They will all get their bonuses and mega raises.


Sun, Jun 2, 2013 : 2 p.m.

If you want to understand the priorities of the UM Health System, you need to look at federal research grant funding priorities. Obama announced a BRAIN project for neurosciences research funding. Thus, it would make sense for the UMHS to invest in space for neurosciences, however, this may reflect the University's uncertainty about whether or not this funding will continue past Obama's presidency. It probably also reflects the University's uncertainty about future health care reimbursements. Healthcare costs cannot continue to increase at their current rate. What surprised me the most when I joined UM's Pathology Department was that the top priority was not patient care but rather was research grants. The first priority of every Pathology Department that I had ever been in was to keep the doctors happy with the service we provided for their patients. That is why I find that national rankings of the hospital and comments about the high quality of care to be such a joke.

sheri barron RN,BSN

Sun, Jun 2, 2013 : 7:47 p.m.

I am sorry I wrote the above article and I would like it removed. I hate to be accusatory. The IME that UMICH sent me to revealed that I AM NOT A WHISTLE BLOWEER. Since 1986- working as a RN at UMICH, up until I tried to get my RN back; I never ever said anything negative about the University and was an excellent nurse there (according to my evaluations). There are many wonderful doctors, nurses, and other staff. It is too bad that a few bad apples can spoil the reputation of a very good hospital. I hope UMICH will get the money it needs to expand.

sheri barron RN,BSN

Sun, Jun 2, 2013 : 5:46 p.m.

I wonder if they note how many lawyers a hospital has (on retainer and otherwise) when rankings are considered. I know of many incidents where I do not think they were probably reported as deaths caused by UMICH. This is part of how hospitals are ranked- I have heard. If UMICH reduced the amount they pay in trying to prevent lawsuits by covering their mistakes, they might have more to use making the changes they need plus increase donations. I would think that someone would rather donate to an organization dedicated more to quality care than ratings.


Sun, Jun 2, 2013 : 1:40 p.m.

Funny how they are always talking financial challenges are being faced, but there is never a shortage for management to make more than most doing their jobs in this country. IE: New Mott manager making a record amount as reported here. Consistently financial challenges seem only to count when it comes to those other than the upper management.


Sun, Jun 2, 2013 : 1:38 p.m.

It is no wonder....I NEVER received a billing in 2012...then in Feb 2013 got the bill for the whole year of 2012...but I was out of town until end of March so was unaware of the billings. Upon my return I have called many times...always to be thrown into a holding pattern. When I have left my phone number to be called back, they have NEVER returned a call. They do not answer emails last communication from them says they will answer my email in a MONTH....In the meantime, I have been turned over to a collection agency by them because I am in arrears. I have never been late paying any bills and have over the years donated to UM Medical fund raisers. BUT I do not understand the new billing statement and know that some of the charges are not correct because they were paid at the time of service. I know I am one of many who are in this same boat...I know of seven others who received no billing in 2012 and then were hit with large charges they could not understand. I am sure this billing mess can account for many millions that could be in the UM Med. coffers, if it were straightened out. Who is responsible for this new "efficient billing"? Why does no one in the billing office respond? Or the one time I hung on hold for 47 minutes, the responder said they did not understand my billing charges, and would look into it and return my call, Yet that has never happened,,,,WHY ????????????

Basic Bob

Mon, Jun 3, 2013 : 2:12 a.m.

It takes insurance so long to process the "charges" submitted by the hospital, that everything goes to collections. Insurance negotiates your payment, and you are only responsible for the part they agree to. Because it is a medical bill, nothing goes on your credit report. You can pay $50 a month indefinitely if you like. If you have a problem with that, pay the "charge" up front at the time of service and wait for a refund. You are ultimately responsible for the bill, even if it is not understandable.


Sun, Jun 2, 2013 : 11:53 p.m.

The Michigan Difference


Sun, Jun 2, 2013 : 9:52 p.m.

Another strategy. If you live in the area, go to the hospital billing department and deal with them in person. Bring your paperwork and don't leave without resolution, in writing.


Sun, Jun 2, 2013 : 9:41 p.m.

There is no excuse for that, and you should not have bills sent to a collection agency while you are waiting for an explanation. Get a lawyer.

Maria Huffman

Sun, Jun 2, 2013 : 12:23 p.m.

What a shame, especially in view of the Newton, Connecticut tragedy.


Mon, Jun 3, 2013 : 12:58 a.m.

Snark - I agree. What a freakin reach to connect that tragedy with a delay in the Neuroscience bldg. AND typically, by the time it gets to Neuroscience, the brain has been removed from the accused. Just sayin!:)


Sun, Jun 2, 2013 : 1:35 p.m.

Neuroscience only remotely involves mental health.


Sun, Jun 2, 2013 : 1:12 p.m.

Maybe referring to Neuroscience Hospital delay. Mental health frequently gets short shrift.


Sun, Jun 2, 2013 : 12:46 p.m.


Basic Bob

Sun, Jun 2, 2013 : 12:05 p.m.

This is a "targeted reduction" of $120 million dollars, which seems like a lot. Except the budget for that 5 year period is $15 billion dollars. Not even a one percent decrease, in comparison to the massive capital spending spree they have been on. And all this money has to come from somewhere - the patients and everyone else in the insurance pool.


Thu, Jun 20, 2013 : 11:52 p.m.

You appear to have expert/inside knowledge of the university's budget relative to the hospitals. Possibly through a series of FOIA requests? Which specific lines in the current budget would you cut and why?


Sun, Jun 2, 2013 : 11:47 a.m.

Does any of this news change the blimpy closing?