ANN ARBOR, Mich. - The University of Michigan Hospitals and Health Centers will finish fiscal year 2008 in the black for the 12th straight year, though a smaller-than-expected operating margin reflects the strains of a difficult economy, decreased reimbursements from government insurers and a trend of patients staying at the hospital for longer periods of time.
When the fiscal year ends on June 30, the operating margin is expected to be 1.5 percent ($26 million) on revenues of $1.72 billion. Hospital leaders presented the information to the U-M Board of Regents today, along with the operating budget for fiscal year 2009. The goal for the current year had been a 3 percent operating margin; the fiscal year 2007 margin was 3.9 percent.
"Fortunately, we have planned well in years past for a vacillating economy, so the U-M Hospitals and Health Centers remain on solid footing," says Robert Kelch, M.D., U-M's executive vice president for medical affairs and CEO of the U-M Health System
. "The next few years are likely to be difficult as well. But we have extraordinary faculty and staff members who will ensure that our patients receive nothing but the highest quality of care."
As a nonprofit institution, the hospital uses its operating margin to reinvest in facilities and resources that ensure the highest quality of care for its growing patient population. Because UMHHC is nonprofit, positive finances are known as an operating margin rather than a profit. Major expenditures include the upgrading and replacement of medical and technological equipment; funding of the ongoing construction of the new C.S. Mott Children's Hospital and Women's Hospital; and repairs at existing Hospitals and Health Centers buildings.
The Regents also approved the budget for fiscal year 2009, which includes an operating margin goal of 3 percent ($57 million) on revenues of $1.89 billion. One of the goals and targets outlined in the UMHS Strategic Direction is that the Hospitals and Health Centers achieve an average operating margin of at least 3 percent per year during the next 10 years.
"In spite of the many challenges we face, we still have averaged an operating margin of 4.1 percent during the past five years," says Doug Strong, director and chief executive officer of UMHHC. "That reflects our commitment to running a financially sound institution and our ability to adjust to changes in the fickle economic environment of Michigan and the nation."
The 2009 budget is predicated on expense management and growth in inpatient and outpatient numbers. Hospital leaders also are looking at ways of improving patients' length-of-stay, which has been rising in recent years. In general, a longer length-of-stay can have a negative effect on a hospital's finances because Medicare, Medicaid and Blue Cross generally reimburse a flat amount for the care of patients based on their condition rather than the actual number of days spent in the hospital.
"We will continue to meet the growing demand for patient care with the addition of 25 new staffed beds, as well as our ongoing efforts to improve productivity and cost-effectiveness," says Dave Morlock, senior associate director and chief financial officer of UMHHC.
The number of patient beds is expected to increase from 860 to 885 in the next year. Overall, the occupancy rate for the Hospitals and Health Centers will be about 88.3 percent for the fiscal year ending June 30. The goal for fiscal 2009 is a slight increase, 88.4 percent.
"As more and more patients see us as their provider of choice, we will rise to the challenge of providing them access to our exceptional health care providers and facilities," says Tony Denton, senior associate director and chief operating officer of UMHHC.
The three U-M hospitals - University Hospital, C.S. Mott Children's Hospital, and Women's Hospital - will have had about 42,000 inpatient discharges in fiscal 2008, similar to the previous year. About 42,000 surgical cases, both inpatient and outpatient, will also have taken place in U-M operating rooms. Meanwhile, the many U-M outpatient clinics and health centers in three counties will have handled more than 1.7 million visits.
In a sign of the broad reach of the U-M Hospitals and Health Centers, at least one patient from each county in Michigan was an inpatient here in the last fiscal year.
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.