Medical Center cuts may fall short by $50M

The third set of reductions from the University Medical Center budget reduction plan that was to cut $200 million during a three-year period may be $50 million short of original estimates, University officials said.

The strategy to remove $200 million from the Medical Center budget included a three-prong set of reductions; the first reduced the budget by $60 million in 1996 through clinical redesign and layoffs, and the following sets of reductions were scheduled to remove $70 million each.

Originally, plans called for the second set of cuts to reduce expenditures through cuts to employee benefits and negotiations with labor unions, Executive Vice President for Medical Affairs Gilbert Omenn said, but were instead made through long-term improvements to cost structure.

In order to scrape away the excess $70 million, the University had planned to make major structural changes. Many possibilities were discussed including potential privatization options or mergers.

"The $70-million reduction in the third year was based on a merger with another major hospital," said Thomas Biggs, interim senior associate director and chief financial officer for the University Medical Center. "We're on target for where we wanted to be for the first two years."

Omenn said the merger was never a tangible project, but a plan to reduce the Medical Center budget.

"The third year was always a mirage," Omenn said. "It was an unknown hospital with unknown savings."

The projected reductions of just $20 million for the third set is a result of increased activity - admissions and clinical visits to the University Hospitals - which increased revenue to $13 million dollars in 1997. Biggs said estimates for 1998 revenue have set the total around $15 million, although actual numbers will not be available for several weeks.

"The $20 million (in reductions) is a good target for us this year," Biggs said. The Medical Center's fiscal year begins July 1, but estimated reductions must first be approved by the University Board of Regents.

"Right now, it has not been finalized," Biggs said. "Until it is approved by the regents, anything could happen."

Biggs said the amount could grow somewhat, but unless a drop in Medical Center activity occurs, an increase in reductions is not likely.

Budget reductions will continue into the future as the Medical Center attempts to become more efficient, Biggs said.

"We will continue to try to reduce our costs in any way we can," Biggs said. "We're going to be looking at how we are managing patients' care ... (and) the services we render."

Changes being considered include the length of time patients stay in the hospital and ordering practices of medical supplies, Biggs said.

"We're finding more ways to help patients stay healthier and recover at lower costs," Omenn said. "Every employer and insurer are trying to cut their costs to be locally and globally competitive."

Deborah Stoll, chair of the University's Professional Nursing Council, said the 200 nurses who were laid off in 1996 in anticipation of the first round of budget cuts have all since been asked to return to their jobs.

"From the nursing prospective, we have not experienced the downsizing," Stoll said. "As a result, we're continuing to hire nurses at a fairly rapid pace."

Stoll said currently there is a shortage of nurses in the hospital, although many of those laid off returned to the hospital.

"All of them have had the opportunity to come back: many came back to their own units, some had moved out of state, others had jobs or did not want to return," Stoll said.

Stoll said the full impact of managed care competition has yet to be felt in the state and could result in future restructuring.

"We still will experience changes, and what that will bring we don't know," Stoll said. "It is still important for the University hospital to be cost efficient. They still have to compete with others in the Southeastern corridor and need to cut cost in order to do that."

Biggs said future layoffs are not likely, unless the Medical Center begins to lose patients and experiences a drop in activity.

Omenn said the University is considering other joint ventures similar to one recently begun with Henry Ford Health System establishing a managed care network for 24,000 children in Michigan with special needs.

04-21-98