Quiet giant: How the University of Michigan Health System tackles a changing landscape

Illustration by Alicia Kovalcheck
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By Barry Belmont, Opinion Columnist
and Ian Dillingham, Daily Staff Reporter
Published September 30, 2013

Within the University lies a giant — quiet and unnoticed by many students as they run between classes, dorms and dining halls.

The University of Michigan Health System consists of 29 departments, about 3,000 faculty and staff members and about 1,800 medical, graduate and postdoctoral students. Some departments, such as Internal Medicine — with over 700 faculty — are larger than every other school and college at the University. Accounting for nearly half of the University’s operating budget, it’s approximately 200 times larger than the entire Athletic Department financially.

But amid the changing national healthcare climate, UMHS must now take new and innovative approaches to maintain the financial security of a $2.6-billion enterprise.

Making Cents of Change

“In a way, the present and the future are sort of using the same words.”

Doug Strong, chief executive of the University of Michigan Hospitals and Health Centers, faces the challenge of turning visions of the future into reality while managing all patient-care operations conducted by the University.

“In terms of patient care, our assignment goal and our daily work is to improve quality and efficiency at the same time,” Strong said. “We’re under significant, but appropriate financial pressure — external pressure — to really do both things.”

In addition to these external pressures, UMHS was financially strained in recent years through the construction of the C.S. Mott Children’s Hospital and Von Voigtlander Women’s Hospital, which opened in December of 2011 at a project cost of $754 million. In the 2012 fiscal year, UMHS saw a 0.5-percent loss on its operating expenses after drawing in $2.1 billion in revenues, according to the University’s financial report.

However, the construction of the new facilities is a necessary part of growing the health system to accommodate the typical 4-to-5-percent growth in patient volume per year.

“We built that building to last 40 or 50 years so we expect to take it on at a loss and build it up over time,” Strong said. “We’re very much on track for that, it’s filling up on schedule.”

“We’re investing ourselves for the future — short-term pain, long-term game.”

In addition to construction, he said the hospital’s health record system update — contracted to the Wisconsin-based Epic Systems Corporation — contributed to the financial concerns.

The new system was implemented over several months, and intended for use by the University’s approximately 1.9-million clinic visits per year.

“It caused us to slow down because it was complicated and people had to learn it,” Strong said. “As a result we were suffering more financially than we had been previously … as we speak we are resurfacing from that.”

Despite its not-for-profit status, UMHS must still generate revenue to fund such expansions. While the hospital can raise prices on some services to compensate for losses, many prices are dictated by Medicare or other national insurance programs and, therefore, cannot be negotiated by the University.

In order to reduce costs, UMHS is working to reduce waste, error, and duplication — estimated to account for as much as 30 percent of healthcare costs nationwide, Strong said.

“If you cut that in half … it means we probably need less physical structures,” he said. “We’ll probably be investing less in big new hospitals … and more in ambulatory facilities because it may be less necessary.”

Technological innovations are also expected to decrease costs by allowing inpatient cases to be treated on an outpatient basis, he added.

While maintaining the day-to-day operations of the University’s hospitals and health centers, Strong must also keep a watchful eye on the state of healthcare reform on a national level. Beyond the scope of the Affordable Care Act — or Obamacare — Strong said the nature of healthcare in the country is changing at a fundamental level.

“The national issue is that healthcare costs have been increasing much faster than the rate of inflation for a long period of time — that’s the cost curve that people want to bend,” Strong said.

Americans have made choices as a culture that mean higher healthcare spending, he said. “But the chorus around us is saying that it’s too much, and that is felt in the state of Michigan.”

Despite the implementation of the ACA, the future of healthcare reform appears uncertain. House Republicans have voted to defund the legislations upwards of 40 times, and it was the main point of contention between the two parties that resulted in the government shutdown.

Regardless of the implementation of Obamacare, Strong said change is necessary on a national level.

“The national incentive is to use too much. And I think experts say there’s huge variations actually in care patterns,” he said. “Employers need healthcare quality and efficiency to be improved as much as Medicare and the government does.”

One emerging trend among U.S. healthcare providers is the concept of population management, which gives a health system or group the responsibility to care entirely for the health of a large population, regardless of the services provided. Under the new healthcare laws, these have come to be known as accountable care organizations.

This may represent the future of healthcare at the University as the hospital expands its geographic reach within Michigan. Currently, UMHS operates 40 outpatient facilities and 120 clinics and, in the future, these sites may play a larger role in maintaining public health.

“I think you’ll see organizations like ours extend, maybe through partnerships, deeper into communities to promote health,” Strong said. “Fortunately, in our marketplace, there’s a great demand for our services.”

Regardless of the financial and organizational hurdles, Strong remains confident the University will continue to provide some of the nation’s most advanced healthcare.

“We do our jobs very well and we’re able to take care of patients that have very complex conditions that can’t be taken care of elsewhere,” Strong said. “We have the best and the brightest in terms of physicians … and others who are on our staff. It just really attracts patients by virtue of the fact that we do things well.”

The Birth of a Hospital

When the first class of medical students arrived at the University in 1850, they could expect to pay $5 per year for two years of education that consisted of lectures. Students were not required to obtained an undergraduate degree — they only needed a basic understanding of Latin and Greek.

Over the next century and a half, the University developed one of the first formal medical-training programs, introduced clinical clerkships into the educational process and opened the first university-owned hospital in the nation.

Former University President James Duderstadt said the medical school and health system were one of the most important developments in the history of the University.

“It’s very important — it’s also very large,” Duderstadt said.

After World War II, increased federal funding and the formation of the National Institute of Health prompted major expansion of the University’s research efforts, as well as medical education. Today, approximately 65 percent of federal funding coming into the University is marked for biomedical research, Duderstadt said.

“Medical education has always been a very important part of the University,” he said. “Although started as an educational activity it rapidly evolved into the premier source of healthcare in the state of Michigan and one of the best in the United States.”

As it became established as a nationally renowned health center in the mid-20th century, UMHS began to generate its own resources and operate, to a larger extent, under its own leadership. Duderstadt compared this independent operation to University Housing or the football team, both of which generate enough revenue to cover their own expenses.

“As it became more prominent in treating advanced diseases — diseases that you couldn’t treat anywhere else — it became larger and larger,” Duderstadt said. “Structurally it was reconfigured to become an auxiliary activity.”

With the onset of health-maintenance organizations, such as Humana, in the 1980s and 1990s, many large research universities across the nation began to “spin off” their hospitals to cut costs and protect the finances of their respective colleges. Currently, there are several models of university-hospital relationships nationwide, such as Harvard University, which operates independently of Massachusetts General Hospital.

Over the last 15 to 20 years, some have suggested a similar spin-off of UMHS from the University. While this idea was put before the University’s Board of Regents, Duderstadt said it was not in the best interest of the University.

“We explored that very carefully but in the end the regents of the University decided that there were many good reasons to retain ownership of the hospitals and continue to manage them,” Duderstadt said.

James Woolliscroft, dean of the Medical School, said he agreed with the decision to keep the health system under the ownership of the University.

“For our medical students, learning in a context where the highest quality clinical care is provided is arguably the most powerful learning modality we have,” Woolliscroft said. “Lectures and books pale in comparison to being immersed in a place where you live, breath, see this incredibly high-quality care being rendered.”

Woolliscroft’s alma mater, the University of Minnesota, merged its hospital with Fairview Riverside Medical Center in 1997 when the rise of managed care threatened to increase the cost of healthcare across the nation. While University of Minnesota still maintains a top 10 ranking in primary care, its research rank has dropped to 38th in the U.S. News and World Report medical school rankings.

“They disassembled the whole enterprise,” Woolliscroft said. “I think that was just a terrible decision and they’ll never recover from it.”

Giving medical students direct access to a high-quality medical center greatly benefits their education, but Woolliscroft said the future of medical education may see more students in community clinics, rather than large hospitals.

“That’s really critical that students have the ability to interact with patients, to learn from patients and that remains is true today as ever,” Woolliscroft said. “The context, the physical site has changed as more and more care moves ambulatory, more and more education moves to ambulatory clinics.”

“Medicine, for now, has more promise than ever in my career so the challenge is figuring out how to capitalize on this for the good of society and the good of our individual patients,” he said. “But the place won’t look like it does now in 20 years.”

The Public Responsibility

Even amid the uncertain future of healthcare in the United States, Duderstadt is busy looking at the role UMHS will play on a national and global level in the coming decades.

“We’re very much a public university,” Duderstadt said. “We were founded that way. It’s still part of our character and will remain there. The question is, who is that public?”

In the coming years, UMHS will likely play an increasing role in national and international healthcare and medical research. The University — originally founded under an act of Congress 20 years before there officially was a state of Michigan — has “national as well as state responsibilities,” Duderstadt said.

However, in an interview with Time magazine, Duderstadt said the University’s classification as a “state” university could be questionable, given that state support has fallen below 10 percent in recent years.

“It’s always important to remember that the University of Michigan is a public university,” Duderstadt said. “You hear a lot of times that … we’re privatizing the University, but my sense is that’s the wrong word to use.”

“We have to take very seriously what our public responsibilities are and those responsibilities are changing,” Duderstadt said. “All of these great public universities are becoming more national in character, continuing to serve their state, but broadening out very significantly and providing services to broader constituencies.”

In addition to national populations, Woolliscroft said the University stands to benefit from new international relationships. While the United States has been the worldwide leader in medical research since the late 19th century, that status may not be held for long.

“There’s absolutely nothing to say that will be the case in 20 or 30 years,” Woolliscroft said. “How do we position ourselves that the University of Michigan Medical School is a globally leading medical school in 2030?”

Woolliscroft predicted that, in the near future, medical schools will fall into one of two categories: “global centers” or “niche players.”

While the niche players will become proficient in certain specialties, the global medical systems will serve as epicenters of research and collaboration for a large region.

“I think there will be 10 or 15 global medical schools, that’s one of the reasons we are consciously setting up collaborations with superb medical schools in China, Brazil, Ghana, India,” Woolliscroft said. “I really think collaborations like that on the global level is the future and that’s how you ensure that the school remains relevant in 20 or 30 years.”

These international partnerships, while still in development, seek to broaden the reach of UMHS to a scope never before seen at the University — perhaps at any university. Or, as Woolliscroft put it: “The sun will never set on the Block M.”