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By Barry Belmont and
Ian Dillingham

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ithin 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 fac-
ulty and staff members and about 1,800 medi-
cal, 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 bud-
get, 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 innova-
tive approaches to maintain the financial secu-
rity 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 turningvisions of the future into
reality while managing all patient-care opera-
tions conductedby 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 Hos-
pital and Von Voigtlander Women's Hospital,

which opened in December of2011at aproject cost
of $754 million.In the 2012 fiscalyear, UMHS saw
a 0.5 percent loss on its operating expenses after
drawing in $2.1 billion in revenues, according to
the University's financialreport.
However, the construction of the new facili-
ties is a necessary partof growing the health sys-
tem 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 sev-
eral months, and intended for use by the Uni-
versity'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 finan-
cially than we hadhbeen 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 ser-
vices to compensate for losses, many prices are
dictated by Medicare or other nationalinsurance
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 health-
care 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 newhospitals...
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 watchfuleye on the state
of healthcare reform on a national level. Beyond
the scope of the Affordable Care Act - or Obam-
acare - 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 tobend,"Strongsaid.
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 par-
ties that resulted in the government shutdown.
Regardless of the implementation of Obam-
acare, 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 gov-
ernment does."
One emerging trend among U.S. healthcare
providers is the concept ofpopulation manage-
ment, which gives ahealth 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 health-
care at the University as the hospital expands
its geographic reach within Michigan. Cur-
rently, UMHS operates 40 outpatient facili-
ties 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
greatdemand for our services."
Regardless of the financial and organizational
hurdles, Strong remains confident the Univer-
sity 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 con-
ditions 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 edu-
cation that consisted of lectures. Students were
not required to obtained an undergraduate
degree - they only needed a basic understand-
ing of Latin and Greek.
Over the next century and a half,'the Univer-
sity developed one of the first formal medical-
trainingprograms,introduced clinicalclerkships
into the educationalprocess and opened the first

university-owned hospital in the nation.
Former University President James Duder-
Astadt said the medical school and health system
were one of the most important developments in
thehistoryofthe University.
"It's very important - it's also very large,"
Duderstadt said.
After World War II, increased federal fund-
ing and the formation of the National Institute of
Health prompted major expansion of the Univer-
sity's research efforts, as well as medical educa-
tion. 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 activ-
ity 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 lead-
ership. 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 treat-
ing advanced diseases - diseases that you
couldn't treat anywhere else - it became
larger and larger," Duderstadt said. "Struc-
turally it was reconfigured to become an aux-
iliary activity."
With the onset of health-maintenance orga-
nizations, 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 sev-
eral models of university-hospital relation-

ships nationwide, suchas Harvard University,
which operates independently of Massachu-
setts General Hospital.
Over the last 15 to 20 years, some have sug-
gested 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 own-
ership 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 power-
ful 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," Duder-
stadt 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 Michi-
gan - has "national as well as state responsibili-
ties," Duderstadt said.
However, in an interview with Time maga-
zine, Duderstadt said the University's classifica-
tion as a "state" university could be questionable,
given that state support has fallen below 10 per-
cent 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


-14,
that's the wrong word to use."
"We have to take very seriously what our
public responsibilities are and those respon-
sibilities are changing," Duderstadt said. "All
of these great public universities are becom
ing more national in character, continuist
serve their state, but broadening out very sig-
nificantly and providing services to broader
constituencies."
In addition to national populations, Wool-
liscroft said the University stands to benefit
from new international relationships. While the
United States has been the worldwide leader in
medical researchsince 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 Universi-
ty of Michigan Medical School is a globally lead-
ing medical school in 2030?"
Woolliscroft predicted that, in the near future,
medical schools will fall into one of two catego-
ries: "global centers" or "niche players."
While the niche players will become profi-
cient 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 con-
sciously setting up collaborations with superb
medical schools in China, Brazil, Ghana, India,"
Woolliscroft said. "I really think collaborajgn
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. Orf )-
Woolliscroft put it: "The sun will never set on
the Block M."