I EW S Wednesday, July 24, 1996 - The Michigan Daily
" CONSULTANT: HOSPITALS MUST CHANGE WITH MARKETS
Continued from Page 1.
the heels of an April announcement by
the Medical Center that it would under-
a three-year transformation, in
which it plans to trim $200 million from
its budget. Most of the monetary cuts
will be made through staff reductions.
The Medical Center has already distrib-
uted 541 reduction-in-staff notices to its
employees, with more to come. Many
of the 541 employees will have an
opportunity to fill the more than 200
open positions in the hospitals.
Shields said the Medical Center
could become a financial risk to the
*niversity if the hospitals are not finan-
He said academ-
ic medical cen-
respond to the
"You cannot sit
still," he said.
tals around the
elected to use in
ing processes in
Shields said all
*te some down-
sizing of the '
work force. He
said only half the
beds the Medical
uses will be nec-
essary in five
years. He cited
g move to out-
as a reason for
the drop in bed
use and the Linda Weatherbee, a
resulting work keeper at the Medica
force downsiz- other Medical Center
"It leads to
laying off employees everywhere,
Shields said. "But it's better than com-
Shields said utilization drops as
9uch as 69 percent in managed care
markets and almost 20 percent of the
population of Washtenaw County is
currently enrolled in HMOs. Shields
said increasing HMO enrollment in the
area is another reason to restructure.
"Hospitals will have to be low-cost
to compete" Shields said. "The
University is now the highest cost-per-
case provider in its market. It must
Weome the lowest-cost provider"
Shields said the University must
decrease business risks and increase
business opportunity for the Medical
Center while maintaining its academic
relationship with the Medical School.
Some options would allow the
University to maintain complete con-
trol over the Medical Center.
One such option, according to
Shields, would be for the University to
restructure by strictly downsizing the
Medical Center. He said it would
require no new investment by the
University and risks would be limited.
Shields said the disadvantages of
strict downsizing include creating a
smaller revenue base and suffering a
smaller flow of patients for teaching
Shields said the University could also
expand the Medical Center, thereby
maintaining patient flow and possible
business synergies. He said such expan-
sion would create increased risks for the
If the University elected to expand
the Medical Center through a merger
with some corporate entity or by
leasing to a proprietary company,
Shields said University control of the
hospitals would be diluted, although
responbsibility for medical educa-
tion and research missions could
Michael Staab, another attorney, also
recommended combining the Medical
Center and the Medical School under
the leadership of one person, citing pos-
sible tension between the divisions.
"A lot of tension exists between the
University hospital and the medical
school," Staab said. "For the hospitals,
patient care is number one. The
research and academic mission of the
medical school is secondary."
Regent Andrea Fischer-Newman (R-
Ann Arbor) said she was very con-
cerned about possible degradation of
the Medical School's reputation if the
Medical Center were no longer
Shields said merging with other
health care systems would be advanta-
geous for the University in that it could
enlarge the system without dipping into
The University could also elect to
restructure the Medical Center as a not-
for-profit corporation or public authori-
ty. Shields said such a move would
facilitate the hospitals' becoming a larg-
er system, benefiting from referral pat-
terns. He said the move would offer the
University increased flexibility in deci-
sion-making, while maintaining its
commitment to medical education and
Shields said common lingering prob-
lems occur when an academic teaching
hospital restructures as a non-for-profit
corporation. He said the financial rela-
tionship between the hospital and the
school is not adequately defined, often
creating tension .between the hospitals
and the medical schools.
Shields said the University could sell
the Medical Center, alleviating its busi-
ness risk and protecting current liquid
assets. Shields said the disadvantages of
a sale are numerous, including political
resistance, losing control of assets, loss
of charitable mission and difficulties
involving a new employer for Medical
Shields said the University is in a
much better position to initiate restruc-
turing because, unlike many other insti-
tutions, the University Medical Center
is still fiscally s 0CI0 A
sound. Other unlver Istes
Shields did not seversl restrueturi
recommend one t save the raadt
specific course of
action to the Movedtonot-ot-pr
regents. However, Univ..ity . f lndier
he said the pre- U y fW
vailing trend for ry-
restructuring of tniversi Ari
academic teach- Uttveity id
ing hospitals UIversaty of Loulst
involves adminis-' rlty of Matyl
trators setting up a U=i>ersity of Ch a
system for spin-
ning off hospitals d , IWIW b
to corporate joint- Uvrt -.
venturing, and :..' Med.:l:C:.t
that such a corpo- :T:>:n Univergty
rate system would
probably be the Expatded Managei
best option for the Johns Hoplins 1.1
University. Un P
"The options < >
are manifold. At Cut;$MWr.M
some point we Qus Iliversity
are going to
have to make a
Regent Rebecca McGowan (D-Ann
Arbor). "We wanted to assure our-
selves that we've looked at every
aspect and are prepared to make a
decision in the best interests of the
Power said the presentation was time-
ly in order to maintain the quality of the
Medical Center. "We'll subject these
processes to scrutiny and questioning,"
Power said. "Today provided us with a
sense of context."
Neal said the executive officers would
spend the next six weeks weighing all
the options to determine the ideal solu-
tion. Neal said they would "look at all
the models as they apply to Ann Arbor."
Neal did not indicate a preference for
any particular restructuring option, but
did say that the Medical Center could
not continue to operate under its current
"It's hard to imagine maintaining the
current structure when our costs are
much higher than other hospitals',"
"We have to ask ourselves, 'Should
universities be in the business of oper-
ating huge hospitals far larger than
needed to operate a medical school?"'
The recent resignations of both
Medical School Dean Giles Bole and
Health System President John
Forsyth present an opportune time
for the University to review how the
leadership of the Medical School and
-the hospitals work. The University
could combine both departments
under the leadership of one person,
an option Provost J. Bernard Machen
said the University will consider.
member of Local 1583 and a house-
l Center, protested downsizing with
employees and supporters on May 16.
University, including more debt and
obligations. He also said the move
could cause a loss of focus on the
University's academic mission, as
remote facilities and primary-care
activities would be of greater impor-
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