Michigan Medicine’s clinical operations expect negative financial performance for fiscal year 2020

Costs from the COVID-19 pandemic dramatically affected financial results for Michigan Medicine’s clinical operations, resulting in a forecasted $3 million operating loss, after government assistance, on $4.7 billion in revenue for the fiscal year that ends June 30.

Michigan Medicine had projected a positive operating margin of $175 million in fiscal year 2020 for its consolidated U-M Health System and U-M Health operations.

Because Michigan Medicine had to abruptly cancel surgeries and procedures and devote operations to providing care for a surge of COVID-19 patients, revenues dropped dramatically during March and April.

The losses were offset by $136 million in government assistance along with recent efforts to reschedule and catch up on delayed appointments, surgeries and procedures.

“As the pandemic surged, Michigan Medicine stepped up to provide care for patients, expanding ICU beds, increasing personal protective equipment and other resources and accepting more than 300 COVID-19 transfer patients — regardless of the cost. Our staff responded quickly and carefully to transform our operations, illustrating their dedication to caring for our community,” said Dave Spahlinger, M.D., who presented the financial information to the U-M Board of Regents June 25.

“But the expenses of the COVID-19 care, coupled with the revenue loss from cancelled procedures and surgeries resulted in hundreds of millions in lost revenue.”

The board approved the budget for Michigan Medicine’s clinical operations Monday.

Overall, Michigan Medicine accepted more than 800 transfers of all types of patients during the six-week height of the pandemic when other southeast Michigan hospitals were overwhelmed.

The financial results for Michigan Medicine’s clinical operations include performance from the U-M three hospitals, 125 clinics and the U-M Medical Group, as well as U-M Health, which represents Michigan Medicine’s affiliation with Metro Health in Grand Rapids.

“The year’s results reflect the unprecedented situation that COVID-19 presented to our health care system and community. Through it all, we did what was necessary to ensure safe, quality care for all of our patients even as we managed a healthcare crisis that continues,” said Spahlinger, executive vice dean for clinical affairs and president of the U-M Health System.

As announced on May 5, 2020, Michigan Medicine has embarked on an economic recovery plan that includes approximately 1,400 eliminated positions. However, Michigan Medicine achieved more than half of that target through attrition and furloughs.

Michigan Medicine currently is implementing its reduction in force plan, impacting 738 employees by June 30.

Depending on tenure, those impacted will receive pay and benefits for varying periods of time and all will have access to career transition assistance.

“Michigan Medicine made patient safety the top priority when determining where reductions in force would occur,” Spahlinger said. “These challenging, but carefully considered, actions will help Michigan Medicine continue to provide hope and healing to our patients and support our clinical, educational and research missions.”

In addition, leaders across Michigan Medicine will be taking a salary reduction. Marschall Runge, M.D., Ph.D., chief executive officer of Michigan Medicine, dean of the U-M Medical School and executive vice president for Medical Affairs at U-M, will reduce his compensation by 20 percent and he has asked his direct reports, department chairs and other leaders to voluntarily reduce their compensation on a scale between 5 and 15 percent.

Other expense savings include suspension of merit increases, employer retirement match, tuition reimbursement, and reductions to supplies, consulting and discretionary expenses. The organization will also delay capital projects that are not needed for safety or regulatory compliance or meet an urgent strategic need. This includes construction of the new inpatient facility. 

The early defined actions in the economic recovery plan are expected to result in a fiscal 2021 operating margin of $44.1 million, with further plans in development, Spahlinger told the board of regents.

“We continue to face challenges of this pandemic. But we believe our economic recovery plan will allow us to respond to COVID-19 while safely reopening our clinics, operating rooms and providing care for all of our patients as we address this economic crisis,” Spahlinger said.

“We are working diligently to be ready and able to respond to another surge of COVID-19 infections at the same time we are making these difficult decisions about our budget. But with the help of our dedicated caregivers and staff, we can navigate this crisis and move forward in our efforts to improve employee and patient safety, reduce health disparities and support our education and research mission.”