ANN ARBOR, MI – Michigan Medicine Chief Financial Officer Paul Castillo described the health system’s nearly $178 million operating margin during the 2019 fiscal year as “getting back on track.”

The University of Michigan approved the operating budget for its health system Thursday, June 21, as it reported a strong year financially, with an anticipated 3.8-percent operating margin on forecasted operating revenues of $4.7 billion.

The financial results for Michigan Medicine include performance from the University of Michigan Health System’s three hospitals, 125 clinics and the UM Medical Group, as well as UM Health, which represents Michigan Medicine’s affiliation with Metro Health in Grand Rapids.

“We did have a good year that’s getting us back on the track that we need to be on,” Castillo said. “It’s just management and people focusing on making sure we’re able to take care of the volume of people we have coming in without having a significant cost.”

While Michigan Medicine reported a $104 million surplus on a 2.7-percent operating margin last year, it had aimed for a 5.4 percent operating margin, making 2019 a rebound year of sorts.

University of Michigan Health Systems President David Spahlinger presented the projection of positive year-end results for fiscal 2019 along with the fiscal 2020 plan to the Board of Regents Thursday, projecting $5 billion in revenue for the coming year, with an estimated surplus of $171.4 million.

All surpluses are reinvested in the health system’s mission, Castillo said. Michigan Medicine expanded its parental leave programs in 2019, with plans to increase retirement benefits during the 2020 fiscal year.

Michigan Medicine plans to significantly invest in the infrastructure and training of employees in patient safety in the years ahead, Spahlinger said.

In the past three years, he noted that the health system has reduced health care-acquired conditions by 8 percent in 2017, followed by 6 percent in 2019 with this year’s reduction approaching 14 percent.

“We are making investment in training all 26,000 employees to improve the culture of safety with the goal of reducing serious safety events by 60 percent over the next three years,” Spahlinger said.

Michigan Medicine continues to increase its footprint across the state during the past fiscal year, opening a joint venture in July 2018 with St. Joseph Mercy Health System’s Chelsea Hospital.

The health system also opened a new Brighton Center for Speciality Care in Livingston County in September 2018. In March, Michigan Medicine signed a joint affiliation agreement with Sparrow Health System to provide some of its pediatric services through Sparrow children’s Center in Lansing.

Michigan Medicine’s budget overview noted Metro Health anticipates requiring access to capital. As part of the 2020 operating budget, UM approved a line of credit between the health system Metro. Borrowing on the line of credit will not exceed $125 million over a five-year period.

There are risks to the budget, including higher than anticipated inflation and variable expenses, with particular emphasis on commodities and drugs, Spahlinger said.

He also noted the health system is in the process of trying to reduce expenses by $150 million over the past year into 2020, with a continued focus on improving access, despite no increased capacity coming online this year.