This week, Dr. David Miller and Paul Castillo joined the negotiating teams to speak to Michigan Medicine’s mission and share an overview of the organization’s current financial state.

As an academic medical center, Michigan Medicine’s finances are complicated, as revenue generated by the health system helps support all three areas of our tripartite mission – research, education, and patient care. Michigan Medicine’s budget is also tied to the University of Michigan and is subject to yearly approval by the U-M Board of Regents.

The goal of presenting a financial overview in this week’s negotiations was to offer a better look at how the health systems forecasts revenue and allocates funds, and answer questions directly from MNA/UMPNC representatives. Over the past several years, Michigan Medicine has provided our nurses with competitive compensation and benefits, and we are committed to continuing that tradition, in addition to continuing investments in our future to ensure we can continue advancing health to serve Michigan and the world.

Below is a brief overview of the key information presented on Tuesday

Strategic Goals and Building our BASE
Similar to most businesses, part of the revenue generated by U-M Health is used to support growth and make investments in the future. This is particularly true over the next several years as we are investing in the building of a new inpatient facility on the main medical campus, and making other key investments in our infrastructure and core processes. When making decisions about strategic growth and investments, the Michigan Medicine leadership team uses our mission and vision, and our BASE (Belonging, Access, Safety & Quality, Experience) principles as a guide.

Key investment decisions are made in support of building our BASE by increasing access for patients and continuing to provide safe, quality care, and making investments in our employees:

• The organization’s long--term financial goal is to generate sufficient cash that allows for investment in our workforce, our facilities, and our organization.
• The strategic plan includes investments across all three missions – academic, research, and patient care – including competitive compensation for all employees and investments in each area to promote future growth.
• In fiscal year 2022 and continuing through fiscal year 2025, Michigan Medicine’s investment costs will outpace yearly revenue generated, as we make much-needed investments in our infrastructure.

Impacts of COVID-19
Prior to the COVID-19 pandemic, U-M Health was generally on plan to meet its margin goals and was investing in long-term capital projects (including the new inpatient facility) to continue future growth. Then the pandemic hit and caused disruptions to patient care services, which reduced the revenue generated by the health system. Other financial implications of the pandemic include:

• Reduced revenue due to lower patient volumes as certain services were shut down to reduce risks of exposure
• Increased need for personal protective equipment for employees
• Cost increases for PPE due to increased demand worldwide

U-M Health received relief funds from the Federal Government, State of Michigan, and BlueCross/BlueShield to help offset some of the losses incurred in the first year of the pandemic. While these funds helped cover much of the lost revenue, U-M Health is still behind its pre-pandemic financial performance. Additionally, over half of the COVID relief funding received was temporary and must be repaid, which the organization is currently doing. U-M Health expects to fully repay Medicare temporary funding by late summer 2022.

Other Important Financial Considerations
Another important budgetary constraint is called “days cash on hand.” This is the amount of money that a business needs to spend in one day to continue full operations if no revenue was generated – essentially it is a sum equal to one day’s worth of expenses.

Days cash on hand is also an important consideration when organizations borrow money. In order to receive a lower interest rate, organizations must have a favorable credit rating. To maintain a higher credit rating, banks require organizations to keep substantial days cash on hand.

• The amount of cash on hand can fluctuate as expenses change, but Michigan Medicine seeks to maintain an amount of cash on hand that allows it to weather unexpected events.
• The amount of cash an organization needs for one day is dependent on the size and expense load of the organization. For example, a smaller hospital would require less cash to operate one full day than a large organization like Michigan Medicine.
• Based on available data, Michigan Medicine generally keeps fewer days cash on hand than many other health care systems in Southeast Michigan.