Pathology Faculty Meeting - Financials

March 26, 2014

HHCMed

School

EVPMA & Shared

Services MHC EliminationsFY14 UMHS

ConsolidatedTotal Revenues $197.9 $95.2 $9.0 $0.0 ($25.3) $276.8Operating Expenses

Payroll $99.7 $76.4 $6.8 $0.0 $0.0 182.9 Depreciation $17.2 $3.7 $0.0 $0.0 $0.0 20.9 Other Operating 82.0 36.3 3.0 - (25.3) 96.0

Total Expenses $198.9 $116.4 $9.8 $0.0 ($25.3) $299.8Operating Margin ($1.0) ($21.2) ($0.8) $0.0 $0.0 ($23.0)

Margin % -0.5% -22.3% -8.9% 0.0% -8.3%Non Operating Items

Investment Income $3.9 $5.4 $0.0 $0.0 9.3 Interest Expense - net ($3.3) $0.4 $0.0 $0.0 (2.9) Other Non Operating (0.8) 0.7 (0.0) 0.0 (0.1)

Pre Transfers / Support Margin ($1.2) ($14.7) ($0.8) $0.0 $0.0 ($16.7)Margin % -0.6% -15.5% -9.4% 0.0% -6.0%

UMHS Support ($8.9) $7.7 ($0.1) $1.3 - Equity Transfers - Net Campus $0.2 $0.0 ($0.5) ($2.0) (2.3)

Total Margin ($9.9) ($7.0) ($1.4) ($0.7) $0.0 ($19.0)Margin % -5.0% -7.4% -16.1% 0.0% -6.9%

Total Cash Flow Margin $7.3 ($2.8) ($1.4) ($0.7) $0.0 $2.4Margin % 3.7% -2.9% -16.1% 0.0% 0.9%

UMHS Consolidated FY14 February MTD

Financials

UMHS Consolidated FY14 February YTD

Financials

HHCMed

School

EVPMA & Shared

Services MHC EliminationsFY14 UMHS

ConsolidatedTotal Revenues $1,666.1 $800.7 $79.8 $4.2 ($203.8) $2,347.0Operating Expenses

Payroll $835.9 $610.9 $58.4 $2.2 $0.0 1,507.4 Depreciation $139.9 $28.9 $0.2 $0.1 $0.0 169.1 Other Operating 660.5 299.4 22.7 3.1 (203.8) 781.9

Total Expenses $1,636.3 $939.2 $81.3 $5.4 ($203.8) $2,458.4Operating Margin $29.8 ($138.5) ($1.5) ($1.2) $0.0 ($111.4)

Margin % 1.8% -17.3% -1.9% 0.0% -4.7%Non Operating Items

Investment Income $31.0 $44.6 $1.3 $0.3 77.2 Interest Expense - net ($26.0) ($3.0) $0.0 $0.0 (29.0) Other Non Operating 17.1 16.8 0.8 (0.0) 34.7

Pre Transfers / Support Margin $51.9 ($80.1) $0.6 ($0.9) $0.0 ($28.5)Margin % 3.1% -10.0% 0.8% 0.0% -1.2%

UMHS Support ($69.6) $67.2 ($0.9) $3.3 - Equity Transfers - Net Campus ($2.5) $2.3 ($1.7) ($3.9) (5.8)

Total Margin ($20.2) ($10.6) ($2.0) ($1.5) $0.0 ($34.3)Margin % -1.2% -1.3% -2.5% 0.0% -1.5%

Total Cash Flow Margin $119.7 $22.6 ($1.8) ($1.4) $0.0 $139.1Margin % 7.2% 2.8% -2.2% 0.0% 5.9%

Pathology Fiscal Year Comparison

Pathology - Hospital FY 2014 YTD Feb FY 2013 YTD Feb YoY % Change

Billed Tests 3,494,978 3,649,717 -4.24%

Inpt Billed Tests 1,551,351 1,566,766 -0.98%

Outpt Billed Tests 1,943,627 2,082,951 -6.69%

Charges $397,454,303 $352,870,296 12.63%

Expense $66,457,713 $64,724,563 2.68%

FTEs 548 532 3.01%

Pathology- Department FY 2014 YTD Feb FY 2013 YTD Feb YoY % Change

Work RVUs 183,203 163,898 11.8 %

Net Pt Care Revenue $12,503,845 $11,785,174 6.1 %

Practice $11,556,287 $10,821,314 6.8 %

Component Billing $947,558 $963,860 (1.7)%

Margin Before Market Changes ($1,098,051) ($1,873,105) 41.4 %

Margin With Market Changes $4,578,723 $211,549 2,064.4 %

ACU Total Margin (in Millions) $77.2 $39.4

The University of Michigan Medical SchoolDepartment of Pathology

Forecast All Funds Budget FY 2014 and FY 2015

REVENUE FY 2013 FY 2014 FY 2015FY14 vs

FY13FY15 vs

FY14

Net Patient Care Revenue $20,517,696 $22,291,601 $24,987,159 8.6% 12.1% Net Grant/Contract Revenue $21,830,460 $22,188,127 $22,968,584 1.6% 3.5% UMHS Service Payments $6,256,536 $6,281,561 $6,277,168 0.4% (0.1%)General Fund Tuition & Provost Allocation $615,974 $0 $0 (100.0%) -Other Income (Gifts, Recharges $1,496,383 $1,396,470 $1,370,359 (6.7%) (1.9%)

Total Revenue $50,717,049 $52,157,759 $55,603,270 2.8% 6.6%

EXPENSESFaculty Salaries $21,996,332 $21,571,721 $22,914,023 1.9% (6.2%)

Other Salaries $12,126,695 $11,896,715 $13,980,758 1.9% (17.5%)Benefits $8,137,943 $8,361,596 $8,953,312 (2.7%) (7.1%)

Total Compensation $42,260,970 $41,830,032 $45,848,093 1.0% (9.6%)

Supplies $11,001,005 $10,495,680 $11,689,627 4.6% (11.4%)Other Expenses $6,709,672 $7,745,706 $7,747,204 (15.4%) (0.0%)

Total Expenses $59,971,647 $60,071,418 $65,284,924 (0.2%) (8.7%)

Total Operating Margin ($9,254,598) ($7,913,659) ($9,681,654) 14.5% (22.3%)

Total Non-Operating Income $16,467,081 $7,238,558 $11,040,384 (56.0%) 52.5%

Total Margin $7,212,483 ($675,101) $1,358,730 (109.4%) 301.3%

STATISTICS

Faculty FTEs 127.26 125.94 132.63 (1.0%) 5.3% Other Staff FTEs 225.78 227.05 248.39 0.6% 9.4%

Total FTEs 353.04 352.99 381.02 (0.0%) 7.9%

Work RVU Totals 250,146 279,217 287,500 11.6% 3.0%

AP Year to Date Actuals and Forecast

Actual Forecast Forecast

FY14 YTD Feb FY14 FY15

Revenue $30,389,330 $46,074,682 $48,237,278

Expense $5,071,804 $7,956,448 $8,726,755

FTEs 58 58 58

Billed Test 158,105 239,316 249,807

CP Year to Date Actuals and Forecast

Actual Forecast Forecast

FY14 YTD Feb FY14 FY15

Revenue $301,938,870 $457,118,603 $485,336,251

Expense $25,787,471 $38,814,935 $40,301,376

FTEs 240 240 241

Billed Test 2,968,294 4,462,684 4,641,191

Blood Year to Date Actuals and Forecast

Actual Forecast Forecast

FY14 YTD Feb FY14 FY15

Revenue $59,567,055 $90,644,757 $91,765,811

Expense $13,424,391 $20,355,140 $20,887,049

FTEs 47 47 47

Billed Test 307,888 468,988 479,117

Admin Year to Date Actuals and Forecast

Actual Forecast Forecast

FY14 YTD Feb FY14 FY15

Revenue $5,559,048 $8,644,580 $8,022,273

Expense $21,545,451 $32,512,657 $33,242,351

FTEs 188 190 195

Billed Test 60,691 91,049 91,049

Pathology Hospital Year to Date Actuals and

ForecastActual Forecast Forecast

FY14 YTD Feb FY14 FY15

Revenue $397,454,303 $602,482,622 $633,361,614

Expense $65,829,118 $98,343,295 $101,602,855

FTEs 533 534 542

Billed Test 3,494,978 5,262,037 5,461,164

UMHS Benefit Programs Update

12

Challenge

• In order to meet the growth and investment aspirations of the Health System, margin improvement initiatives of $250M will be necessary through 2017

• We must look ahead and act on future risks and anticipated changes today to ensure sustained operational and strategic success

• Changes are reflective of the significant health reform and reimbursement changes that the entire health care industry is facing– Way patients want to receive health care– Way insurers and government pay for health care– Way government is regulating health care

13

Challenge

• Must continually find ways to adjust to be more efficient; lower rate of cost growth without compromising provision of high quality, safe and excellent services

• Improve productivity while demonstrating value to those who purchase our services

14

Prior and Ongoing Efforts

• Operations Improvement Plan• Care Management• Throughput Initiatives• Strategic Activations• Supply Chain Initiatives• Capital Spending Pause • Labor Savings Initiatives• Productivity Improvements

15

BENEFITS CHANGESLABOR SAVINGS

16

Background and Committee ChargesCommittee on Retirement

Savings and Retiree HealthCommittee on Paid Time Off

Programs- Executive Vice-Presidents charged

committee- Scope: All University faculty

and staff- Retiree Health: new

hires only- Propose specific ways to reduce

the cost of UM’s retirement savings plan while maintaining a competitive benefits package

- Minimum recurring annual savings- $5M to general fund- $8.7M to other non-general

fund units- $8.5 M for HHC

- EVPMA charged committee- Scope: UMHS staff

- Review and make recommendations on options to reduce the UMHS cost to provide the current paid time off programs to UMMS staff and HHC staff:

1. Consideration of a UMHS (UMMS & UMHHC) Paid Time Off program that integrates Season Days, short-term sick, Vacation and PTO into one comprehensive plan

2. Modification to the existing, different, paid time off plans in UMMS and UMHHC

3. Modification to the existing, shared, short-term disability plan

- Savings target- $15 million cumulative, FY15 –

FY18

17Aon Hewitt | U.S. RetirementProprietary & Confidential | UM Benefit Index Insights 122013 Executive Summary.ppt/001-Z5 12/2013

UM Faculty vs. Provost Peers: Overall Results Summary

105 107

132

96 90

0

102 107120

102 103 104

0

10096102

77

96

0

50

100

150

200

250

All Benefits(100%)

All H&W andRetirement

(67%)

RetirementIncome (25%)

Health Care:Active (29%)

Health Care:Retiree (4%)

Paid TimeOff (38%)

Death (3%) Long-TermDisability

(1%)

DependentTuition (0%)

Employer Paid Value Total Value

All Benefits: Retirement Income, Health Care, Paid Time Off, Death, Long-Term Disability, Dependent Tuition All H&W and Retirement: Retirement Income, Health Care, Death, Long-Term Disability, Short-Term DisabilityPaid Time Off: Holidays, Vacation, Short-Term Disability Percents under the graph labels indicate the percent of the employer-paid All Benefits BI score a particular benefit represents for the University of Michigan faculty

12/13 8/9 7/8 5/6 11/12 9/10

9/10 15/16 15/1616/17

12/13 19/20 15/16 11/12

17-23 17-23

Average for Peers = 100

8/9 5/6

18Aon Hewitt | U.S. RetirementProprietary & Confidential | University of Michigan Health System

UMMS Peer Group

Columbia University Cornell University Duke University Emory University Harvard University Indiana University The Johns Hopkins University Massachusetts Institute of Technology Northwestern University Ohio State University Stanford University

University of California University of Chicago University of Maryland University of North Carolina at Chapel Hill University of Pennsylvania The University of Southern California University of Texas System University of Virginia University of Washington University of Wisconsin Washington University in St. Louis Yale University

19

Retirement Savings Plan ChangesEffective date: 1/1/2015

• University-wide change – certain components of salary, in addition to base pay, such as administrative and added duties differentials, one-time lump sum payments, faculty honors, overtime, PTO sell back, and payments for PTO/vacation accrual upon termination will no longer be eligible for retirement savings plan contributions.

• Applies to current and future faculty and non-bargained for staff of the University. – Saves the University $4.4M annually ($2M of this UMHS)– Retains the University’s competitive position relative to 23

Provost peer academic institutions at an overall Benefit Index of 100.

• No change to Retiree Health Benefits at this time. Scheduled for review again in 2016

20

Additional Health System Changes: HHC and Shared Services Staff Effective date: 1/1/2015

Changes Applies toAverage Annual Savings

Adjusted All Retirement Income Benefit Index

UMHHC vs. 6 Local Peers

(2013)

UMHHC vs. 11 National Peers

(2012) Cap University Contribution at

9%; Employee Contribution to receive: 4.5%

Match on base pay only

Current and future non-bargained forUMHHC/Shared

Services

$ 4,965,000 136Rank: 1-2

134Rank: 2-3

• Retain 2 for 1 Match• University contribution capped at 9%, • Employee contributes 4.5% to receive the 9%• Changes apply to:

• Current and future non-bargained for staff of UMHHC and Shared Services

• This change will not apply to Medical School staff• Will remain aligned with staff of the other academic units of

the University and their labor market

21

UMHS Committee on Paid Time Off Programs

• Changes to program elements are responsive to employee preference, manager feedback, and aim to generate productivity improvements

• Apply to non-bargained staff in UMHHC and Shared Services

• Staff of the Medical School will remain aligned with staff of the other academic units of the University.– Therefore, there will be no changes to the current

Vacation/Sick/Season Day time off plan or extended sick time plan for Medical School Staff

22

Changes to PTO Plan

• Applies to current and future non-bargained for staff of UMHHC and Shared Services:

• Sellback – effective immediately • Discontinue sellback for Exempt staff• Limit sellback to 40 hours for Non-exempt staff

• Payout at termination – effective July 1, 2014 • No payout if leaving the organization within first 2 years of

employment• Eligibility – effective July 1, 2015

• Increase FTE eligibility requirement from 20% (8 hours/wk) to 50% (20 hours/wk) appointment

23

Changes to PTO AccrualEffective Date: July 1, 2015

Years of Service

PTO (days/year)

Non-ExemptCurrent New Exempt

Current New

1-4 20 19 26 24

5-9 26 25 32 30

10+ 32 30 32 30

• Applies to UMHHC/Shared Services future hires only (non-bargained for)

Modified accrual – Reduce PTO annual accrual as detailed below:

24

Extended Sick Time PlanEffective date: July 1, 2015

• Applies to current and future (non-bargained for) HHC/Shared Services staff:– Eligibility –

• Increase FTE eligibility requirement from 20% to 50% appointment

• Decrease waiting period to access benefit from 2 years of service to 1 year of service

– Renewal – Change renewal cycle from every 5 years to every 2 years

– Waiting period – Decrease waiting period from 2 weeks to 1 week

– Pay structure – Implement tiered pay structure moving from 1st 26 weeks time off paid at 100% to:• 10 weeks time off paid at 100%• 16 weeks time off paid at 66.67%• 2nd 26 weeks remains at 50%

25

Paid Time Off ProgramSavings and Benefit Index

Changes Applies toAverage Annual Savings

Adjusted Paid Time Off Benefit Index

UMHHC vs. 6 Local Peers

(2013)

UMHHC vs. 11 National Peers

(2012)- Changes to eligibility,

sellback, payout at termination, and extended sick time plan

Current and future non-

bargained for UMHHC/Shared

Services staff $ 2,365,000103

Rank: 2-3103

Rank: 5-6

- Changes to accrual schedule

Future non-bargained for

UMHHC/Shared Services staff

26

Overall HHC/Shared Services Savings

Final “All Benefits” Index

ChangesAverage Annual Savings

Adjusted All Benefits Benefit IndexUMHHC vs.

6 Local Peers(2013)

UMHHC vs. 11 National Peers

(2012)Paid Time Off- Accepted changes to paid

time off programs, and Retirement Savings- Cap University

Contribution at 9%; Employee Contribution to receive match = 4.5%, and

- Match on base pay only

$ 7,330,000 107Rank: 2-3

110Rank: 3-4

27

UMHS Benefit Program Savings

Annual Cost Savings in thousands UMMS UMHHC UMHSUM Retirement Savings Program: UM Contribution on Base Pay Only (All faculty and staff)Faculty $680 $680Staff $260 $1,464 $1,724UM Contribution from 10% to 9% cap for UMHHC/Shared Svcs. Staff $3,501 $3,501UMHHC Paid Time Off Progam ChangesStaff on UMHHC PTO Plan $2,006 $2,006Eligibility: FTE Increase to 50% Eliminate Sell Back for Exempt & limit for Non-Exempt StaffPayout at Termination: No payout if <2 years of ServiceModified Accrual Schedule for New HiresStaff on UMHHC PTO Plan - Extended Sick Program $360 $360Eligibility: FTE Increase to 50% Decrease Wait to access benefit to 1 YOSPay Structure: 10 wks full, 16 wks at 2/3 pay, remainder at 50%Change renewal cycle from every 5 years to every 2 yearsWait period: decrease wait period from 2 wks to 1 wk. Grand Total UMHS $8,271

28

Results• We strive to offer an outstanding “total

rewards” package that includes a robust benefit program, competitive pay, numerous work life programs and many career development opportunities

• After these changes, benefits package continues to be competitive and above average

• Overall savings to Health System: $8.3M annually ($7.3M HHC; $1M Medical School)

• Union contract provisions govern these benefits. Current contracts open for negotiations in 2017

29

RESOURCES• Further information:• http://

www.med.umich.edu/umhshr/employee/benefit_changes.html

• Questions– UMHS-Compensation@med.umich.edu

Supplementary Aon Hewitt Information

31Aon Hewitt | U.S. RetirementProprietary & Confidential | University of Michigan Health System

Peer Groups

UM Medical School Peer GroupThe UMMS Benefit Index peer list is a Provost Peer list that consists of the University's top 23 peer institutions based on actual, documented faculty recruitment and retention cases.

UMHHC Peer GroupThe national Healthcare Peer list consists of 11 national academic medical centers that the University competes with for faculty as well as staff. The local Healthcare peer list consists of six local Healthcare organizations. While there is a focus on the results relative to the six local peers, full analysis has been completed and summarized relative to the national peers and the combined local and national peers.

32Aon Hewitt | U.S. RetirementProprietary & Confidential | University of Michigan Health System

UMMS Peer Group

Columbia University Cornell University Duke University Emory University Harvard University Indiana University The Johns Hopkins University Massachusetts Institute of Technology Northwestern University Ohio State University Stanford University

University of California University of Chicago University of Maryland University of North Carolina at Chapel Hill University of Pennsylvania The University of Southern California University of Texas System University of Virginia University of Washington University of Wisconsin Washington University in St. Louis Yale University

33Aon Hewitt | U.S. RetirementProprietary & Confidential | University of Michigan Health System

UMHHC Peer Group

Local Healthcare Organizations Beaumont Health System Detroit Medical Center Henry Ford Health System Oakwood Healthcare, Inc. St. Joseph Mercy Health System University of Toledo Medical Center

National Academic Healthcare Organizations Baylor Health Care System BJC Health System Cleveland Clinic Duke University Indiana University Health, Inc. Mayo Clinic University of California San Francisco Medical

Center University Hospitals Health System UNC Health Care System University of Pittsburgh Medical Center WakeMed Health & Hospitals