1

Financial update

Preliminary FY13 September Results:

– HHC• September Operating Margin:

($11.6M)• Year to Date Operating Margin:

($25.4M)

– MS• September Total Margin: ($10.2M)• Year to Date Total Margin: ($23.4M)

2

Financial update: HHC

13,217.5

13,450.6

13,677.014,077.6

14,298.5

14,773.7

14,717.5 14,719.0

14,877.714,983.5 14,961.2

14,949.3

12,800

13,300

13,800

14,300

14,800

15,300

FY11Q3

FY11Q4

FY12Q1

FY12Q2

FY12Q3

FY12Q4

FY13Q1

FY13Q2

FY13Q3

FY13Q4

FY14Q1

FY14Q2

To

tal H

HC

FT

E's

Total FTEs FY13 Governance Plan FTEs

FY12 FTE Avg. = 14,207

Actual Forecast

FY13 FTE Avg. = 14,824

FY13 Gov Plan FTE Avg. = 14,465

HHC FTE Trend Actual versus Departmental Forecasts

3

Financial update: HHC

Q1 FY12

Q2 FY12

Q3 FY12

Q4 FY12

July FY13 August FY13 Variance

Ambulatory Care 3,102.4 3,154.8 3,187.2 3,323.3 3,345.5 3,359.8 257.4 GME/HO 1,101.9 1,095.6 1,093.5 1,244.0 1,175.4 1,149.4 47.5 Nursing Services 2,483.8 2,602.3 2,722.8 2,801.0 2,852.0 2,872.2 388.4 OR/PACU 604.5 664.2 696.1 745.2 743.9 736.1 131.6 Pathology 497.3 507.7 515.2 517.6 516.6 516.1 18.8 Radiology 475.6 529.2 524.8 535.1 539.3 537.9 62.3 Support Service 1,274.0 1,346.5 1,380.9 1,382.9 1,393.5 1,388.4 114.4 CW Activation 211.2 2.2 0.5 - - - (211.2) Other 3,476.5 3,675.5 3,736.2 3,697.9 3,728.8 3,746.0 269.5 Total HHC 13,227.2 13,578.0 13,857.2 14,247.0 14,295.0 14,305.9 1,078.7

HR Movement

to Shared Services (FY 13) - - - - 59.0 59.0 Adjusted Total HHC 13,227.2 13,578.0 13,857.2 14,247.0 14,354.0 14,364.9

HHC Appointed FTEs by Operational Group

4

Financial update: HHC

Revenue for the clinical labs has grown more than expenses. Our current challenge is to achieve an additional 2.5% savings:

FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

Pathology Total Technical Gross Charges and Expense

Gross Charges Total Expense

5

Financial update: HHC

5

Immediate $ Value ImpactHigh

Immediate $ Value ImpactLower

Implementation EffortEasier

Implementation Effort

ChallengingFTE Hard Freeze on

all positions

Capital Freeze on

Select Investments

FTE Overtime

Caps

Contractor Exit / New

Contractor Freeze

Travel / Conference

Freeze

FTE Layoffs / Reductions

in Force“2% Solution”

Expense Reductions

“Differentiated Solution” Targeted

Expense and Productivity

Management Pay Policies

Supply Chain Optimization

6

Financial update: Medical School

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

Fo

rec

as

t

$(20)

$-

$20

$40

$60

$80

$100

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

$15.5

$74.5

$72.8

$87.9

$78.7 $52.2

$21.0 $32.5

$64.6

$3.1

$(19.2)

Total Margin Total Margin %

FY03 – FY13 All Funds Total Margin

7

Financial update: Medical School

• Balancing our new investments while also addressing structural expense difficulties creates several challenges

• To meet our margin targets in the future, we must:

– Continue healthy growth of the Clinical Operating Margin– Focus on productive use of research space– Focus on unproductive internally supported research time– Relentlessly strive to drive out waste– Ensure the success of the UMHS Development reorganization– Work w/ campus on appropriate funds flow changes– Continue to partner w/ the HHC to ensure financial success

for all of UMHS

8

Financial update: Medical School

Process Timeline Objectives

new

Dean’s Office Investment Process• Final Medical School investment decisions reside with the Dean.

Trade-off is constantly required among competing projects in facilities capital, equipment, IT, faculty and center commitments and new operating units

• For FY13, non-critical discretionary investments >$500K will be deferred and reviewed in Dean’s Cabinet with final decisions by the Dean in early 2013

New Quarterly Process

• Enable trade-off decisions and careful evaluation and prioritization of investment needs

• Allow for business case development

• Enable methodical, equitable and transparent decision making

new

MSA Hierarchal Budget Process• MSA unit’s budget will be built in hierarchical layers from the

baseline business services provided by each unit, to higher level mission critical activities that are important to baseline business

• For FY13, commence in October with full new process in place FY14

Commence October 1st

New Annual Process

• Achieve improved process cost savings in baseline business operations

• Improve understanding of the resource requirements necessary for all of MSA’s activities.

new

Departmental Financial Stress Test Exercise• Multiple regulatory decisions could negative impact Medical School

revenue streams across all categories• The stress test will be conducted in lieu of a Q1 forecast, and will

include a what-if scenario related to a 10% revenue reduction

Commence Mid-October

One-time exercise

• Preparedness planning exercise for potential declines in revenue streams

• Develop short-term and long-term plans for adjusting to new revenue realities

• Share knowledge and plans across all departments for best practices

enhanced

Enhanced Forecasting & FY13/FY14 Planning• Continued improvement of rolling forecast by reintroducing a more

rigorous annual component to the process• For FY13, a top-level forecast will be produced in the fall, with a

bottoms-up Departmental forecasts to commence in January• Includes select enhancements to Hyperion • Departmental presentations to Dean’s Cabinet to commence in

March

Late January to March

• Enable enhanced planning for FY14• Enable enhanced Dean/Department

level of understanding via forecast presentations and dialogue

• Include a school-wide gap closure process for margin improvement

• Continue to enhance Hyperion tools for Departmental managerial reporting

ongoing

Additional Ongoing Processes:• Position Control Committee• Administrative Modernization Efforts• MSA Expense Initiatives• Linkage to HHC Actions & Decisions• Continues review of System wide HR policies

Ongoing

9

Financial update: Department

New departmental revenue (versus 2005):*

Professional component billing $1,100,000/yr

Part A renegotiation $900,000/yr

MLabs margin improvement $850,000/yr

*Does not include increases in space productivity, philanthropy, Medical School or HHC commitments to Department, or potential revenue from new business ventures and partnerships

10

Financial update: Department

New departmental expenses/revenue reduction :*

NCRC $580,000/yr

FAMIII $900,000/yr

Development $300,000/yr

Impact of 10% “exercise” $1,892,146/yr

*Does not include salary expenses for incremental faculty, clinical fellows, staff, salary increases, startups, other academic commitments, Paradigm investment, other expenses

11

Financial update: Department

Implications :

We will need to identify about $1.9 million in expense reduction/revenue enhancement (3.8% of operating budget)

We are currently working with the Division Directors and Section heads to develop a plan

We will be as equitable as possible

We will keep you informed

We are committed to excellence in our three missions