Managing Finances
Managing Successfully @ UMHS
Purpose
To provide supervisors with a fundamental
understanding of the complexity of the
Health System & their roles and
responsibilities as financial stewards of
UMHS Assets
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Agenda
• Opening
• Financial stewardship policy for supervisor’s & all UMHS
employees
• Financial Accounting Overview
• Financial State of the Health System
• Internal Controls
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UMHS Vision
Create the future of health care
through discovery
Become the national leader
in health care, health care reform,
biomedical innovation and education
UMHS Overview
 Nationally
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recognized U-M Health System (UMHS) includes:
Medical School (MS)
Faculty Group Practice (FGP)
Hospitals and Health Centers (HHC)
School of Nursing
Michigan Health Corp
Medical School
 Over 3,100 faculty
 650 medical students
 1,200 house staff
 3,900 staff members
 575 graduate students
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UMHS Overview
 Faculty
Group Practice
 1,650 physician members from 20 clinical departments
 Cohorts include primary care, hospital based, internal
medicine (non-primary care), medical departments (excluding
internal medicine) and surgical departments
Hospital and Health Centers
 990 licensed beds
 ~45,000 admissions
 ~90,000 ER/urgent care visits
 ~48,000 surgical cases
 ~4,000 deliveries
 ~1.9 million clinic visits annually
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U-M Revenue Components
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How Do We Compare?
Fortune 500 Companies with similar revenue
# 390- O’Reilly Automotive $6,649B
#392- Mutual of Omaha Insurance Co. $6,602B
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UMHS Strategic Goals

Create the ideal patient care experience
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Engage in groundbreaking discovery and innovative collaboration
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Cultivate an interdisciplinary, continuous learning environment
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Promote diversity and cultural competency among faculty, staff
and students
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Attain market leadership in key areas
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Translate knowledge into practices and policies that improve
health and access to care
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Generate margin for Health System investment
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Supervisor’s Financial
Management Responsibility
• U of M highly decentralized
• Executive management responsible for fiscal
integrity
• Guidance is provided within policies (SPG, School &
Department level)
• Each employee is responsible for Financial Controls
relevant to their role.
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Responsibilities Con’t
• Departmental-level requirements
include:
– Preparing annual/quarterly forecasts
– Processing financial transactions
– Financial review (reporting & analysis)
– Internal controls and management
– http://spg.umich.edu/policy/500.01
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Responsibilities Con’t
• Unit managers audit responsibilities:
– Ensure unit has controls (i.e., separation of
duties, oversight, etc.)
– Maintain a level of professional skepticism
– Provide administrative oversight
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Revenue and Expenses in the
Health System
Revenue
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Facility Revenue
Professional Revenue
Research Revenue
Philanthropy
General Funds (MS specific)
Other Revenue
– Sales & Service
– Recharge
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Expenses
 Payroll
 Supplies
 Other operating expenses
 Rent
 Utilities
 Contract services
 Maintenance
 Depreciation
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Non-Operating Items
• Incurred by activities not related to the core
operations of the business
– Examples:
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•
•
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Investment Income
Endowment Interest Transfers
Commitment Funding
Other
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UMHS Interdependence:
More Than Money

The stronger our academic programs, the more likely we
are to attract the best faculty, students and staff.
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The more outstanding our faculty, students and staff,
the better positioned we are to:
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Deliver the ideal patient care experience
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Enhance our research portfolio
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Strengthen our competitive advantage as the place
where tomorrow’s health care professionals learn
and thrive
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HHC Statistics
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Discharges
Length of Stay (LOS)
Patient Days
Observation Cases
Clinic Visits
OR & MPU Cases
Deliveries
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Accounting Overview
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Who uses financial statements?
• Management: financial planning, assessing debt
capacity, pricing, assessing competition
• Board of Trustees (Regents)
• Creditors, both current and potential
• Owners/Investors, both current and potential
• Employee unions
• Regulatory agencies
• Philanthropic foundations and potential donors
• Public
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Finance Terms / Concepts
• 3 TYPES of FINANCIAL STATEMENTS:
–Income Statement
–Balance Sheet
–Statement of Cash Flows
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Income Statement
• Presents the results of the entity’s operations
during a period of time, such as one year.
Net Income = Revenue – Expenses
• Revenue: payment received for the
delivery/manufacturing of a product or
rendering of a service
• Expenses: costs incurred to produce the
product or service
• May also referred to as a Profit & Loss
Statement or Statement of Changes in Net
Assets
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Balance Sheet
• Statement of the Financial Position at a given point in
time
• 3 Sections of a Balance Sheet are: Assets, Liabilities
and Equity
The Accounting Equation “Balanced” Sheet
TOTAL ASSETS = TOTAL LIABILITIES + EQUITY
• Assets and Liabilities are either Current or NonCurrent
• Current – expected to occur in the near future, usually < 1
year
• Non-Current – expected time frame exceeds 1 year
• Equity is the earnings retained by the University
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Cash Flow Statement
• Converts the accrual basis of accounting used to
prepare the income statement and balance sheet
back to a cash basis
• Summarizes activities by the source and use of
cash
• Indicates if there is enough cash available to carry
on routine operations
• Days Cash on Hand=
Current Cash Balance
Average Daily Operating Expenses + Depreciation
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Systems and Chartfields
UMHS Systems
Variety of tools are available throughout the University &
Health System
Tools vary in flexibility
Common Data Source’s
May require additional training and access
Examples:
Datamart, Everest, Wolverine Access/Business Objects, MReports
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Process & Usage Flowchart
M-Pathways
Inventory
Activity
Plan
Epsi
Standards
M-Pathways
Accounts Payable
CDM#’s
M-Pathways
Payroll
Revenue Plan
& Rate Increase
Expense
Plan
HHC
Financial
Data Mart
Plan
Spreads
M-Pathways
Asset Mgt
M-Pathways
Student Data
M-Pathways
Accounts Receivable
Monthly
Reports
MS Everest to transition to Hyperion in FY 2013
M-Pathways
Journal Entries
Budget/Forecasting
Assumptions
Med School
University
Budget
Development
Operating
Revenue
Forecasting
Provost’s
Office
Operating
Expense
Forecasting
M-Pathways
General Ledger
Everest (MS
Database)
Monthly
Reports
(on MS Server)
Non-Operating Items
Forecasting
Medical School
Forecasting
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Monthly Reports
Reports typically reviewed at month end to
maintain financial oversight:
• Actual vs. Actual
• Statement of Activity (SOA)
• Gross Pay Register
• Charges and Usage Report
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Routine Process – All UMHS
• Review and Reconciliation
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Start at the high level and drill down
Actual on course with Budget?
Is variance due to: timing, activity, error in budget?
Anything that doesn’t “look” right?
Statement of Activity – any obviously incorrect/misplaced charges?
• Correction
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Materiality?
Between major units, projects, funds, budget line items?
Errors in prior months? Need to go back and correct?
Correct in Wolverine Access; via Accounting prior to close
• Reporting on Results
– Periodic commentary and analysis required by leadership
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Chartfields
Account The type of transaction. It is NOT the shortcode.
Fund Source and intended purpose of monies and how
they should be spent.
Department ID The academic or administrative unit.
Also NOT the shortcode.
Program Additional reporting layer for the dept.
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Chartfields (cont.)
Class The functional nature of the expense.
Project/Grant Identifies a specific pool of money or activity.
Shortcode A shortcode represents a string of chartfield values.
Shortcodes are required to process payroll transactions,
gift/development processing, order through Marketsite, use
Concur reimbursement system, and may be used with Service
Unit Billings in place of Chartfields.
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Chartfields (cont.)
• Account, Department and Shortcode are all 6 digit
numbers.
• It is important to know the differences and correct usage of
each.
• Example:
• OCG has incurred fees for a search firm related to a
position in the Health System Legal Office
• HSLO is asked for a shortcode to reimburse OGC
• 309855 is the response to this request.
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Chartfields (cont.)
• Result:
• 309855 is the HSLO Department ID
• Shortcode 309855 is in the Law School
• The expense will be incorrectly moved
• The correct Shortcode would be 226604
• http://www.mais.umich.edu/fin/web_converter.html
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Financial Systems Resources
http://www.med.umich.edu/finance/FinancialSystems/
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Financial State of
the Health System
Awards and Accolades
•
One of 17 hospitals that made this year’s prestigious U.S. News and World Report Honor
Roll, marking the 18th year in a row of being named to the honor roll.
•
The University Hospital received honor recognition in six of the 16 adult specialties
considered, with eight specialties listed in the top 20 in their respective categories.
•
Of the 4,793 hospitals considered for the rankings, only 148 made the list in even one
specialty.
•
In June 2012, the U.S. News
World Report magazine ranked the C.S.Adult
Mott Children’s
AdultandChildren's
Children's
th
HospitalSpecialty
among the bestRank
pediatric Rank
hospitals in the nation
– ranking 4 in
Cardiology
& Heart
Specialty
Rank
Rank
Surgery.
Overall
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Cardiology & Heart Surgery
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4
Ear, Nose, and Throat
Rheumatology
Urology
Digestive Disorders
Geriatrics
Respiratory Disorders
Ophthalmology
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16
13
30
15
20
13
41
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Endocrinology
Kidney Disease
Cancer
Gynecology
Orthopedics
Neonatal
Neurology / Neurosurgery
16
35
14
33
40
30
17
37
41
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• One of 65 hospitals named by the Leapfrog Group as a Top Hospital, placing in top 5% of
hospitals surveyed. Only one of three hospitals that appear on both the Leapfrog list and
the U.S. News and World 37
Report Honor Roll of Best Hospitals in America.
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Awards and Accolades
•
The University of Michigan Medical School is consistently recognized as being in the top 10
schools in overall funding from the National Institutes of Health (NIH).
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During FY 2011, the UM Medical School ranks #6 in NIH awards totaling over $319
million.
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The UM Medical School ranks 10th among the top research-oriented medical schools in the
most recent U.S. News and World Report survey.
•
The UM Medical School received Top 10 recognition in four of eight specialties considered by
U.S. News and World Report:
Specialty
Family Medicine
Geriatrics
•
Rank
7
6
Specialty
Internal Medicine
Women’s Health
Rank
6
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North Campus Research Complex (NCRC), acquired in FY 2010, allows the University to
broaden its contributions as one of the nation’s premier research institutions.
– Over 1 million net assignable square feet of office / laboratory space currently occupied
by approximately 1,700 FTEs, with room for growth and expansion.
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Challenges and Threats
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Unfavorable state demographics and economic climate
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Increasing regulatory environment
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Increasing competition for patients
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UMHS relies heavily on more distant geographies for patients and margin
Increasing revenue and expense pressures
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Increased depreciation and salary expense associated with recent opening
of the new Children’s and Women’s facility.
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Complexities and implementation challenges associated with significant
information technology investments.
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Continued shift towards Governmental/Uninsured patients, which require
significant subsidy to service.
Increasing competition for top faculty
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Meaningful Use and MiChart
• MiChart
– Provided by Epic Systems Corporation
– Complete and integrated set of applications that support virtually all functions related to
patient care . Replaces or augments existing clinical systems
– February 2012: Revenue Cycle
– June 2012: Emergency Department
– August 2012: Ambulatory Care
– June 2014: Inpatient
• Health Information Technology for Economic and Clinical Health Act (HITECH)
– Established programs under Medicare and Medicaid to provide incentive payments
for the "meaningful use" of certified EHR technology
• Penalties exist if you do not implement an EHR technology solution by certain dates (2015)
– MiChart helps UMHS demonstrate meaningful use
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Patient Protection and Affordable
Care Act (PPACA)
• Key Provisions
– Covering the uninsured (starts in 2014)
– Insurance reforms (starts in 2010, many delayed until
2014)
• Ban on refusal to insure pre-existing conditions
– Changes in Medicare – Hospital Payments
• Reimbursement rates decline and increased emphasis on pay for
performance
– Changes in Medicare and Medicaid – physicians
• New quality reporting program
– Additional delivery system changes
• Significant payment reductions – Home Care, Medicare Advantage
plans
Population Health Management
• Initiatives
1.
2.
3.
4.
5.
Pioneer ACO
Michigan Primary Care Transformation Project (MiPCT)
POM ACO (Medicare Shared Savings Program) BCBSM Organized Systems of Care
(Under discussion)
BCBSM Physician Group Incentive Program (PGIP)
Other FGP incentive-based payment arrangements
• Pioneer ACO
– 3 to 5-year Medicare care coordination initiative.
– ACOs are at risk for: Medicare expenditures (utilization) for a population.
• Can be both shared savings or shared losses
– The amount of shared savings awarded is based on performance on 33 quality
measures.
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Clinical Affiliations
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•
During February 2012, UMHS signed a new affiliation agreement
with Trinity Health-Michigan.
In August 2012, UMHS and MidMichigan Health announced plans to
affiliate as clinical partners.
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Currently in due diligence phase
Key Benefits
– Expand access and enhance the level of care provided
throughout the region
– Enhance UMHS brand presence
– Diversify our care delivery settings
– Expand and diversify education venues
– Increase margins with market leadership
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Internal Controls
Internal Controls - Objectives
Adopted annual unit certification practice in
response to Sarbanes-Oxley Act
• FY 2013 is the 9th year of requiring each unit on campus to
complete annual internal control review and certification of
internal controls and financial information
• While Sarbanes-Oxley Act only focuses on accuracy of
financial reporting, UM approach includes
effectiveness/efficiency and compliance where applicable
• Goal is to develop broader understanding and
accountability of financial results and internal controls at
unit level
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Internal Controls
• Tools to be effective and efficient, avoid problems
• Unit manager has audit responsibilities and serves as
trustee/overseer
• Effective controls promote efficiency, reduce risk,
and ensure reliability of statements and compliance
with laws and regulations
• Provide reasonable assurance to management of
achieving their objectives
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Why Have Internal Controls?
University of Michigan statistics
Employment
Process over $225 mil in gross pay each month, and
20,000-25,000 job related transactions (i.e. appointment
related, pay change) per month
P-Card
6,150 P-Card holders across campus; 4,600 statements
reconciled/approved monthly, representing approx. $9 mil
or 33,000 purchase transactions per month
Journal Entries
Process 45,000-50,000 non-system generated journal
entries per year including 900,000 line items
Cash Handling
Processed over 40,000 departmental deposits in FY 2011
totaling over $340 mils (excludes patient and student
tuition)
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Internal Controls – Myths and
Facts
MYTHS:
FACTS:
Internal control starts with a strong set of
policies and procedures.
Internal control starts with a strong control
environment.
Internal control: That’s why we have
internal auditors!
While internal auditors play a key role in the
system of control, management is the
primary owner of internal control.
Internal control is a finance thing.
Internal control is integral to every aspect
of business.
Internal controls are essentially
negative, like a list of “thou-shalt-nots.”
Internal control makes the right things
happen the first time.
Internal controls take time away from
our core activities of research,
instruction, and patient care.
Internal controls should be built “into,” not
“onto” business processes.
Internal Controls
• How do we limit risk?
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Segregate of job duties
Limit Authorization
Control access
Establish written procedures, review work and
approval
– Record, verify and analyze financial reports
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Internal Controls
• How does U-M implement internal controls?
– Guidance for common processes across University
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Employment/Payroll
P-Card
Journal Entries
Cash Handling
Gift Cards
Employee Travel Expense
Human Subject Incentives
Unit Administered Financial Aid
Financial Stewardship of Gifts
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Internal Controls
• How does U-M ensure compliance with
internal controls guidance?
– Front-End Process (Self-Reporting/Monitoring)
• Gap Analysis
• Monitoring Reports
• Annual Internal Controls Certification
– Back-End Process
• University Audits
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Internal Controls Best Practices
• Communication
‒ Right message to the right people
‒ Clarify expectations and prioritization – “tone at the top”
‒ Departmental discussions with UMHS Finance or/and Internal
Controls Office
• Involvement and participation
‒ Getting control guidance to the “doers”
‒ What areas are applicable (use gift cards, etc.)?
• Monitoring and oversight
‒ Trends and exceptions
• Who can help address potential questions and concerns?
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Within department
Health System Finance
Office of Internal Controls (www.finance.umich.edu)
Other
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Questions?
Contact Information
Shawn McIntosh
shawnm@med.umich.edu
734-615-3468
Patrick Dunn
pdunn@med.umich.edu
734-615-8218
Bobby Hewlett
rhewlett@med.umich.edu
734-936-9367
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