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 HHC FTE Trend Actual versus Departmental Forecasts

3 Financial update: HHC 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:

5 Financial update: HHC 5 Immediate $ Value Impact High Immediate $ Value Impact Lower Implementation Effort Easier Implementation Effort Challenging FTE 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 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 ProcessTimelineObjectives 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 1 st 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