All signs point to a challenging year ahead for the University of Michigan Health System as its CEO, Dr. Ora Hirsch Pescovitz, prepares for her fourth year on the job.

Pescovitz will lead approximately 26,000 faculty and staff through myriad uncertainties with federal funding sources, a recently downgraded Moody’s Investors Services bond rating and a growing budget gap.

The first female leader of UMHS, Pescovitz was hired in May 2009 and has the second-highest base salary of executives at the University of Michigan at $753,806 per year.

U-M’s Health System has an annual budget of about $3 billion and accounts for one-third of the University of Michigan when it comes to staffing level, geographic footprint and budget. UMHS sees about 45,000 inpatient visits per year, and has more than 120 clinic locations in Michigan and northern Ohio that see about 1.8 million visits per year.

Upholding a strong image for the University of Michigan Health System will likely be a priority for Pescovitz, as the organization wards off less-than-positive reflections of its brand including Stephen Jenson, a medical resident at U-M Hospital accused of having child pornography on a thumb drive he left in a laptop at the hospital; neurology professor Dr. Sidney Gilman’s implications in a lucrative insider trading scheme and a data security breach through the theft of a laptop containing patient information from one of its vendors.

Construction of the new C.S. Mott Children’s Hospital and Von Voigtlander Women’s Hospital on the Health System’s main Ann Arbor campus set their finances back into the red for 2012, and communications from Pescovitz indicate UMHS is not making a financial recovery as quickly as anticipated.

However, administrators for the new hospitals have reported better-than-expected patient activity for 2012.

Pescovitz has taken an active role in communicating with her staff regarding the financial challenges facing the health system, and in early December again asked her employees to look for additional ways to cut expenses.

Though the Health System’s bottom line may be in the red, expanding its geographic reach throughout Michigan in 2012 has been a top priority as UMHS has made a number of key announcements.

A set of new Survival Flight helicopters launched in August, allowing patients in need of critical care to be transported to the Ann Arbor hospitals from points further away than was previously possible.

At the end of August, officials announced an affiliation agreement with MidMichigan Health -- a partnership in which UMHS has a partial financial stake in another health system for the first time.

This December, partnership announcements continued with an agreement between C.S. Mott Children's Hospital and Sparrow Children’s Center in mid-Michigan for pediatric specialty care. Sparrow is a member of the Mayo Clinic Care Network and is affiliated with Michigan State University’s three human health colleges.

U-M's Survival Flight will take over as Sparrow’s air medical transport service Jan. 1.

The U-M Health System’s reputation for treating the sickest of sick patients is in part due to its network of physicians who refer patients to UMHS for specialty treatment.

Maintaining and expanding those relationships is part of UMHS’ plan for future success, according to hospital officials. Cementing partnerships with other health systems ensures those patients will continue to be referred to UMHS.

Amy Biolchini covers Washtenaw County, health and environmental issues for AnnArbor.com. Reach her at (734) 623-2552, amybiolchini@annarbor.com or on Twitter.