Hospitals Feeling Economic Pain

Some Arkansas hospitals are slashing employees’ pay, freezing benefits or laying off workers, shattering the notion that the health care industry is recession-proof.

In February alone:

• Washington Regional in Fayetteville cut all employees’ pay by 2.9 percent.

• The University of Arkansas for Medical Sciences in Little Rock, which in January opened a new $200 million facility, instituted a “hiring review” and will delay hiring for open “non-critical” positions for 90 days.

• St. Vincent Health System of Little Rock, which this year will complete a $47 million expansion, laid off 15 people and eliminated 35 positions through attrition, its second round of layoffs in seven months.

• Saline Memorial Hospital in Benton trimmed 52 positions through attrition and laid off eight people.

Hospitals that were already struggling with inadequate reimbursement rates for a growing number of Medicare and Medicaid patients are now dealing with a new problem: Patients are staying away.

The American Hospital Association reported in November that of the 736 hospitals surveyed, more than 30 percent reported a moderate to significant drop in patients seeking elective procedures, and nearly 40 percent of hospitals reported a drop in admissions overall.

Most of the jobs being eliminated are for unskilled positions or support staff. And most hospitals are holding onto their nurses, according to Paul Cunningham, senior vice president of the Arkansas Hospital Association. In fact, St. Vincent is still looking to hire about 30 nurses, CEO Peter Banko said recently.

Hospitals are “trying as much as possible to avoid layoffs,” Cunningham said. “Where the layoffs have occurred, they’re probably at a minimum right now. That’s certainly not to say they couldn’t get worse if the economy gets worse.”

Rick Langosch, senior vice president of the Corker Group, a health care consulting firm in Alpharetta, Ga., didn’t sound encouraging.

“I’ve been a CEO or CFO of hospitals for about 30 years,” he said. “This is as bad as I’ve seen it, and I don’t think I’ve heard from anybody expecting this to turn around in the foreseeable future.

“We’re seeing some trends that are going to remain for a long, long time.” Hospital administrators also are uncertain what relief the $787 billion American Recovery & Reinvestment Act will bring.

Luther Lewis, CEO of the Medical Center of South Arkansas at El Dorado, said the economic stimulus package “sounds encouraging” because there is support for Medicaid. But Banko, at St. Vincent, isn’t holding his breath.

“I don’t hold out a lot of hope that the stimulus package is going to change the health care landscape at all,” he said.

Reimbursement Rates

Hospitals have been feeling the pinch from low reimbursement rates from Medicare and Medicaid for years, helping create an almost fictitious accounting system.

For example, Saline Memorial Hospital’s CEO, Randy Fortner, said his hospital writes off about 65 cents of every dollar it bills out, partly because the Medicare and Medicaid programs don’t cover the actual cost of various procedures.

The drop-off in elective procedures creates a double whammy, because elective procedures are profitable and typically offset losses from Medicare and Medicaid patients, Fortner said.

Saline Memorial, with about 1,000 employees, had a loss of about $1.5 million for its fiscal year that ended last June. For the current fiscal year, the hospital also expects to see a loss “substantially greater than the loss for fiscal ‘08,” Fortner said.

Fortner said the staff reduction has been able to stop the hemorrhage of red ink and that Saline Memorial should break even in the upcoming months.
“But that doesn’t get rid of the prior losses from prior months,” he said.

Crittenden Regional Hospital in West Memphis also has seen a drop in the number of people using the emergency room, said CEO Jamie Carter. Between October 2008 and January, emergency room visits were off 3 percent from the same period a year ago, he said.

“People don’t want to pay to see the physician,” Carter said. And that trend worries him because people who delay seeing a doctor or buying medicine are “going to be really, really sick” by the time they come to the ER.

“And that’s not good for public health,” he said.

Because of the drop in patients, Crittenden Regional didn’t hand out any raises — typically about 3.5 percent — to its 450 employees this year. Carter said the hospital’s board of trustees will monitor the health of the hospital throughout the year and add the raises if the economy improves.

The Medical Center of South Arkansas hasn’t reduced payroll, but Lewis, the CEO, has shelved the idea of a $5 million capital expenditure for the hospital’s cancer treatment center. “But we’re just delaying it a little bit,” he said, although he couldn’t say how long that little bit might last.

Focus on the Money

Hospitals should focus on the services that make money and should consider eliminating or reducing the ones that don’t, said Langosch, of the Coker Group consulting firm.

That’s what St. Vincent has been doing. In July, after a review of its finances and operations, St. Vincent eliminated 72 positions, 38 through attrition and 34 through layoffs. In February, Banko also trimmed positions in its housekeeping, safety and security, transportation and marketing departments. It also eliminated a business manager.

Banko said St. Vincent’s $47 million expansion project started in March 2007, long before the economic crisis hit.

In October, the hospital’s bad debt started to climb. From October through January, the bad debt increased 4 to 5 percent over the same period a year earlier.

He froze capital expenditures, other than equipment needed for patients, but the expansion was already 90 percent complete, “so it made sense to continue.”

Still, Banko said, some of the cuts that hospitals across the country are making now should have been made a long time ago because of the decline in the number of patients.

Fortner, of Saline Memorial Hospital, said all hospitals should re-evaluate the way they do business.

Unlike other industries, hospitals can’t easily pass additional costs along to the customers because more than 90 percent of the hospitals’ reimbursement streams are fixed, he said.

“Hospitals have to find ways to be more efficient,” Fortner said.

Or a hospital could grow.

Fortner said Saline Memorial is adding two obstetrician/gynecologists. One doctor will arrive this month and the other in the summer.

Reduced Hours, Pay

Banko said some employees in support departments recently have decided to reduce their work hours from 40 to 36 per week. “So rather than lose a couple of their colleagues, they said, ‘We’ll take a reduced workweek until things start to settle back into place,’” Banko said.

Washington Regional CEO Bill Bradley decided to slash all employees’ pay by 2.9 percent in February, and executives and department directors will have their pay cut by 3 percent.

He also added that contributions to employees’ 401(k) account will drop from 6 percent of salary to 5 percent. And no bonuses will be paid in 2009 for 2008 performances.

Washington Regional spokeswoman Terry Fox said the hospital’s bad debt increased 24 percent to $22.9 million in 2008 over 2007.

She said it wasn’t practical for the hospital to slash hours of the more than 2,100 workers because most of them have patients to care for. With an across-the-board pay cut, though, “everyone is a team working together,” Fox said.

She said the hospital administration has heard “nothing but positive feedback” from the community because it saved jobs.

Langosch, the hospital consultant, disagreed with the strategy and said the hospital should have gone ahead with some layoffs, instead of spreading the misery across the staff. He said staffing has to match patient volumes and a pay decrease hurts morale.

UAMS Freezes Hiring

UAMS, which has 10,000 employees and is one of the largest employers in Arkansas, doesn’t plan to lay off employees, said spokeswoman Leslie Taylor. But the hospital decided to freeze non-critical hiring for 90 days to be on the safe side.

“Right now we’re in a strong position,” Taylor said. “The hospital’s full, but we know something could happen. … We’re hoping that will give us a savings that will give us a modest cushion.”

She said the employees still received raises in 2009.

Baptist Health of Little Rock, with 7,400 employees, doesn’t have any layoffs planned, but it is feeling the grip of the economy, spokesman Mark Lowman said.

“We are being exceptionally conservative in hiring,” Lowman said.

While the hospital still is looking for nurses and other positions tied to patient care, Baptist isn’t acting fast to fill non-critical positions, he said.

“We are looking at attrition and not rehiring as a way to respond to some of the economic pressures we have,” Lowman said. The hospital “looks at major layoffs as a last resort.”