Back in November, I wrote to our staff with an explanation of what the economic trends might mean for our hospital. Yesterday, I sent out a update. I print it below. As you can see, things have gotten worse.
So far, I have received notes from about 200 people with suggestions. Many appreciate the openness with which I have discussed our financial situation, and they also welcome the opportunity to offer ideas. I'll print some of those later.
I wrote you last fall about the state of the economy and measures that we were taking at BIDMC to deal with those general trends. In particular, I said:
"We plan to watch the numbers very, very carefully. Our CFO, Steve Fischer, will bring a monthly dashboard of revenue and cost variances to our Operations Council so that the Vice Presidents can solve problems early and aggressively when they appear. We will have the same discussion monthly with the Chiefs of Service. If we aren't hitting targets for revenue and expenses, we will act quickly to correct the situation. In line with our policy of transparency in so many areas, we will keep you up to date, as well, so that all people working here will know how things are going.
"You have probably read about layoffs in other hospitals in Massachusetts. A number of hospitals already find themselves in worse shape than us, and they have responded by reducing the number of staff. You have probably noticed that this is also true for many other types of businesses in the region. As of now, we do not think we will be forced to do that, and we will do our best to avoid that result. Many of us lived through the dark days of 2002, when I eliminated a number of jobs, and no one wants to repeat that experience."
Well, as you can see from general trends in the economy and by watching the actions of other hospitals, the situation has gotten worse. For BIDMC, our hoped-for 2% FY09 operating margin (about $18 million) has disappeared. The state has reduced Medicaid payments by over $7 million, our major insurer is paying us less than we had hoped, and research funding has also fallen short by several million dollars. In addition, patient volumes are substantially lower than budgeted as people in the community defer or forego medical visits and treatments.
Right now, at best, we can break even for the year if patient volumes return to budgeted levels. However, if they stay at current levels, we will face an operating loss of up to $20 million. This is the contingency for which we must prepare, or else we will have insufficient funds to invest in the buildings, plant, and equipment needed.
We have taken steps to date to reduce expenditures. For example, many of you have probably noticed that we have slowed down hiring dramatically, examining each and every vacancy before refilling positions.
Now, sadly, we have to crank up the expense reduction. We began the year with a level of staffing that assumed a larger number of patients. With the reduction in patient volume and with a fairly dramatic reduction in length-of-stay for those patients who do come here, we are overstaffed. We need to make some hard decisions by April 1, as we are already halfway through the fiscal year, to start reversing the downward trend. We also need to do so well in advance of FY2010, which promises to be an even more difficult year. To be prudent about financial planning for this year, we aim to generate savings of at least $20 million for the rest of the fiscal year.
Part of the solution to this problem will be to lay off people. I'm not sure how many yet, and I am hoping you can help me figure out how to minimize the number by using more creative and less disruptive ways to solve the problem. I am going to hold some town meetings in the next several days to get your thoughts about alternative concepts. I will lay out some ideas here, so you can be thinking about them. You can write back now, or you can tell me in person later. Perhaps you will want to discuss them with your colleagues. Perhaps you have better ideas to suggest. We'll soon set up an electronic chat room, too, to permit people to share their thoughts more broadly with the community.
Our focus has to be on reduction of personnel costs, our major operating expense. Here are some ideas to start the discussion: Eliminate the 3% pay raise for people who would ordinarily receive it starting April 1. (To compensate, in the future, new raises could start with the people who have anniversary dates of April 1 and after.). Reduce future earned time accruals by one or two days per year. Forfeit one or two days of past accruals of earned time. Permit certain floors or units to avoid layoffs by voluntarily taking pay cuts equivalent to the dollars that would be saved by the layoffs in that floor or unit. Ask people to take furloughs, unpaid leaves of absence for several days.
But the bottom line is the bottom line. If you don't like these ideas, please help us come up with others.
The senior managers of the hospital have recognized their personal responsibility to help with this problem. The senior vice presidents, vice presidents, and chief operating officer have been asked to take voluntary 5% pay reductions, and I have eliminated all of their bonuses for 2009, a total potential pay reduction of 15% to 25%. I am personally taking a 10% salary reduction and will forego my bonus opportunity for this year, a total potential pay reduction of 30%.
For the next step in answering your questions and receiving your ideas, I have scheduled three town hall sessions for tomorrow, Friday, March 6 -- at 8am in the Sherman lecture hall, noon in the Leventhal conference Room, and 4pm in the Sherman lecture hall. If you can't make it, don't worry. We will hold other sessions in the coming weeks, on campus and also at Renaissance, 109 Brookline, and Lexington, Chelsea, and Bowdoin Street.
Those who were here in the late 1990's and early 2000's know that we have the tenacity and creativity to pull through hard times. This recession is different in scope and shape from that period, and it will present us with new challenges. If it is any solace to you, we are far from alone. Here's a report with excerpts from the LA Times:
Two new analyses show that the "economic decline is continuing to ravage the nation's hospitals, with half of them operating in the red, and many planning service and staffing cuts." The Times explained that "hospitals are ailing because of a number of problems hitting in close succession." The problems include "investment incomes" plummeting, while more people "put off elective procedures and insurers" tighten "their grip on the length of hospital stays they cover." According to the new data, "an unprecedented 50 percent of the nation's hospitals appear to be losing money." The bottom 25 percent of hospitals "posted margins below minus seven percent, or seven percent worse than the break-even point, while the top performers' margins exceeded 4.5 percent. Even operators of the most robust hospitals are bracing for another difficult year as the effects of layoffs and employer cuts in health-insurance benefits take hold." A second study found that "44 percent of hospitals have seen declines in surgeries, with hip procedures showing the steepest drop-off at 45 percent." This has caused "47 percent of the hospitals surveyed expect to make staff cuts, and 69 percent plan to cancel or delay equipment purchases."
I am confident that we will apply our usual spirit of collaboration and teamwork to this current set of problems. I look forward to your suggestions and thoughts.