Friday, March 06, 2009

Update on the economy and its effect on BIDMC

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.


Dear BIDMC,

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.

Sincerely,

Paul

28 comments:

CafeLiz said...

I feel your pain. I run Psychiatry at OHSU in Portland - my faculty just took a 10% paycut across the board to save programs and the the staff. It has been an awesome thing to watch and I'm so incredibly grateful to the faculty for stepping up in incredible ways to make it through this.

But that's just FY09. FY10 promises to be more challenging. Good luck to you in your decision-making.

Toronto Real Estate said...

Nicely written. I'm just curious about one thing, the patient volume reduction. Are people getting less sick these days or just put off insignificant illnesses? It sounds kind of ironic, the purpose of hospitals is to cure people and the less patients they have the better, but on the other hand, no patients means no profits. Good luck!

Take care, Elli

Paul Levy said...

Elli,

People seem to be deferring treatment, in part because they think they will lose their job while they are out of work.

Anonymous said...

The community response to this email I think is overwhelming. Because of your frankness and willingness to have an open discussion the staff at BIDMC are working together to find solutions. It's positively refreshing. Thank you very much.

Lee White said...

Not having a lot of experience in hospital budgets, I am curious about what budget lines other than personnel could possibly be reduced?

Anonymous said...

I'm just curious... I have 3 friends who in the past couple of months have called HCA looking to get a BI PCP so they could get their care there. They were told their only option was a resident. Two of the 3 went across the street. If you need patients, why are your practices turning people away? Why is there still a 4 week wait to see an Orthopedic doctor?

I don't get it!

Suznne Dewey said...

As someone who had just been hired and then laid off from BIDMC in 2001, I applaud your refreshing and candid communication especially in regards to your employees and medical staff.

You were not yet at BIDMC when my department (network development) was dismantled so the culture was somewhat different. Even though we knew the medical center was struggling, there was very little information that flowed in our direction, so we simply waited in the dark. Our input was not sought and it was an uncomfortable time.
Lay-offs are difficult regardless of the communication but for me and my colleagues, the waiting and fretting was harder than the actual lay-off.

I hope BIDMC avoids deep personnel reduction. I salute you and your team for working hard to move forward together in these difficult times. It has to be reassuring to your employees to know what is happening and to also feel confident in senior leadership.

Good Luck!
Suzanne

Anonymous said...

As an employee I hate to say it, because I enjoy the discounted tickets. Maybe we can no longer afford being the "official hospital" of the Red Sox.

Anonymous said...

maybe the institutin should start by looking at how many directors are employed..slightly top heavy. And why do we have an I-shift nurse manager complete waste of money.....

Barbara said...

Paul,

Having experienced similarly dire situations in preparing hospital budgets, I feel your pain.

Have you investigated possible reimbursement opportunities related to transfer DRG payments or proper documentation of complicated cases (especially in cardiac DRGs)? These analyses can often uncover millions of dollars.

Best of luck,
Barbara
www.enovasis.com

Anonymous said...

Paul,

As an employee I really appreciate your approach to our budget problem. Other institutions usually do these things behind closed doors, and only by senior management! I have been following a few of the ideas on the SPIRIT "BIDMC Budget Brainstorms" page and have found most of the chatter to be pretty positive and constructive.

I'm really proud to be a part of BIDMC. I know we all need to sacrifice and make tough decisions, and I'm personally willing to do what is necessary to save jobs.

Thanks for your great leadership!

Anonymous said...

I used to work at a pritty large company before and the first thing they cut was the matching to the employee 401K.

Anonymous said...

As a specialist in employee communications who lives outside your area, I just wanted to applaud your straightforward communication and "dilemna sharing" with your employees. This is an excellent example of how CEOs should present information to workers.

Anonymous said...

I was wondering what you might say to your employees after telling them your income last year was around $1 million acourding to your blog. For a tech making about $35,000 ar year or so, your 10% pay cut might seem a little too little.

I'm not saying you should get paid what you get paid, but I'm wondering as a leader how you approach these conversations.

jackboston said...

As someone with over 40 years experience managing medical information systems, my suggestion would be to consider reducing paper handling costs through
1. Identifying your active, chronic population (they represent about 20% of your total file room population but 80% of the activity in your file room. There is software that can do this called Smart Purge.
2. Scan that active group of folders using existing technology that allows retrieval within the image to the field level (KYOS Transform can do this and in some instances can OCR automatically the text).
3. Remove the rest of the (inactive) folders to a storage warehouse and scan on return only (20% will be recalled over the next 14 months.
4. Identify the inactive folders at your storage vendor that can be legally destroyed ( there is software available that can identify those patients in storage who are under 18 years of age called SAIDET).

If you eliminate the handling paper folders in the manner described above, your return on investment will be in 18 months.
You might even get the new administration to fund it as a beta site for eliminating the paper record.

Good luck, BIDMC is my hospital and its the best in the world.

Alex S. said...

If and when labor and other expense reductions become a central tactic, remember the pareto principle. Let's say BIDMC has $500M in labor (not counting employed physicians). Finding $20M or 4% of that total labor expense may be achieved with far less negative impact on quality, or patient and employee satisfaction if it is focused on those departments that truly aren't operating as efficiently as they could.
Good luck in your efforts. Here is hoping that you are able to address the matter effectively with the scalpel versus the saw.

The Medical Quack said...

I added a post over the the Medical Quack, we have this too in California as well and it seems the 2 states are some of the hardest hit. Nice interview on the local news station too explaining the situation.

I read recently too where the university itself is also looking at their budgets too.

Your post sets a good example of how CEOs and management should work together too and unlike some of the other industries we have seen in the news of late where greed instead of human interest seems to be prevailing, good example for everyone to think about in the current economic times when money is running short.

For an awareness, near the end of each month I have been running a post called "Desperate Hospitals" to bring this awareness to those who may not realize that hospitals are not recession proof and the dire situations and budget cuts some are facing as a result of today's economic times.

I started the series when Century City Hospital here in the LA area went bankrupt back in August of 2008 when the hospital ran out of funds and could not find someone to fund or buy the hospital, and it was on the outskirts of Beverly Hills surrounded by huge corporate offices. It was a good hospital with all the modern amenities and state of the art equipment.

http://ducknetweb.blogspot.com/2009/03/beth-israel-deaconess-medical-center.html

Anonymous said...

This institution has way too much waste and wasteful spending. It is overloaded with directors, managers, supervisors, and people with ambiguous job descriptions. CEO's should only make money when the organization makes money, or at least adhere to the half-million Obama idea. No offense, but I'm sure your savings account is well padded, and a 30% pay cut still has you making $700,000 a year... rediculous.

Logan said...

Paul,

I'm curious too as to how you would approach this conversation concerning your salary. I think your salary is reasonable for your position (the fact you make more than a lot of other people doesn't make you overpaid) but I am curious as to what you would say in this situation.

Also, has BIDMC looked at making reductions in administration? This is a common response in tight economic times, and usually there's at least some opportunity to make reductions in that area-just wondering.

me said...

It's clear that Anon 1:19 doesn't work at our hospital, or he would not say what he says about wasteful spending. You have no idea what goes on here. And, by the way, why aren't you saying anything about the other hospital CEOs - NEMC, Brigham, MGH, others - who make significantly higher salaries? In some cases, twice as much. I don't remember hearing about a single one of them voluntarily taking a paycut, even though other hospitals - including MGH - have had layoffs. I doubt they even tried to work with their staffs to jointly explore alternate solutions before laying off people. I am proud to work at BIDMC, and so very glad to be a part of my BIDMC family. Even if we do have to go through hard times here, I know we will be treated with respect and humanity.

Paul Levy said...

Dear Logan,

I have written about the salary issue before. Please check this out: http://runningahospital.blogspot.com/2007/01/do-i-get-paid-too-much.html.

Yes, we are looking at all parts of the hospital for cost savings.

To "me",

Thanks for your thoughts.

Duane Fitch said...

I applaud the transparency in your remarks. It is very true that many hospitals (and other healthcare providers) are also facing a compelling need to reduce costs. Our firm, The Sibery Group, is a healthcare consulting company based in Chicago that works with hospitals in the areas of financial, operational, and clinical quality improvement projects. In addition to the excellent ideas already posted, I would suggest that you engage and enroll your medical staff in this cost containment journey. For example, many hospitals have a significant opportunity to reduce resource consumption by reducing length of stay, primarily in the ICU, telemetry and other high cost areas. Administrative personnel can not accomplish this in isolation and therefore collaboration with the medical staff is needed. Importantly, clinical quality is also improved with lower lengths of stay. Over time, this commitment to quality outcomes can develop in to market share gains. Pharmacy utilization, implantable device standardization, and clinical documentation improvements can all lead to substantial cost savings but require medical staff participation to be effective and sustainable.

Our experience has shown that expense reduction is never enough. Frankly, it is impossible to expense reduce your way to profitability in a shrinking reimbursement environment. I would suggest that you also look for strategic investment opportunities to make certain product lines at the hospital “best in class” in order to grow the revenue. Although it seems counter intuitive to invest in programs during times of financial uncertainty, it is needed for intermediate and long term viability. Of course, the service lines to invest in must be carefully analyzed from a community and financial perspective to determine that the result will be additive. I applaud the efforts of you, your senior team, your medical staff, your governance and your staff to preserve the hospital for the community for generations to come. This is important and difficult work.

Barry Carol said...

If you haven’t already done so, one of the easier to implement cost savers is to suspend the 401-K / 403-B matching contribution as numerous other companies and institutions have already done. It can be easily reinstated when fiscal conditions improve. Second, you might consider raising the employee contribution toward the cost of their health insurance, at least for the more highly paid folks. A sliding scale approach might be most appropriate here that would cap the contribution from the lowest paid employees at, say, 5% of income.

Anonymous said...

"CEO's should only make money when the organization makes money, or at least adhere to the half-million Obama idea."

That's ridiculous. Mr. Levy is paid what he is paid because the organization thinks he is worth it. If it's the CEO's fault that they lose money, that's one thing, but why should he not be paid if the economy dips? Furthermore, the Obama idea you reference is applicable to companies receiving bailout money, which is not the case here.

Anonymous said...

Thank you , Paul for consulting all of us in making these difficult decisions. It is indeed heartening to read many of the generous and thoughtful responses. I was wondering,in considering foregoing the annual 3% raise, if it is an all or nothing decision. In other words, would it be possible to work with a 2% or 1.5% increase, and then supplement with sacrificing PTO? I just think for working people and families who are facing increases in food prices, housing, fuel etc. that they will need something to off- set the cost of living increases.
Also I have wondered for a long time what the cost of renovating the Shapiro lobby was, and why it was done in the first place. I trust there was a good reason, but in the future I would hope beautification projects will be forestalled while saving people's jobs is given top priority.

Anonymous said...

I agree with unpaid vacation time, taking away 3% yearly raise, bonuses, and 401K for now. Our goal is to avoid layoffs. I really do not want to see myself or my coworkers laid off. It will help our hospital and the economy if we avoid layoffs.

Anonymous said...

Paul-
I live nowhere near your hospital and am in a completely different industry. However, I respect and commend your approach in getting your employees involved. You have created a true transparent leadership style and for that you must be rewarded. Best of Luck.

CK

Annette said...

Paul,
Kudo's to you for sharing the issues so opening with your employees and colleagues.

I have been employee for almost 5 years and have always been impressed with the delivery of good and bad news here.

Has anyone given any thought to the "utilization" management of this institution. Space issues (and I've heard over and over how space is a premium)..but there's alot of empty space that is not being utilized and in some cases underutilized. In addition, the cost of moving departments and people exceed normal expectations. Stop making promises to new doctors about space allocations and consolidate the space we have. The cost of outside contractors to perform moving tasks, Telcom installation, building upkeep, etc is astronomical! In the department I work in we were told it was going to cost 17,000. to replace carpeting and paint. This is a "temporary" space for us....This is crazy. Also, there's store rooms full of used furniture. Why is it that this stuff isn't used?

We do some spectacular things here, but cost containment is not one of them. There's tremendous waste in the administrative areas that should be studied and corrected.