Tuesday, November 11, 2008

It's the economy

Several months ago, I wrote about what it is like to construct a budget for a hospital like ours. Well, all that careful planning goes out the window when the economy tanks the way we have seen in the last few months. See some examples of particularly hard-hit hospitals here and here and here.

From my
first day at BIDMC almost seven years ago, I have held to a policy that the entire staff has a right to know about all these things, with current and accurate information. Here's the staff email that I sent out yesterday on this topic:


A few of you have written me or grabbed me in the hallways to ask about the effects of the current economic mess on our hospital. From stories we read in the newspapers and see on television, we now all recognize that this is the most serious economic downtown in many years. Our hospital is not immune to its effects. Here are the main impacts on BIDMC:

Just a few months ago, our Board of Directors approved a budget for the 2009 fiscal year that has a projected 2% operating margin (or about $18 million dollars). But it is already clear that it will be very difficult to meet that 2% target. And the problem with not meeting the target is that we have fewer dollars available for capital spending for the hospital. (This is because our operating margin is the main source of funds for investments in medical and research equipment, computers, building repairs and maintenance, and so on.) For those of you who keep track of these things, you will note that the FY '09 target this is below previous years, when we have earned between 3% and 4%. For example, our preliminary results for FY 08 are about $37 million. The main difference for the current year is our need to pay rent in our new research space at the Center for Life Sciences.

What will make achieving the 2% margin difficult? First, the state government has announced a cutback in Medicaid reimbursements to hospitals. This affects every hospital. We believe this will reduce our Medicaid payments by approximately $7 million.

Second, the income from our endowment will be lower because of the poor performance of the stock market. Also, the endowment itself has suffered a reduction in value, just like all stock and bond portfolios. Accounting rules require us to record a portion of that reduction as a loss on our income statement.

Third, we can expect that some companies who owe us money will start to pay their bills more slowly, and some people who have made charitable gift pledges to us will also be forced to slow down their payments, and some people who would have donated money to us will decide to hold off for a while until their own financial picture is clarified.

How can we deal with this? As you recognize, most of our spending is in the category of people and supplies associated with taking care of patients, and most of those patients continue to arrive regardless of the economy. So, for the sake of maintaining high quality patient care, we cannot cut back very much in those categories.

However, the new budget included a number of new positions in other categories and, of course, vacancies occur every week as people retire or leave their jobs for other reasons. Effective immediately, every new opening will be reviewed before it is posted to be filled. Eric Buehrens, our COO, and Steve Fischer, our CFO, will lead this process. We will distinguish between those needed for safe patient care, those needed to support volume growth, and those needed for other reasons.

We will closely examine requests for overtime work for existing staff as well. In some cases, those requests will decline if patient volumes decline. In other cases, those requests will increase if we choose to delay filling certain positions.

On supplies, we will bring the very successful multidisciplinary process that physicians and hospital managers have used in the OR Supply Committee to standardize supplies and streamline purchasing to other areas of the hospital – specifically to procedure areas across the hospital, where we use a lot of devices and supplies. The OR Supply Committee has shown us that we can save millions annually while improving safety and outcomes – we will do the same in procedural and other areas.

We will ask every manager in every department to exercise great care about discretionary expenses: travel, food, consulting, memberships, and the like. We don’t spend lavishly in these areas now, but we are asking everyone to ask themselves if these expenses are absolutely needed.

Finally, we will continue to run LEAN rapid improvement events and respond to BIDMC SPIRIT call-outs to look for ways to make enhancements in our processes. We have learned that these events and ideas not only improve the work environment, but also often result in financial savings.

We plan to watch the numbers very, very carefully. 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.

So that’s the whole story. Please do your part to help us uncover opportunities for efficiency and savings – consistent with quality care for our patients and safety for our staff. Also, this is a good time to pay special attention to providing good service to patients and referring doctors. To the extent we maintain and improve service quality, we are more likely to see increases in the number of patients we see.

Thanks in advance for your cooperation and assistance as we all work through this difficult time together. As always, please feel free to contact me with ideas and suggestions.



Paul F. Levy
President and CEO


Anonymous said...

From the LA Times... I predict the economy for hospitals is about to get a WHOLE lot worse...

Four leading advocacy groups representing business, labor and retirees are starting a campaign today to press Barack Obama to enact comprehensive healthcare reform, upping the pressure on the president-elect to tackle the issue quickly after he takes office.

In a letter to Obama, the Business Roundtable, the National Federation of Independent Businesses, AARP and the Service Employees International Union urge that a healthcare overhaul be a priority in the administration's first 100 days.

The groups plan to spend nearly $1 million to publicize their cause in newspaper and television advertising in coming weeks.

e-Patient Dave said...

It's disheartening to read of these impacts but it's heartening to be able to see "under the hood" and understand the realities. I firmly believe that the first step toward overcoming any obstacle is to have a clear picture of what it is.

Clearly there's more to transparency than publishing medical outcome data.

Thanks for trusting all of us to be able to deal with it. Let me know if I can help (other than by involuntarily consuming more of your excellent services...)

**** said...

As someone who went through the "dark days" it was very difficult focusing on the work at hand while wondering if I'd get laid off. I sure hope that we don't go back there.

What ever comes, I think that the new culture of transparency will be important. Under the previous leadership, it seemed that employees weren't considered smart enough to know what was going on!

Janet Karasz said...

What a tough letter to write. How respectful you are of your group to say it.

My responsibilities as a middle manager and condo board president is commensurately smaller than yours, but on occassion I feel the pain of disappointing people. I recently fielded an angry condominium resident, who was very unhappy with a special levy that was applied. And just before Christmas, too. He had choice words regarding the competency and intelligence of the board (which I assume would include me). I fear I was more defensive than I needed to be.

I keep your example in mind. Thank you.

Anonymous said...

Would you mind calling it a special "assessment", rather than "levy?" I already get blamed for enough!

e-Patient Dave said...

LOL... I can see the ads now: "He's a classic 'tax & spend' guy - even his NAME is levy!"

Seriously, though, this is really important. Parents raising kids face similar issues: at some point the kids need to be told "Look, we face some hard times ahead. People have faced things like this forever; it's not easy but we're going to see how we get through it. Together. We will look the problem squarely in the eye, we won't be able to kid ourselves, we'll do what we need to do, and we'll take care of each other."

Not to beat a dead horse, but this has something in common with facing cancer. You look it in the eye, be straight about the facts, ask "What are my options," and hang on to each other.

Medical Quack said...

This is unfortunate, but yes I feel the same things are not going to get any better for a while yet. I started back in August with a series on my blog called "Desperate Hospitals", which began with a post about the closing of Century City Hospital here in Los Angeles, whereby a state of the art hospital ran out of money and nobody was interested in buying, thus they closed down, so when you have a facility on the outskirts of Beverly Hills that can't find any money, one big flag and thus I started looking in to the status of financial affairs of hospitals across the US and it's not a real pretty picture, but my writing was to hopefully create an awareness of what is happening, and the stories were carried on Reuters as well. Here's a link to the last post and there are links to prior posts on the related reading section at the bottom to most of the series.


One link from Reuters:

As a consultant, yes I have been affected as well. Just this week I had another post that related to the complicated formulas we use to day to budget and project and about how the complicated algorithms used add to the problem in the fact that we can only go so far until the bottom drops at some point as there needs to enough revenue to cover the basics and it appears we are getting real close to the bottom as far as cutting costs with healthcare.

Budgets in the past used to carry what I would call a pad, but with today's business intelligence software and preciseness, the old proverbial pads that covered incidentals are for the most part gone and with technology moving at such a rapid pace, it is hard to budget for things that do not exist today, but will be here tomorrow and we may not know about them until we see the ten o'clock news.

There's also the very needed research for cancer and other diseases that will feel the pinch as well with Venture Capital money getting tight, and just the nature of the business itself still being so much of a "science" to a large degree too. From Fox this week with a bit of a comparison to the formulas used on Wall Street:


I agree it is something we all need to be aware of and somehow we shall hopefully all come out of some of this as the new year comes along and hope for better healthcare for all and hold on to our hats. Even the Mayo Clinic this week announced they are also dissolving their clinical trials services, so it is indeed rough all over.

Anonymous said...

More and more, this industry is having a huge cause and effect ratio. What I am seeing now, is a transition in simple cost effective programs, such as utilizing conferencing and file sharing live, rather than the expenditures of travel. Conferencing and communications between staff and other hospitals is becoming a time and money saving neccessity. Using new technology such as http://try.nefsis.com is something that promotes effective care and education alike in this industry. Certainly we can all use effective management tools in this financial climate change. Managed, effective growth is an absolute direction, I hope we can all sustain to weather our future well.

Monica Wickham said...

Dr. Levy,
I sure enjoy your leadership style. Full disclosure--a wonderful concept. I am an MHA student at the University of Washington. Currently, we are studying disclosure of medical error. How do you deal with this at your hospital?

e-Patient Dave said...


This hospital and this blog have been exemplary at openness. This search shows the many posts Paul has made on the subject of transparency.

Several posts in recent months have discussed, sometimes in painful detail, the handling of adverse events. Honestly, there have been times when I've almost been moved to tears by how BIDMC's management and staff are committed to a whole new world of healthcare - a greater commitment to improvement than to protecting or covering up.

The topic goes all the way back to the beginning on this blog, the first blog anywhere by a hospital CEO, starting in August 2006. Post #9 was titled Transparency.

(Amusingly, post #7 was How to add a comment. It appears Paul's readers have mastered that one with vigor; let's hope they implement transparency with as much enthusiasm.)

Anonymous said...

Paul, I'm a huge advocate of the BIDMC and very appreciative of your leadership style. My solution towards tightening the ship would ultimately be this.

1) Fire all physician administrators. a) They left patient care for a reason, b) have no business training, and c) lack an understanding of how to treat the customer (see point a).
2) Replace physician administrators with seasoned business leaders (who will be doing the work more out of a philanthropic need than a financial need).
3) Increase accountability (which is accomplished by firing physician administrators).

JMO, I could be wrong. But that's my view from the inside.

Anonymous said...

Paul, kudos for your transparency in this blog. I have been researching CEO blogs as we consider starting one in our organization, and I think yours is a great example of being straightforward with employees.

Anonymous said...

I am more than a little perplexed by anon 9:09's comment. #1 and #3 I can see a little bit, having met physician administrators who exhibit these qualities, or lack of them. But surely #2 is highly questionable - exhibit A would be the hash that "seasoned business leaders" have made out of our national economy. Whatever on earth leads this commenter to believe that business leaders would lead hospital departments for philanthropic rather than financial reasons? In my experience the opposite has often been true. If you gave me 100 physicians and 100 business leaders, I would wager that care for the patient (notice I did NOT say "customer") would be a more prevalent trait in the former than the latter. I would be interested in others' thoughts on this - although what it has to do with Paul's post is also a mystery.....

nonlocal MD