Hospital Layoffs and Financial Viability: Do They Go Hand-in-Hand?

Layoffs have become common news in the hospital and healthcare industry, especially over the past couple years. In October alone, more than a dozen hospitals and health systems announced layoffs, including Baton Rouge-based Louisiana State University Health System's plan to cut roughly 1,500 jobs. Often times, the moves are used as a way to shore up short-term finances.

While layoff announcements are easy to report, coming to a decision to lay off employees is a much tougher decision, says Adam Higman, manager at Soyring Consulting, a hospital consultancy firm.

He says hospital layoffs are more than just letting people go or cutting jobs through attrition. Here, Mr. Higman explains when and why hospital layoff strategies are employed, how hospitals can find financially viability through means other than hospital layoffs and what some unintended consequences of layoffs are.

Question: Why do hospitals resort to layoffs, especially in economic times like today when cutting jobs is such a sensitive issue?

Adam Higman:
"Resort" is the functional word here, as layoffs are typically the last resort that hospitals look at because they are well aware it is a sensitive area. Facilities will usually look at operational efficiencies, purchased services, materials costs and financial alternatives (debt and equity options, partnerships, etc.) prior to or in conjunction with any look at cutting jobs. And when they do look at cutting jobs, it is for very clear financial issues either now or in the future. It is important to mention the future because not anticipating future financial issues — decreasing reimbursements, decreasing volumes, increasing outpatient and primary care responsibilities, etc. — can mean you have an insurmountable problem down the road, which could ultimately lead to acquisition or closure.

The other important thing to keep in mind is that well-managed layoffs are designed to have the lowest impact on the staff and community as possible. This means a facility will look at closing open positions, attrition and early retirement packages before they look at letting others go. They should also be looking at minimizing impact on patient care, meaning departments that have layoffs are those that have an opportunity for greater efficiency or automation as opposed to a 5 percent reduction across the board.

Q: Can hospitals find financial viability without making layoffs during tough times?

It depends on the hospital's financial situation. As I mentioned, layoffs are usually not the first resort, but sometimes they are necessary to ensure the long-term viability of a facility. It is also important to note that overstaffing is not a good operational reality. We often find departments that are overstaffed have many of the same issues as departments that are understaffed. Problems include low employee morale and issues with patient satisfaction.

Q: What are the best ways hospitals can reduce costs or improve revenue without taking it out on employees?

An important way to keep things balanced is to look at reducing costs more holistically, meaning that if staffing is on the table, so are materials costs, purchased services and financial alternatives. Cost reduction and efficiency should be a facility-wide imperative — not something that comes up only when there are financial pressures.

On the revenue side, administration needs to keep their departmental leadership involved in their financial success. You can, for example, work with your surgery department leadership to meet with surgeons and engage them on what would help bring more of their business to your facility. This will not only provide you with a better understanding of the opportunities out there, but it will also keep you informed if your volumes decline as to why they are doing so (Is it because your surgeon's volumes are also declining or because he or she has decided to take some of their cases elsewhere?).

Strategic planning also needs to be a part of any discussion related to the long-term financial well-being of an organization. A strong focus needs to be maintained on managing business threats related to the physician market and payors. This includes planning for both best-case and worst-case scenarios. A growing trend we have seen across the country is in acquisition of physician groups, particularly primary care providers. You do not want to be caught unaware if your major competitor acquires a large practice in your area or any other major referrers for your organization.

Additionally, it is important to establish strong positions and relationships with payors so payment terms and contractual changes do not catch your organization by surprise.

On the revenue growth side of the equation, putting a strong marketing operation in place is key in ensuring your facility is positioned to capture the market. All too often, hospitals are reactionary, as opposed to visionary, with their planning. Senior administration should have a strong grasp of the opportunities in their market based on the demographics/disease states in their area, the competition and the physician makeup.

With an understanding of those things, it is much easier to pull together a forward-looking, yet flexible, strategy for success and revenue growth.

Q: What are the most adverse effects of hospital layoffs?

The greatest adverse effects from hospital layoffs are felt when they are poorly managed. Unless you have someone doing the operational analysis to find out where the opportunities sit within your organization, the chances of creating serious operational problems increase.

For example, if you lay off a large portion of your environmental services staff to save nursing jobs without doing your homework first, you may be creating a whole new set of problems. Without the appropriate number of environmental services personnel, your nurses may be expected to take on some of the environmental job responsibilities, which is not only a skill mix issue, but also decreases nurse satisfaction as they are looking to focus more on their patients — not the environmental/facilities issues that come with them.

The other adverse effect is, of course, your hospital's image and brand. Without a clear message platform and communications plan in place to help clearly establish your hospital's position as to why it is moving toward layoffs, there is a greater chance of backlash from local media and the community itself.

More Articles on Hospital Layoffs:

Meriter Health in Wisconsin to Eliminate 140 Jobs

Crouse Hospital to Cut 70 Jobs in Second Round of Layoffs

3 Reasons Why Layoffs Don't Benefit Hospitals in the Long Run

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