'We plan and prepare for disruptions': How IU Health is getting through the pandemic without layoffs or pay cuts

Despite a financial hit from the COVID-19 pandemic, Indianapolis-based Indiana University Health has made a commitment to no layoffs or salary cuts for its 34,000 employees.

In the first quarter of 2020, IU Health's operating income dropped 50 percent and its expenses rose 6 percent, compared to the same quarter the year before. The health system ended the quarter with a net loss of $630 million, driven primarily by investment losses of $660 million.

The pandemic's financial impact is expected to bleed into the second quarter as well, IU Health Senior Vice President and CFO Jenni Alvey said.

"I am predicting COVID-19 to have a material impact because quarter one only included a few weeks, while quarter two includes all of April, and a slow ramp-up of electives," Ms. Alvey said. "So our second-quarter results will be worse compared to the same period one year prior."

But while other U.S. health systems have laid off employees or implemented pay cuts to shore up finances, IU Health has vowed to protect its employees first and foremost. 

Here, Ms. Alvey shares more about IU Health's commitment to its employees, discusses what financial recovery looks like for the health system and offers advice to other CFOs navigating a challenging environment.

Note: Responses have been lightly edited for length and clarity. 

Question: Can you share more about IU Health's commitment to no layoffs or pay cuts?

Jenni Alvey: When COVID-19 struck, IU Health was prepared financially. We were able to use our balance sheet and immediately said, 'We are going to take care of our people.' The reason is because the greatest asset we have is our people. When we stopped doing elective procedures to prepare for the pandemic, we had a few thousand people who didn't have work to do. Instead of layoffs or pay cuts, we came up with multiple approaches to protect their pay and jobs. The first thing we did was ensure that employees who were sick or in quarantine had their income protected. Then we also created a resource command center for employees who were willing to work but didn't have work. We had more than 2,500 people register for the resource command center. Signing up meant they could be deployed to different areas of the system. For example, we brought respiratory therapists from sleep labs into hospitals, had administrators hand out information and masks at the entry of facilities and had other employees on call. We guaranteed everyone's pay, no matter what hours or where they were working. Additionally, we continued to pay out raises and our 401(k) discretionary contribution. 

We also made sure our people had enough personal protective equipment and had access to on-site showers. We also paid for hotels if an employee needed to self-isolate. Additionally, when schools were canceled, we set up a childcare program with Early Learning Indiana, YMCAs, and other providers in our communities. We made sure that taking care of our people came first and that we would not look to find cost cutting measures at the expense of our staff. 

Q: What allowed you to be able to commit to no pay cuts or layoffs?

JA: We plan and prepare for disruptions. From a financial perspective, we learned a lot from the 2008 recession. We learned that events typically aren't isolated; you can have problems in the market with your investment portfolio, while also experiencing a recession, which is often driven by some other factor. In 2008 it was mortgage-backed lending. This year it's a pandemic. At IU Health we make sure when we are planning that we think about the possibility of financial challenges compounding so that we have enough reserve to weather through. We don't ever want to be in a situation where we can't provide needed healthcare in Indiana or we can't afford doctors or nurses to care for patients.

Q: What does financial recovery look like for IU Health? 

JA:We are in a monitor and adapt phase at IU Health from an operational perspective. We are being very cautious about how we reopen and reschedule electives. From a revenue perspective, I'd rather reopen slowly and maintain that revenue, rather than needing to cancel electives at the end of the year. I believe that is why we have reserves in our balance sheet, so we can put healthcare first. We are also tightening our belts. We are looking to eliminate waste, increase productivity and generate revenue in new ways. We are pausing some planned spending due to the pandemic and evaluating short-term spending. 

Q: What advice would you share with other CFOs?

JA: Promote good financial stewardship and count on your team to do the right thing. As a leader, make sure you are focused on long-term financial decisions instead of short ones that may cost more in the long run. 

The second piece is leverage your financial assets and resources. Focus on what you are doing financially now to reduce costs that will help through the recession, not just through the COVID-19 pandemic. Our longer-term challenge will be the changing care models and the fact that a lot of people will think twice about elective procedures. We need to think about how we are reducing costs to adapt to the shift down in volume. It means planning for the long-term, with a recessionary focus instead of just a COVID-19 hit. 

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