Avoiding Layoffs: Despite the Press, It's Possible for Hospitals Today

Hospitals and health systems are often considered to be bastions of economic development and employment in their respective communities. It's hard to argue with that.

According to the American Hospital Association, hospitals employed almost 5.5 million people in 2011, and they are the second-largest source of private-sector jobs. Accounting for those jobs and the benefits that accompany them, hospitals generated roughly $2.3 trillion in economic activity. That's "trillion" with a "t."

But if there's one thing we've witnessed this summer in the healthcare sector, it's that hospitals are shedding jobs left and right. The Bureau of Labor Statistics said in July, hospitals cut 4,400 jobs despite the fact the U.S. as a whole added 162,000 jobs. It wasn't much better in August. Hospitals barely contributed to job gains. Layoff announcements after announcements continue to pepper the news, and many executives have said the layoffs are necessary to deal with the uncertainties around healthcare reform.

Here's the real question, though: Are the layoffs actually necessary, or are hospitals and health systems using healthcare reform and sequestration as a convenient — and short-term — way to balance their budgets? We've seen other similar moves and sentiments in the private sector: UPS recently slashed health benefits to the spouses of 15,000 employees, citing the dreaded, uncertain effects of the Affordable Care Act, while Delta Air Lines said its healthcare costs will go up roughly $100 million next year, again thanks to the ACA (allegedly).

Honestly, I don't buy all the gloom surrounding the healthcare law. This is not the first time companies have had to adapt to a new regulation, and hospitals in particular have shown they can change on the fly, if need be. I understand that in some instances, like a catastrophic event or imminent closure, layoffs might be necessary to stabilize an organization. But once things inevitably even out, organizations hire back and fill many of those very positions they decided to ax. So why go through the incredibly sensitive waters of layoffs, especially considering how important a full-time job is for individuals and families today? Why not invest more in the quality people you have? Won't a positive employee base lead to a better work environment, a better place for patients and, ultimately, a more financial stable institution?

Proof: Dean Gruner, MD, president and CEO of ThedaCare in Appleton, Wis., and Chris Van Gorder, president and CEO of Scripps Health in San Diego, are but two examples of healthcare leaders who have adopted "no layoff" philosophies. And both health systems are doing quite well.

Another great example is Paul Levy and Beth Israel Deaconess Medical Center in Boston. I recently spoke with Mr. Levy, who was the CEO of BIDMC for nine years. In September 2008, going into its new fiscal year, BIDMC had budgeted a $20 million surplus. As we all know, this is also when the U.S. economy started tanking. By January 2009, still amidst the recession, BIDMC's patient volumes plummeted, and the hospital faced other economic challenges like waning Medicaid funds. By March, Mr. Levy says it was clear the slow patient volumes and state/federal economic challenges were not a fluke. The administration then calculated a $20 million deficit instead of a $20 million surplus.

"This happened all in six months," Mr. Levy says.

As the executive team met during board meetings, an idea was floated around. If BIDMC laid off 400 people or so, the projected deficit could be erased. Housekeepers, transporters, food service employees and many of the other low-wage jobs would have to be cut. Poof, just like that. But that didn't sit well with Mr. Levy and others. They immediately went to the drawing board and decided to make it a communal effort.

"I said, 'Let's talk to people and see if they have ideas to save money instead of laying off colleagues," Mr. Levy says. "There was an 8 percent unemployment rate in the state [at the time], and I didn't want nonworking families."

The hospital set up town meetings, where the situation was laid out to all employees who attended. Mr. Levy encouraged employees to find ways to solve the financial gap, like postponing raises. The reaction was better than he ever expected. "The places burst into applause," he says. "It was a wonderful, emotional moment. As someone said to me later, 'We're good at taking care of the patient, but this shows we're really good at taking care of each other, too.'"

Through emails, chat rooms and more public forums, Mr. Levy and BIDMC found a solution. He, many other senior executives and many physician chiefs all agreed to pay cuts and forgo bonuses. In addition, hospital staff would defer raises, hospital 401(k) contributions would temporarily stop and sick days/vacation days would be reduced.

Not only were those measures accepted by a majority of the hospital, but it actually helped the hospital weather the storm. By September 2010, Mr. Levy was able to send out one of the most gratifying emails that ever left his inbox:

"Dear BIDMC,
Last year, in a terrific outpouring of mutual support, thousands of you gave up salary increases and benefits to help save the jobs of hundreds of people and to offer special protection to people in our lower wage categories. This action received national acclaim, as the country recognized the sense of community and family here at our hospital.
Over the past several months, as our finances improved, I followed your collective guidance, gradually restoring salary increases, 401(k) matches and earned time accruals. Back in July, we discussed things with our board of directors, and they agreed that, if finances allowed, we should do something more to help make up for some of what was taken away from you.
Things have worked out along those lines, so I am now pleased to send you this note. As a result of very tight expense management and strong patient volumes, we are running ahead of our expected budget for this fiscal year, which ends September 30. Just as we shared the sacrifices last year, we want to share with you this year’s strong financial performance. To thank you for your past sacrifices and to make up a small portion of them, we will be distributing a special one-time bonus to you."

The letter went on to say that employees don't have to do "anything special," like file paperwork, to make this bonus a reality. "You have already done something special," it read.

Mr. Levy and BIDMC avoided layoffs and a financial calamity, all by "engaging people in the process to help decide," Mr. Levy says. "If you can't trust the people you're working with in a hospital, where can you?"

Times are tough for hospitals, especially as the revenue sources continue to narrow. And there's no doubt the economy is still somewhat stuck in neutral. Labor normally represents at least half of a hospital's operating budget, making it a prime target for cuts whenever times get tough. But if there's one thing that Mr. Levy, Mr. Van Gorder, Dr. Gruner and others have shown, it's that layoffs can be avoided, even in the worst of times. Approaching and collaborating with those very people who could be laid off might be the best starting point, too.

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