Hospital Layoffs on the Rise: 4 Best Practices for Hospitals Facing the Last Resort

Large layoffs and workforce reductions have become more common at hospitals and health systems across the country, regardless of size or for- or nonprofit status.

Through July this year, several organizations have laid off dozens and cut hundreds more jobs through attrition. For example, St. Vincent Health in Indianapolis cut roughly 865 jobs, Denver Health plans to eliminate 300 jobs through layoffs, attrition and reduction in new hires, and Vanderbilt University Medical Center in Nashville, Tenn., cut more than 300 members from its staff. In one of the biggest layoffs so far, Baton Rouge-based Louisiana State University Health Care Services Division laid off 2,340 employees in its 2012-13 fiscal year, which ended June 30.


Most hospitals turn to layoffs as a last resort, so the rash of layoffs signifies the dire financial situation provider organizations are in across the country. "Hospitals don't like to lay people off," says Ken Perez, a healthcare policy expert. "It's not a preferred strategy. Evidently, the leadership of these organizations felt that they had to make a move now in order to financially make it through 2013."

"Layoffs are pretty much never the first course of action," says Adam Higman, vice president at Soyring Consulting. "They are unpopular, difficult and take a lot of work." Hospitals usually look to cut non-labor costs first, and turn to layoffs as a last resort to stay financially viable.

However, the rise in the number of hospitals and health systems turning to layoffs points to a larger nationwide issue. The combination of sequester cuts, Medicaid expansion issues, lower patient volume — in part due to quality improvements — and an increase in bad debt have left hospitals with a lot less money than they were prepared for.

At Scripps Health in San Diego, President and CEO Chris Van Gorder has been able to avoid layoffs and has a "no layoffs philosophy" for his health system. However, he has had to lay people off in the past, before he joined Scripps. "I've done layoffs in my career," Mr. Van Gorder says. "It's painful to give someone the news, and you can't help but worry" about their future.

He has been able to avoid layoffs at Scripps through anticipation of change and a variety of cost-cutting measures, like reducing non-value-added variation throughout the system. However, Mr. Van Gorder understands that many systems were not prepared for the drastic revenue reduction and have needed to lay off workers to survive. "If you're losing money and you're having…rating agencies or stock holders demanding changes and you have to change quickly, you'll go to layoffs," he says. Labor is generally the highest cost hospitals have, so labor cuts do create quick and large savings.

Best practices

If hospital officials have gone through all the other options and deemed layoffs the only way to remain open, there are some ways to ease the pain for the organization's employees and the community. The following are some general best practices for hospitals undergoing layoffs due to financial pressures.

1. Be logical. A common pitfall hospitals encounter when it comes to layoffs is insisting they must be equal across all departments, such as having each department in a hospital cut 5 percent of its staff. "There must be clear reasoning behind the reductions that make operational sense," Mr. Higman explains. Hospital officials need to be able to explain why each and every layoff is necessary. For example, being able to say "we're reducing 10 full-time equivalents here because based on volumes and benchmarks, we're overstaffed," makes the remaining employees feel more secure.

2. Educate managers. It is especially important to fill management in on why the layoffs are necessary and to have their buy-in and understanding before moving forward with the layoff process. "They're the ones that have to deal with the layoffs at the end of the day," Mr. Higman says. "And you still have to provide care during and after the announcement and the reductions." Keeping the managers informed and educated on the layoff process will help everything go more smoothly.

3. Communicate internally. It is important to talk with the people directly affected by the layoffs and those that will remain employed at the hospital or system.

"Communicate fairly and openly to the people who are being laid off," Mr. Higman says. He encourages having the human resources department use a script during formal communication so everyone gets the same message.

Layoffs have a negative impact on morale for the employees who stay with the organization, but there are some ways to mitigate the negative effects of layoffs through communication. Mr. Higman suggests making the announcement and the actual layoffs quickly, so the process is not prolonged. It is also important to communicate how finite the layoffs are, so the remaining employees do not feel "like they have an ax over their heads," Mr. Higman says.

4. Communicate externally. If the layoff is large and affects many employees, external communication with the community becomes essential. Hospitals should ensure that the spokesperson, be it a public relations professional, an executive or someone in administration, delivers a clear, concise message to the public. "Make sure they understand that just because you had to make reductions, it doesn't change who [the hospital] is," Mr. Higman says. "Reassure the community that this isn't going to change the way you operate or your mission statement."

Even though the perfect storm of revenue reductions has obviously hit a lot of hospitals already, some organizations have yet to be fully affected, so more layoffs are to be expected. "The full impact of the [Affordable Care Act] and the recession, all of the changes, I don't think they've hit some hospitals very hard yet. If they haven't prepared in advance, I expect a lot of jobs to be lost," Mr. Van Gorder says. "I think it's going to get worse before it gets better."

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