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Hospital Responds to Challenging Healthcare Environment

January 22, 2013

Ongoing and accelerating changes in the healthcare market, particularly the financial impact of the federal Affordable Healthcare Act on hospitals, are the primary causes of a recent workforce reduction at Fremont's Washington Hospital Healthcare System (WHHS).

The hospital system is reducing its total system-wide workforce by about 13 percent. However, with voluntary retirements and resignations, and the elimination of open/unfilled positions as well as some filled positions, actual employee layoffs were approximately 4 percent of the workforce (approximately 68 full time employees), WHHS CEO Nancy Farber said.

Hospital management made the decision to reduce the workforce after much consideration and only after first reducing costs in other areas. The decision to reduce expenses was made by hospital management following approval of a budget that was reflective of the current economic conditions and declining patient volume. Although our Board of Directors is not legally required to authorize a reduction in workforce, the Board did learn of management's plans to reduce labor costs during the publicly noticed budget presentation at the July 2012 Board meeting. The reduction in positions was one of many items that management indicated would be looked to effectively execute a new reduced budget.

"We implemented a number of cost reduction strategies before moving forward with the difficult decision of a layoff," Farber added.

"Our employees are the heart of our healthcare system and we have always valued them and worked hard to retain them. However, in this changing economic environment, our first responsibility is to keep the hospital system financially strong for the residents in the district," Farber said.

Cost reduction strategies included a voluntary retirement program and a highly successful employee suggestion program to identify cost reduction opportunities, Farber noted. "While these measures have been helpful, they are not enough to achieve the necessary total cost savings."

The hospital system did not publicly notice the layoffs, as they are occurring in phases and have not triggered the public noticing process. Washington Hospital has not violated laws during this difficult process and does not appreciate allegations that illegal activities have occurred.

The workforce reduction is not confined to Washington Hospital alone but also includes the district's Development Corporation entities and its Medical Foundation. With workforce reduction and other cost-reduction strategies, the healthcare system expects to save approximately $7.6 million during fiscal 2013, Farber said.

District voters recently approved a $186 million bond measure for construction of hospital facilities. However, federal law prohibits construction bond money from being used to pay for operating costs, including employee salaries, Farber explained.

Farber added: "Washington Hospital is not immune in this period of economic uncertainty and the significant impacts of the changing healthcare market. It is abundantly evident that health systems, stand-alone hospitals and physicians will be paid a great deal less now and in the future while being asked to do a great deal more.

"Washington Hospital's changing financial performance is unfortunate but typical of what is happening throughout the healthcare environment as the industry struggles to adapt. Decreases in reimbursement rates from the state and federal governments as well as from private insurers, and increasing costs, particularly labor costs, are having a significant impact on the bottom line.

"Approximately 10,000 individuals are entering the Medicare system each day and the Affordable Care Act seeks to insure millions of currently uninsured individuals. The entire spectrum of the healthcare industry is struggling to absorb the impacts of these new costs but it is clear that the greatest impact will fall on hospitals.

"We anticipate our cost reduction strategies will allow us to emerge from our current financial shortfall so that we can soon again operate from a position of fiscal strength," Farber added, "allowing us to rehire many of those employees affected by this layoff."

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