Health & Family

Carolinas HealthCare looks to cut $110 million in 2015 budget

Carolinas HealthCare System has eliminated more than 100 management positions – including two jobs that paid a total of about $3 million – as part of a goal to trim $110 million in expenses from next year’s budget, hospital officials announced Tuesday.

Cutbacks are necessary, in part, because of federal and state budget cuts in Medicare and Medicaid reimbursement for seniors, low-income and disabled patients, CEO Michael Tarwater said. That includes refusal by North Carolina and South Carolina lawmakers to expand Medicaid eligibility under the Affordable Care Act.

“We’ve seen these pressures coming for a while, and we’ve done a lot to prepare,” Tarwater said at the system’s quarterly board meeting Tuesday. “Our industry is under extraordinary revenue pressures.”

Because health care is “so highly dependent on labor,” Tarwater said, more jobs likely will be eliminated. But he said most of the cuts will be through attrition. The system will also save money through growth, increases in productivity and changes in employee benefit plans.

In a letter to employees dated Sept. 2, Tarwater said “the five-year outlook is expected to take a dramatic turn for the worse,” and “we need to begin an immediate and significant expense reduction effort so we are prepared for the new future state of payments.”

In remarks after the meeting, Carolinas HealthCare President Joe Piemont said the more than 100 positions already eliminated have come from a total of 2,000 management jobs in the system’s primary enterprise, which includes 12 hospitals plus other medical offices in the Charlotte region.

The planned reduction of $110 million in expenses next year represents 2.4 percent of the projected $4.6 billion annual revenue for the primary enterprise in 2015, officials said.

Piemont said most of the eliminated positions were vacant or recently vacated by employees who retired or took other jobs and weren’t replaced. For example, when 26-year employee Russ Guerin retired as an executive vice president a year ago, his duties were divided among other executives. Guerin was one of the system’s highest-paid executives, earning more than $1 million in total compensation in 2012.

Another highly paid executive position will be eliminated Jan. 1 after Laurence Hinsdale retires as executive vice president for regional facilities. Hinsdale, who received total compensation of $1.9 million in 2013, will be replaced by Paul Franz, executive vice president in charge of physician practices and ambulatory care services. Franz’s current position will be eliminated and those duties will be taken over by Dr. Roger Ray, who is being promoted from chief medical officer to executive vice president and chief physician executive.

Only “a handful” of employees were let go, Piemont said. “These were frankly agonizing decisions. These are our colleagues and teammates who were contributors. … But we have to streamline.”

“It was not done with a blunt instrument,” he added. “It would be very easy to eliminate a gross number of positions, and we didn’t take that approach. … We started with the administrative and the back-of-the-house functions. … (We are) really staying away from anything that is touching direct patient care.”

Piemont said the system isn’t planning “any meaningful reduction in nursing staff” but instead will look to improve productivity. But every position will be reviewed, he said. “Every time there is a vacant position that someone wants to fill, we’ll probably ask them twice, ‘Are you sure? Are you sure you need this?’ ”

In contrast to the first-quarter 2014 operating loss of $5 million on $1.1 billion total revenue for the system’s primary enterprise, officials reported a $56 million operating income on $2.4 billion revenue for the second quarter. Also in the second quarter, the nonprofit public system reported $182 million in net revenue (revenue after expenses) for its Charlotte-area facilities.

Meanwhile, the total system, which includes about 40 hospitals across the Carolinas and Georgia, reported an operating income of $86 million on operating revenue of $4 billion, and $263 million in net revenue for the first half of the year.

Tarwater blamed much of the financial stress on cutbacks in state and federal programs. For example, he said North Carolina legislators have for a second year declined to accept federal funds to expand Medicaid. That contributed to the system’s unreimbursed charges, which rose to $668 million in the first half of this year, an increase of 9.4 percent over last year.

“We’re not treating this as a crisis … but it is a challenge,” Tarwater said. “I can assure you we have a solid plan, and we have the team in place to carry it out. I’m certain that we’ll emerge stronger and more competitive.”

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