September 2, 2014
Dear Team Member:
Over the past 18 months, I have communicated regularly concerning changes impacting our industry and our healthcare system. Federal, state and local budget shortfalls, as well as legislative, regulatory and policy changes, have resulted in constant payment reductions for the care we provide. We expect these cuts to continue. At the same time, our customers want and deserve the same or better healthcare, for less.
We have been closely monitoring the effects of these changes and constantly evaluating our ability to reconcile ongoing negative financial pressures with our mission. To date, we have done a very good job of managing our resources and mitigating revenue compression with an eye toward efficiency and transformation, resulting in significant improvements. This kind of discipline will allow us to continue to meet our commitments to the community, which I know is a very important part of the pride we all feel working at Carolinas HealthCare System.
However, even with the many successes we have achieved – utilizing Lean methods, investing in virtual care innovations, enhancing clinical standardization and improving productivity – the pace of improvement is not keeping up with the pace and magnitude of the expected five-year payment reductions. These projected reductions mean we must accelerate performance improvements, focusing particularly on significant and immediate expense reductions.
Moving forward, expense management at Carolinas HealthCare System will look different from anything we have done in the past, because the situation is different from anything we have ever projected. In prior years, it was not uncommon for payers to reduce payments for one segment of our patient population, such as Medicare or Medicaid. Our response, in turn, was to devise creative solutions, make the necessary adjustments, and continue moving ahead.
Today, however, the five-year outlook is expected to take a dramatic turn for the worse, and continuous reimbursement pressures are expected for the foreseeable future. As a result, we need to begin an immediate and significant expense reduction effort so we are prepared for the new future state of payments.
Based on current financial projections for the upcoming fiscal year, which will begin January 1, we need to reduce annual expenses by approximately $110 million. In an industry highly dependent on labor, a majority of the reductions this year must come from labor expenses. These reductions can happen in a number of ways.
I understand the desire to want to know immediately and specifically what this all means, and what I can tell you is that we are approaching this situation in a thoughtful manner with as much flexibility as circumstances permit.
I have asked our senior leaders to work with their individual teams to determine the very best ways to meet these goals – whether through productivity improvements, revenue enhancements, staff design, flexible scheduling, employee attrition, elimination of current vacancies, or—only as needed—position eliminations, always with an eye toward keeping patients first.
As part of this thoughtful quest for needed efficiency improvements, more than one hundred leadership positions have been identified for elimination—a majority of which are current vacancies. I will make an additional announcement today, providing more details on organizational changes affecting the most senior level of our System.
Actions will begin immediately. Our objective is to enter 2015 with new structures and processes already in place.
Although cost reduction is a critical priority, our efforts will not depend solely on cost reduction. We need to continue making strategic investments in areas of our organization that will allow us to transform the way we deliver care. Investments in strategic growth, quality, safety, preventive care, virtual care and electronic health records will continue to be critical, as our industry migrates from one that is paid based on volume to one that is rewarded for value.
While this is not a crisis, if we do not accelerate the measures that are clearly needed – now – we will face a much more serious situation in coming years. I also want to emphasize, that efforts to meet Carolinas HealthCare System’s financial challenges will be ongoing, as they will be for the entire industry. The process at hand is not simply a one-year budget challenge; it is an evolutionary process that will continue over the long haul, regardless of how financial results might vary in any short-term reporting period.
The principles that guide our decisions are and will be clear and consistent: patients are best served by those providers who can excel at sustaining quality, safety, and excellent customer service, while at the same time reducing costs. We will not relinquish our role as a national leader in developing a more affordable, and more fully integrated, patient-centered approach to I know that changes of this magnitude are inevitably unsettling; however, I have every confidence that we can, as ONE team, meet these challenges. We will need the best thinking and creative suggestions of every team member. Our current challenges are just that: challenges. But, we are well positioned to face them. I am absolutely certain that we will emerge stronger and better able to sustain our mission and achieve our vision of transforming healthcare delivery.
Michael C. Tarwater
Chief Executive Officer