Gene Woods discusses health care mergers at Economic Outlook Conference
Atrium Health is looking to slash labor costs across its Charlotte-area hospitals as part of a broad push to become more efficient, according to documents obtained by the Observer.
Responding to Observer questions about the plans, the medical giant formerly known as Carolinas HealthCare System said that 90 people have been laid off since November when job cuts from the initiative began. That’s less than 1 percent of its regional workforce.
The hospital system, which employs about 38,000 people in the area, declined to say how many more layoffs could occur. But it said its goal is for the majority of any additional cuts to come from not filling positions that become vacant. Other employees could see their hours reduced or face restrictions on overtime, Atrium said.
The Charlotte-based system wants to bring labor costs as a percentage of revenue more in line with peer systems around the U.S. Atrium is being outperformed by nearly 20 peers on that measure, according to a document from an August gathering of Atrium leaders.
The cuts come as Charlotte’s dominant hospital system and largest employer is working to find $300 million in savings under the public nonprofit’s “Destination 2020” strategic plan, documents show. The four-year plan was launched in 2017 under CEO Gene Woods. Woods has also embarked on efforts to make the system larger through pending deals that would combine Atrium with Chapel Hill’s UNC Health Care and Georgia’s Navicent Health.
Atrium said that managing labor expenses is vital to ensuring the system can grow services for patients, reduce health care costs and improve the care it provides.
It’s unclear what the net impact on the workforce will be from all the changes. But Atrium emphasized that the job cuts and related moves are being taken without hurting patient care.
“If you think about affordability, the more we can do to be efficient as a health care provider, the better it is for the patient and the family,” Chief Operating Officer Ken Haynes said in an interview.
Atrium is continually looking at its operations to make sure it is adding value for patients, Haynes said. One way to become more efficient is matching labor with demand – staffing up and down as necessary to meet patient volumes, he said.
Cutting and growing
Atrium is seeking to cut labor expenses to at least 50 percent of net operating revenue – compared with about 59 percent now, documents show. Since 2010, the lowest that figure has been is 57.4 percent in 2015. Net operating revenue for the first nine months of last year was more than $7.4 billion, according to the system’s most recent financial data.
At current spending levels, Atrium is lagging behind such North Carolina peers systems as Duke Health (48 percent) and Novant Health (52 percent), and also national giants like Tenet Healthcare (48 percent) and Universal Health Services (47 percent), according to documents.
Documents also point to how millions of dollars in labor costs could be wrung from nearly a dozen area hospitals to achieve the 50 percent goal.
At the system’s Lincolnton hospital, for example, departments identified as having costs that are missing targets include anesthesiology, emergency, security, patient registration, women’s services and diabetes education. It’s not clear from the documents what actions might be taken to trim costs from those departments.
Atrium said that only eight of its 90 layoffs involved jobs that provide care to patients, and none affected nurses who worked directly with patients. The 82 other layoffs involved roles who don’t provide patient treatment, Atrium said.
As Atrium pushes to drive down costs, documents show officials being careful about how they discuss the plan internally.
“The language we use is very important,” documents say. “Avoid the trap of saying ‘we are reducing’ to the 50th percentile. We are improving to the 50th percentile to be more affordable for our patients.”
Among the reasons Atrium cited for its push to cut costs is uncertainty about future funding for Medicaid and Medicare.
Atrium also said it is bracing for reductions to a federal program that requires pharmaceutical manufacturers to provide drugs to health care organizations at significantly reduced prices.
Amid such challenges, Atrium said it must become a more efficient organization so it can continue providing indigent care, for which it gets no compensation. For 2016, that figure was $1.74 billion, according to Atrium. The system also reported an operating margin of $176 million that year.
Hospitals everywhere are under pressure to control the things they can, like personnel costs, said Michael Thompson, a professor in the Department of Public Health Sciences at UNC Charlotte.
One solution is becoming a larger system to achieve economies of scale, Thompson said.
“Everyone’s looking for ways to cut costs without sacrificing quality, and that’s the real challenge,” he said.
Even with the cost-cutting work, Atrium said it continues to hire, noting it has more than 2,000 positions it is seeking to fill, as well as a 2018 budgeted increase of 600 employees.
Haynes, the Atrium COO, said the system will continue to expand employment and he expects it to have more workers in 2020 than today.
“We are a growing organization. We are not contracting,” he said. “This is just doing good business principles and trying to drive value to the patient.”