News

The Medical Center: Cost cuts paid off

A year after the Medical Center of Central Georgia laid off more than 200 employees and identified other cost-cutting measures, its leaders say the effort has paid off.

The hospital has maintained its slimmer staffing numbers, patient satisfaction hasn’t deteriorated and Central Georgia Health System, which has a budget 95 percent based on the hospital, reaped its highest operating margin in five years.

The hospital’s 2009 budget originally anticipated an operating margin of $19.5 million, but the margin has come in much higher: $34.6 million through the first 11 months of the budget year, Chief Financial Officer Rhonda Perry said. Last fall, hospital CEO Don Faulk said the strategic initiative that generated all the changes would have a second phase extending into 2009, as suggestions for operational changes were further refined.

The Medical Center considered closing the Macon Health Club, which was losing $100,000 a year, and outsourcing the hospital’s ambulance service. But hospital leaders decided against either of those changes.

Other changes went forward. About 40 more employees were laid off, and other positions were created, Faulk said.

According to Faulk, Perry, and Chief Operating Officer Joe Lavelle, key cost-saving changes this year include:

— Major shifts in how the operating room functions, mostly related to scheduling but also including procedures and about 15 to 18 layoffs. (Faulk said the surgery center saw few layoffs during the initial round, and eight to 10 of the operating room employees who lost their jobs this year were rehired for other open positions.)

Surgeons were reserving operating rooms but not using them, even as other surgeons struggled to get operating room access, Faulk said. The hospital had to pay anesthesiologists who showed up to staff operating rooms that weren’t in use, Perry said.

And many operating room employees were earning a lot of overtime, Lavelle said.

“The schedule was running into 9 or 10 at night for elective surgery patients,” he said. “That doesn’t occur any more.”

— Improvements to the hospital’s contract with its anesthesiologists, made possible by the scheduling changes.

— Renegotiating contracts for supplies and hospice service.

— Restructuring customer service and patient services to eliminate duplicated duties.

Recently. 10 patient representatives were laid off. The hospital is offsetting eight of those jobs, though, by adding more customer service representatives, Lavelle said. The difference is that patient representatives had some counseling duties, while customer service representatives are focused more exclusively on updating families about the status of patients.

Lavelle said the hospital still has other counselors and chaplains to provide counseling services.

STAFFING AND OTHER CHANGES

A year ago, there were 4,700 full-time employees at the Medical Center, and there are 4,497 today, according to an executive financial summary provided by Lavelle.

Of the 208 people initially let go, 75 have been hired back into other open positions, Faulk said.

Only one of the 18 top-level managers laid off has been rehired, and that person went to a nonmanagement position with different duties, Faulk said. One other manager did some part-time contract lobbying for the hospital during the two months before Bibb County passed its 2010 budget, a spending plan that cut the hospital’s indigent care funding by $2.9 million.

Many remaining employees saw changes to their benefits and incentive pay. At the top level, Faulk and other hospital managers stopped receiving allowances for health care and dental benefits, basically requiring them to contribute to their health-care costs for the first time. Many top managers, although not Faulk, also lost their car allowances, Faulk said.

Faulk did not receive a pay raise in the 2010 budget and received no bonuses last year. His last pay increase was in 2007. Federal tax filings show that Faulk made $981,401 in salary, benefits and expenses in 2007. Georgia Watch, a consumer watchdog group that has been somewhat critical of the Medical Center, noted that this is in line with what is paid to other CEOs of similar Georgia nonprofit hospitals.

GROWING RESERVE

The hospital’s improving financial performance, along with the rebound in the stock market, has grown its reserve substantially even since June. At that point, it was trying to maintain about $400 million in reserve, enough to run the hospital for 280 days. Perry said the hospital told its investors it would not allow the reserve to drop below that level.

As of Aug. 31, the hospital had $491 million in reserve, enough to operate for 311 days, Perry said.

“That cash will give us the ability to withstand some of the hits we’ll take from health-care reform,” she said, referring to the health-care overhaul that Congress is debating.

Georgia Watch has faulted the Medical Center for keeping such a large reserve instead of using more of that money to treat indigent patients. Although the Medical Center is not a public hospital, it agreed to maintain its commitment to treating the poor when it went private almost 15 years ago.

According to a 2006 Congressional Budget Office report, in 2004 the median for tax-exempt, nonprofit hospitals was 146 days of cash on hand. Georgia Watch noted that the same year, the Medical Center maintained almost 260 days’ worth, almost twice the national average.

“Even if it is more than double the average, why would you want to be an average hospital?” Faulk asked. “Those reserves are a community asset.”

The high amount in the reserve has helped the hospital achieve a better bond rating than most hospitals its size, which resulted in savings of about $1 million a year in bonds the hospital just issued, Perry said.

Despite the high amount in the reserve, Faulk has called Bibb County’s cut in hospital funding “devastating.”

The Medical Center could draw money from the reserves to make up difference, or simply accept a 0.5 percent reduction in operating margin. But hospital leaders say that’s not being responsible.

Faulk noted that several years ago the county cut Medical Center funding by $2 million to help cover the cost of the countywide tax revaluation, and the hospital didn’t reduce its spending on programs for the poor because the cutback would last just a year. No such assurance has been given this time.

And the hospital’s operating margin is likely to drop outside the comfort zone anyway, Perry said, because of health-care reform and Medicare and Medicaid reimbursements lagging behind inflation.

Although the reserve could be seen as a rainy day fund, Faulk said, “With a rainy day, you see sun on the other side. I don’t see any sunshine with the county or with Medicaid. With the food fight going on nationally (on health-care reform), I don’t see any sunshine there.”

If the hospital allows its net operating margin to drop to zero, it must rely on depreciation to pay for keeping equipment and facilities up to date, Faulk said.

“If you spend only the depreciation, you’re eating your assets,” he said. “You end up like Grady (Memorial Hospital), in the hole.” Atlanta’s Grady, the largest hospital in the state, has struggled to stay afloat in recent years.

“I don’t want to have a crappy medical facility to leave to Macon when I’m gone,” Faulk said. “That’s where we were 30 years ago.”

GROWTH IN THE FUTURE

When the major cost-cutting initiatives were announced last year, Faulk said the hospital would also develop a strategic growth plan for 2010 through 2014. That’s still a work in progress, but elements include:

— Growing the joint program.

— A new cancer treatment center, a project that has been delayed several years because of the hospital’s financial struggles and the economy.

— A higher level pediatric surgery program.

— Developing partnerships with other hospitals or doctors in surrounding counties, for projects such as joint urgent care centers.

— Further developing an orthopedic trauma specialty program (surgery and treatment for trauma injuries involving bones and muscles).

Faulk and Lavelle said the hospital is preparing to start raising money for two major new initiatives, the cancer center and an expansion/upgrade of the hospital’s critical care units.

To contact writer S. Heather Duncan, call 744-4225.

  Comments