Several months ago, I wrote about what it is like to construct a budget for a hospital like ours. Well, all that careful planning goes out the window when the economy tanks the way we have seen in the last few months. See some examples of particularly hard-hit hospitals here and here and here.
From my first day at BIDMC almost seven years ago, I have held to a policy that the entire staff has a right to know about all these things, with current and accurate information. Here's the staff email that I sent out yesterday on this topic:
A few of you have written me or grabbed me in the hallways to ask about the effects of the current economic mess on our hospital. From stories we read in the newspapers and see on television, we now all recognize that this is the most serious economic downtown in many years. Our hospital is not immune to its effects. Here are the main impacts on BIDMC:
Just a few months ago, our Board of Directors approved a budget for the 2009 fiscal year that has a projected 2% operating margin (or about $18 million dollars). But it is already clear that it will be very difficult to meet that 2% target. And the problem with not meeting the target is that we have fewer dollars available for capital spending for the hospital. (This is because our operating margin is the main source of funds for investments in medical and research equipment, computers, building repairs and maintenance, and so on.) For those of you who keep track of these things, you will note that the FY '09 target this is below previous years, when we have earned between 3% and 4%. For example, our preliminary results for FY 08 are about $37 million. The main difference for the current year is our need to pay rent in our new research space at the Center for Life Sciences.
What will make achieving the 2% margin difficult? First, the state government has announced a cutback in Medicaid reimbursements to hospitals. This affects every hospital. We believe this will reduce our Medicaid payments by approximately $7 million.
Second, the income from our endowment will be lower because of the poor performance of the stock market. Also, the endowment itself has suffered a reduction in value, just like all stock and bond portfolios. Accounting rules require us to record a portion of that reduction as a loss on our income statement.
Third, we can expect that some companies who owe us money will start to pay their bills more slowly, and some people who have made charitable gift pledges to us will also be forced to slow down their payments, and some people who would have donated money to us will decide to hold off for a while until their own financial picture is clarified.
How can we deal with this? As you recognize, most of our spending is in the category of people and supplies associated with taking care of patients, and most of those patients continue to arrive regardless of the economy. So, for the sake of maintaining high quality patient care, we cannot cut back very much in those categories.
However, the new budget included a number of new positions in other categories and, of course, vacancies occur every week as people retire or leave their jobs for other reasons. Effective immediately, every new opening will be reviewed before it is posted to be filled. Eric Buehrens, our COO, and Steve Fischer, our CFO, will lead this process. We will distinguish between those needed for safe patient care, those needed to support volume growth, and those needed for other reasons.
We will closely examine requests for overtime work for existing staff as well. In some cases, those requests will decline if patient volumes decline. In other cases, those requests will increase if we choose to delay filling certain positions.
On supplies, we will bring the very successful multidisciplinary process that physicians and hospital managers have used in the OR Supply Committee to standardize supplies and streamline purchasing to other areas of the hospital – specifically to procedure areas across the hospital, where we use a lot of devices and supplies. The OR Supply Committee has shown us that we can save millions annually while improving safety and outcomes – we will do the same in procedural and other areas.
We will ask every manager in every department to exercise great care about discretionary expenses: travel, food, consulting, memberships, and the like. We don’t spend lavishly in these areas now, but we are asking everyone to ask themselves if these expenses are absolutely needed.
Finally, we will continue to run LEAN rapid improvement events and respond to BIDMC SPIRIT call-outs to look for ways to make enhancements in our processes. We have learned that these events and ideas not only improve the work environment, but also often result in financial savings.
We plan to watch the numbers very, very carefully. Steve Fischer will bring a monthly dashboard of revenue and cost variances to our Operations Council so that the Vice Presidents can solve problems early and aggressively when they appear. We will have the same discussion monthly with the Chiefs of Service. If we aren’t hitting targets for revenue and expenses, we will act quickly to correct the situation. In line with our policy of transparency in so many areas, we will keep you up to date, as well, so that all people working here will know how things are going.
You have probably read about layoffs in other hospitals in Massachusetts. A number of hospitals already find themselves in worse shape than us, and they have responded by reducing the number of staff. You have probably noticed that this is also true for many other types of businesses in the region. As of now, we do not think we will be forced to do that, and we will do our best to avoid that result. Many of us lived through the dark days of 2002, when I eliminated a number of jobs, and no one wants to repeat that experience.
So that’s the whole story. Please do your part to help us uncover opportunities for efficiency and savings – consistent with quality care for our patients and safety for our staff. Also, this is a good time to pay special attention to providing good service to patients and referring doctors. To the extent we maintain and improve service quality, we are more likely to see increases in the number of patients we see.
Thanks in advance for your cooperation and assistance as we all work through this difficult time together. As always, please feel free to contact me with ideas and suggestions.
Paul F. Levy
President and CEO