More job cuts likely at Wake Forest Baptist Medical Center

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WINSTON-SALEM, N.C. — Another round of major expense reductions — including job cuts — are coming at Wake Forest Baptist Medical Center, with management’s plans being announced potentially as early as this week, according to sources.

Multiple employees, who are not being identified because they fear losing their jobs, have told the Journal they understand that several hundred to more than 1,000 job positions could be eliminated, with the process already started in some departments.

People with knowledge of the situation say Wake Forest Baptist’s board of directors could be projecting up to an 8 percent reduction in operating expenses in fiscal 2014-15, which begins July 1. The sources say the board is contemplating a similar step in expense reduction for fiscal 2015-16.

The center reported to bond holders and rating agencies on Feb. 28 that it had $983.9 million in operating expenses through the first half of fiscal 2013-14. If it were to have $2 billion in operating expenses for the full fiscal year, an 8 percent reduction could represent about $160 million.

Operating revenue for the first half was up 4.5 percent to $960.4 million.

The center has about 13,000 full- and part-time employees, making it Forsyth County’s largest workforce. At least 950 job positions have been eliminated since a “re-engineering” initiative began in April 2012 that was projected to reduce expenses by several hundred million dollars.

When asked about another round of cost cutting, the center issued a statement Friday that said “the medical center is deeply engaged in its annual budgeting process and is continuing to proactively address the challenge of declining reimbursement for health care services. Since we are still in the planning cycle, it would be premature to comment further at this time.”

One source said the board and Dr. John McConnell, the center’s chief executive, are “rethinking the size of the expense base,” and that the cuts “are not a one-time measure, although the hope is that through the reductions, the expense situation will improve. There is a need to expand the overall clinical platform to raise revenue.”

Another source with knowledge of the situation said that “fundamentally, the amount of money that would be cut is probably over and above what they have previously announced, based on new analyses that they have in regard to shortfall and expected revenue.”

“There is something new in this in terms of magnitude, although they may not say that.”

The center issued last week a statement that employees say closely resembles what they have been told.

“The majority of these reductions in fiscal year 2015 will come from clinical operations, but expenses will be reduced in all medical center divisions,” according to the statement. “Reducing expenses requires continued scrutiny with regard to filling replacement positions and possible reduction in force that began in 2012.

“The enhancements are similar to those of other academic medical centers and health systems in response to changes in federal health reimbursement formulas, higher mandated requirements for quality and infrastructure, new models of care delivery that are focused on value, and declines in federal funding for research and discovery.”

A person knowledgeable about the situation said clinical and academic department heads “have been given dollar figures with which to determine how much to cut. It’s more about budget dollars than job positions.”

For most corporations and large not-for-profit groups, employee costs are often their largest expense, and therefore the most likely option for cost reduction.

Wake Forest Baptist has said in the past that two-thirds of its operating costs are labor. The center reported that salaries and wages rose by 3.9 percent to $461.6 million in the first half of fiscal 2013-14.

The cost-cutting efforts are being prompted in part by Wake Forest Baptist’s losses from its core operating sources of revenue. The center reported it had a loss of $23.5 million for the first half of fiscal year 2013-14 compared with a loss of $49.8 million for the same period in fiscal 2012-13.

Overall, the center had a loss of $4.06 million for the first half of fiscal 2013-14 because it had a net gain of $18.5 million in investment income. Not-for-profit hospitals depend on investment income to increase their bottom line and to help pay for capital investments.

Previous layoffs in 2012-13

In November 2012, the center announced it was eliminating 950 full-time or full-time equivalent positions, of which half were filled by employees. It said that about one-third of the reduction was to come from corporate services and administration.

At that time, the center said it would eliminate the job positions by June 30, 2013.

In May 2013, the center announced another wave of cost-cutting measures, also aimed at reducing expenses through the end of fiscal 2012-13. That included volunteer employee furloughs and hour-and-wage reductions, a hiring freeze, a reduction in employer retirement contributions, and elimination of executive incentive bonuses for 2013.

Although those measures also were supposed to be short-term in nature, the center has not said publicly if it has rescinded the steps. The center’s latest comment is that “these on-going efforts will continue until our goals are achieved.”

In both instances, McConnell said the cost-cutting measures were necessary to preserve the financial stability of the center.

“This is a time of dramatic change in health care, but it is also a time of great opportunity,” McConnell said in May 2013. “The choices and responses that we make now will help to determine our future strength and success.

“While all employees will be asked to make some sacrifices that will help us bridge to the future, executives will have high reductions in their compensation and bear the greatest impact.”

Even though management told bondholders Feb. 28 that the center is making progress correcting the revenue issues, it acknowledged it “will not meet projected financial targets for the current fiscal year.”

Other industrywide challenges include more people without health insurance seeking medical help in its emergency department, which tends to increase the amount that hospitals are writing off as bad debt.

Edward Chadwick, who is leaving as Wake Forest Baptist’s chief financial officer on June 30, said March 3 that the center “continues to feel the negative financial pressures experienced throughout the health care industry in response to reform readiness requirements, coupled with localized decreased demand for inpatient hospitalization.”

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