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UCSF Stanford Announces $170 Million Reduction Plan to Balance its Budget
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UCSF Stanford Health Care officials recently announced a performance improvement plan to cut organizational costs by 11 percent over the next 17 months. The cuts are necessary to offset shortfalls in government reimbursements for the care of Medi-Cal and Medicare recipients and to offset skyrocketing increases in the costs of drugs and other medical supplies, officials said at a March 29 management meeting held at Stanford. Payments from private insurers and health maintenance organizations (HMOs) are not keeping pace with rising costs, and this shortfall is also contributing to UCSF Stanford's financial problems that resulted in a first quarter operating loss of $10.7 million. If uncorrected, the loss would grow substantially by the year 2000, according to UCSF Stanford officials. UCSF Stanford's performance improvement plan calls for reducing expenses by $170 million within an annual operating budget of $1.5 billion. About two-thirds of the savings, or $112 million, will come from a phased reduction in the workforce over the next year; another 22 percent, or $38 million, through reductions in drug and supply costs; and the remaining 12 percent, or $20 million, through a variety of other measures to increase revenue and reduce expenses. Up to 800 layoffs may be necessary as part of the initial reduction of 1,275 full-time equivalent positions over the next several months. Non-essential open positions, attrition and the elimination of temporary jobs will be looked to first to meet the job reduction target. Due to vacancies and turnover, nurses are not expected to be laid off in the initial reductions, provided they are willing to accept other assignments and/or shifts if necessary. Another 725 positions will be identified for elimination later this year, but it is not yet known how many layoffs will be required. After all cuts are made, officials estimated that the number of employees in central administrative services will be reduced by about 40 percent, hospital support staff by about 28 percent, direct patient care by about 9 percent and diagnostic services such as x-ray and lab services by about 8 percent. "These are extraordinarily painful decisions for all of us," said UCSF Stanford chief executive officer Peter Van Etten. "But we have no other choice. We must find ways to continue to deliver high-quality care to meet the needs of our patients with fewer resources." The layoffs will affect approximately 65 employees in adult services at Stanford, Malinda Mitchell, chief operating officer at Stanford, announced at the management meeting. In addition, she said some of the 628 reductionsin administration and support, which include areas such as housekeeping, maintenance, and security, will affect employees at the Stanford campus. "These are challenging times, but we have excellent managers and staff who are working to find ways to ensure efficiency and to use technology to deliver high-quality care to our patients in a period when there are a lot of financial pressures," Mitchell said after the meeting. Employees who are laid off will receive 30-days notice and severance pay based on years of service with UCSF Stanford or each campus, unless otherwise specified as part of a union contract. UCSF Stanford will also provide affected employees with career counseling and a two-day career transition workshop. Van Etten said the cuts were determined based on departmental workloads and staffing compared to other academic medical centers. UCSF Stanford currently has 7.9 employees per "adjusted occupied bed," a widely used benchmark in the hospital industry that takes into consideration both inpatient and outpatient activity. The goal is to reduce that ratio to 6.5-to-1. Nationally, the most cost-effective academic medical centers average between 5.5 and 6.5. Physicians, working with nursing managers and administrators, will monitor the proposed cuts to ensure that patient service and quality of care are not compromised by the reductions. UCSF Stanford is the state's fifth-largest Medi-Cal provider and received $80 million less than what it cost to provide care to Medi-Cal patients last year. The Medi-Cal deficit is expected to increase by $11 million next year. Academic medical centers like UCSF Stanford have been hit hard by reductions in Medicare payments due to the 1997 Federal Balanced Budget Act. Annual reductions in Medicare payments to UCSF Stanford will total $10 million in 1999 and $23 million in the year 2000. By 2003, the cuts will amount to $46 million annually. UCSF Stanford's financial problems are not unique. Partners HealthCare System in Boston created by the merger of Massachusetts General and Brigham and Women's hospitals estimated that the reductions in Medicare payments to the two hospitals will total $340 million between 1998 and 2002. Even without the impact of the Balanced Budget Act, many university hospitals are losing money, according to the University HealthSystem Consortium, a national alliance of the clinical enterprises of academic health centers. While the latest budget plan will return UCSF Stanford to a break-even point for fiscal year 2000, Van Etten cautioned that "unless there are some fundamental changes in the way health care is funded in this country, academic medical centers like UCSF Stanford will continue to be vulnerable." |
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