Carilion Health System in Roanoke, Va., unveiled a management shakeup last week that will eliminate more than 100 top-level jobs, including 10 executive positions.
The shakeup is part of a larger restructuring program designed to trim $75 million to $130 million from the system's nearly $600 million annual budget over the next five to seven years.
The program comes more than five years after Carilion's controversial merger with Community Hospital of Roanoke Valley, which gave the system control of about 75% of the Roanoke market.
Carilion was the parent corporation of Roanoke Memorial Hospital.
The deal was the first not-for-profit hospital merger challenged by the Justice Department on antitrust grounds.
During the legal battle, which eventually was won by Carilion, the merging hospitals said a consolidation could generate more than $40 million in operating efficiencies over the first five years of the consolidation.
Instead, the hospitals embarked on an ambitious capital expenditure project worth nearly $60 million (Feb. 10, 1992, p. 58).
The hospitals defended their actions, saying capital expenses would have been much higher if the hospitals hadn't been allowed to merge.
The restructuring program is unrelated to the merger, said Lucas Snipes, a Carilion senior vice president.
"What's going on now is more in response to changes in the marketplace," Snipes said. "We started the merger eight years ago. Managed care was then a concept confined to the West Coast. The real driver is the general changes in the financial picture."
Under the latest shakeup, Carilion intends to reduce the number of senior and assistant vice president positions at the system to 40 from 50 by Jan. 1, 1996.
In addition, the system plans to trim 125 middle-management positions from its roster over the next two years.
The cuts will form the second wave of staff reductions that began at the system in July 1994, when 113 full-time-equivalent positions were eliminated from the system's 2,600-FTE work force.
During 1994 the company spent $291.3 million on salaries and benefits.
"We are slowly and appropriately shrinking the number of employees as the number of admissions has shrunk," Snipes said. "This is the beginning of a full-scale operational realignment," moving from a system based on traditional hospital management to one driven by specialists in certain patient services, he said.
The restructuring could help Carilion take more advantage of its strong regional network, according to consultants. The system comprises 13 hospitals, all within 40 to 45 miles of Roanoke.
Carilion owns, leases or sponsors eight of the hospitals and manages five under contract.
The hospitals it manages will not be affected by the organizational changes. One of the owned hospitals, Radford (Va.) Community Hospital, will not be immediately affected.
The 54-year-old Radford is competing with two hospitals owned by Columbia/HCA Healthcare Corp. for state approval to build a replacement hospital in the Radford market (July 24, p. 48).
In the fiscal year ended Sept. 30, 1994, Carilion earned about $21.6 million on total revenues of about $556.7 million, according to the company's 1994 annual report.
A number of factors contributed to Carilion's decision to overhaul its operations, Snipes said.
Like other healthcare providers, the system is facing reductions in Medicare and Medicaid payments, falling inpatient admissions, a growing emphasis on outpatient services and the threat of competition from managed-care providers, he said.