Pressured by the largest employer in town to rein in healthcare costs, Wesley Medical Center in Wichita, Kan., eliminated 204 of its 3,300 positions in January.
The Columbia/HCA Healthcare Corp. hospital made the reductions even though it has not seen patient days go down or length of stay decline.
Wesley Chief Executive Officer Jim Kelly said he acted purely to cut costs.
"It's my responsibility to meet the market needs," Kelly said. "In discussions with representatives of the Boeing Co., they demonstrated that healthcare costs in Wichita are 25% higher than they are in Seattle, where Boeing is headquartered.
"I had a concern about not only saving healthcare jobs, but also manufacturing jobs. So we made the strategic decision to reduce our work force to have a more competitive labor cost structure," Kelly said.
Wesley's work-force slimdown shows what can happen to providers in markets where a single dominant employer decides to get tough about its health benefits expenditures. At the end of the line, once all the dominoes have tipped, it is quite often hospital employees who take the fall.
Boeing's military aircraft operation is the largest employer in Wichita and, indeed, in all Kansas. About 15,000 of the company's 105,000 employees work there, composing 6% of the civilian labor force in a three-county area.
Like most firms, Boeing wants to curtail its expenses. Top management has decreed that costs must decrease 25% by 1998, companywide.
"We're not immune from that in the benefits arena," said Jacque Ives, a Boeing employee benefits manager. In 1995, Boeing spent $441 million on health benefit costs, or $4,200 per employee, dependents included.
The company's effort to cut benefit costs was one factor leading to a 69-day machinists strike last year. Boeing wanted the union workers to pay a modest premium to receive benefits through its own Boeing Medical Plan, a loosely managed PPO. The machinists balked. Eventually, the company switched tacks, from stick to carrot.
Under the new contract, employees get cash incentives to opt out of the plush Boeing Medical Plan into a more tightly managed one. Once the new system goes into effect, on July 1, they can earn $600 the first year, $400 the second year and $200 the third year for signing up with one of the new health plans.
Perhaps an indication of the public suspicion that has enveloped the managed-care industry, Boeing doesn't like to call its alternative plans HMOs, Ives said. "The lingo is now `the new plans,'*" she said. They are run by HMOs but have a point-of-service option and have been tailored to cover the same services as the Boeing Medical Plan.
In Wichita, Boeing now will offer its own plan, plus a point-of-service product offered through Blue Cross and Blue Shield of Kansas, as well as a second point-of-service affiliated with Via Christi Health System. The Blues plan sends patients to Wesley.
"Our costs are clearly higher in Wichita than they are in other parts of the country," Ives said. "We would almost expect the exact opposite, given the cost of living is so much lower."
Boeing posed the question: Why was Wichita so much more expensive? It didn't get any answers. Ives thinks it's because the market in Wichita is less competitive and has a lower managed-care penetration than Seattle.
Last year, the market got even less competitive when two of its three major hospitals merged. St. Francis Regional Medical Center and St. Joseph Medical Center formed Via Christi Health System, which has 8,200 employees and facilities across Kansas.
Brad Minear, Via Christi's vice president for managed care, said system executives are listening closely to all payers, including the government. But, he said, "I'm not sure we're doing anything specifically due to Boeing." The recent merger should allow significant streamlining of operations. Some employees were laid off preceding the merger; Via Christi anticipates no more job reductions.
"It's hard for us to determine how many employees will make the transition from the PPO to the HMO plan at this point," he said. "Boeing is providing an incentive. But the impact is difficult to estimate."
Minear said he expects to see lower utilization in certain services. But he said he doesn't think that hospital utilization will go down dramatically if a lot of employees switch into the HMO. "I don't know that it reduces the amount of care as much as it attempts to assure that the care that is delivered is done in the most cost-effective manner," he said.