Employees at Tennessee's largest public hospital recommended $44.1 million in cuts from the hospital's budget that will result in 476 of their fellow workers getting pink slips.
Employees and physicians at 534-bed Erlanger Medical Center in Chattanooga completed a three-month review that uncovered ways to cut 22%, or $44.1 million, of the facility's expenses. Of the cuts, $26 million are to come from salaries and raises, while the remainder will result from reductions and consolidation of supplies.
"We're sorry to see the cuts, but I'm very happy with what these work teams came up with," said Sylvester "Skip" Reeder, chief executive officer of Erlanger Health System, parent of the medical center. "There were 550 rank-and-file employees that served on these work teams with 120 physicians. What they came up with was unbelievable."
About 1,100 employees will be affected by the changes. "Through re-engineering, 624 new jobs will be created," Reeder said.
Employees affected by the work team recommendations will have to reapply for the 624 new jobs, leaving 476 out of work.
The 22% cut in expenses was still short of the 30%, or $50 million, goal the public hospital has in mind before it begins talking about mergers or acquisitions again. Additional cuts will come through the hospital's 8% annual attrition rate.
When the work team process began three months ago, Reeder got things started by cutting $3 million from his administrative budget by eliminating "between 45 and 50" of the hospital's department heads, he said.
A second phase of reducing costs will involve physicians, Reeder said. "There are $30 million to $40 million in reduction of utilization," Reeder said. "We will also be entertaining the idea of hospitalists."
A hospitalist is a physician who is responsible for managing the care of hospitalized patients. Such doctors care for patients in the hospital and nowhere else (Feb. 3, p. 54).
"We think that every diagnosis we have will have a critical pathway and hospitalists would be charged with driving critical pathways," Reeder said.
The cost-reduction plan is an effort to prepare the hospital for managed care. Between 15% and 20% of hospital revenues in the Chattanooga market come from managed-care plans. Erlanger executives project managed-care penetration will triple in the next five years.
The hospital has said more recent managed-care contracts have reduced payments to Erlanger by $15 million annually. Those numbers don't include TennCare, the state's Medicaid managed-care program, which is paying hospitals 56% of their costs.
Erlanger has been profitable, according to the most recent financial data available from HCIA, a Baltimore-based healthcare information company. Erlanger posted net income of $6.9 million on $253.9 million in 1995 revenues, HCIA said.
Before attempting to reduce Erlanger's work force, the hospital unsuccessfully attempted to merge or acquire other hospitals. Last year, the Bradley County (Tenn.) Commission rejected a $90 million purchase offer from Erlanger to buy county-owned 196-bed Bradley Memorial Hospital in Cleveland, Tenn. In January, 296-bed Memorial Hospital, also in Chattanooga, turned down Erlanger's $154 million buyout offer.