The physician owners of Chicago's Michael Reese Hospital and Medical Center are taking harsh steps to get their financial house in order, including laying off employed physicians and staff.
The physicians, along with co-owner Scottsdale, Ariz.-based Doctors Community Healthcare Corp., announced last month that they will lay off about 25% of the hospital's 1,600-person work force, eliminate the 25 employed physician positions, and drastically scale back teaching programs and faculty. Michael Reese's 60 physician faculty members will work part time or receive much-reduced stipends.
The cutbacks are an attempt to recoup some of the $50 million the hospital lost in 1998, says Chief Executive Officer Ken Bauer. He estimates the staff reductions will result in annual savings of about $15 million, and the changes to the teaching programs will save about $6 million a year.
In addition, renegotiated insurance contracts will help cut some losses. More than half last year's losses -- or $27 million -- were related to a low-paying contract with Louisville, Ky.-based Humana. The insurer accounted for 30% of Michael Reese's business. Hospital Chairman Enrique Beckmann, M.D., says Humana paid substantially below market value, and the hospital could no longer afford to do business with the insurer. Michael Reese terminated its contract with Humana last month, effective June 1.
"We had a relationship with them on a per diem basis. The per diem for a medical-surgical bed that they paid the hospital was $775. Fair market value is about $1,000," Beckmann says.
"My prognosis is that we've finally taken the steps necessary to make the hospital financially viable. By the end of June we will have a financial cash flow that breaks even," he says.
Physicians in 1998 purchased Michael Reese from Columbia/HCA Healthcare Corp., a Nashville, Tenn.-based hospital chain.
Dennis Levinson, M.D., incoming chief of medicine at Michael Reese, says physicians are understandably angry about the layoffs, but he hopes they will come to support the decision.
"While the overarching strategy is to get the hospital finances in order and bring the operating budget to a neutral position and begin to make some money, it is not our intent to destroy the quality and tradition that is Michael Reese," he says. "Clearly when you go through a process like that, you can't help losing some of what these institutions are; but it's not our intent to give away the keys to the castle."
Teaching programs, however, will be eliminated or drastically reduced. Michael Reese currently supports 235 residents, interns and fellows, and "that is too much for the patient volume that we have," Beckmann says. "We needed to downsize our residency programs and right-size them to the educational experience that we could provide for them here
. . . . With the reduction in the size of the residencies, it's no longer necessary for us to employ full-time faculty. So we're moving to a model where we rely on part-time teaching faculty supplemented with voluntary medical staff teaching."
Levinson says the restructuring is not so different from what's going on at other teaching hospitals across the country. "There are many institutions around, including medical schools, that don't pay the salaries of physicians anymore. They're paid through foundations or through group practices," he says.
"What our physicians choose to do is yet to be determined. Most are opting to go into group practice."
Phillip Factor, D.O., a pulmonologist and critical-care physician, is one of the previously employed doctors who was forced to enter a hospital-based private practice with several Michael Reese colleagues after the layoffs were announced.
"Financially, it's probable that my income will rise," Factor says. "However, the time commitment to clinical medicine has risen substantially, and that is now competing with time I would otherwise spend in the lab or teaching."