Duke University Health System, Durham, N.C., said it would lay off 300 employees and eliminate an additional 100 positions through attrition to offset expected cuts in Medicaid reimbursements. The job cuts represent 4% of the three-hospital system's 10,000 employees. Duke said the layoffs, expected to save $15 million in the fiscal year beginning July 1, could come as soon as June and most likely would be at system headquarters and at its flagship, 750-bed Duke University Hospital, Durham.
The announcement of the job cuts came a week after the U.S. Justice Department said it had joined a whistleblower fraud lawsuit against Duke (April 29, p. 8). Duke is the 15th hospital named in the investigation of Medicare billings for cardiac procedures involving experimental devices. The flagship hospital also lost its CEO when Michael Israel quit last month to become chief operating officer of North Shore-Long Island Jewish Health System, Great Neck, N.Y. The Duke hospital has since added the CEO duties to the job of Chief Medical Officer William Fulkerson, M.D. (See News Makers, p. 35).
Duke is making money, but the system needs to improve its margins to reach its goal of $100 million in annual capital spending, said William Donelan, the system's executive vice president. For fiscal 2003, which begins July 1, the system is targeting operating income of $40 million to $45 million, he said. Duke expects to earn $15 million on operations in the fiscal year ended June 30; in fiscal 2001, the system earned $5 million on operations and $46.9 million overall on $1 billion in net patient revenue, he said.
The other two hospitals in the system already have tightened their labor forces. Over the past 18 months, about 350 positions have been eliminated at 206-bed Durham (N.C.) Regional Hospital, bringing its staff down to about 1,550, Donelan said. At 205-bed Raleigh Community Hospital, there haven't been job cuts, but patient volumes have increased significantly in the past few years without any increase in workers, he said. Duke purchased both hospitals in 1998.
"Duke Hospital is where the scale in the system is," Donelan said. "It's kind of hard to solve the problem without looking at the largest hospital." Other measures, expected to save $16 million, include a reduction in procurement costs for office supplies and cuts in travel and temporary labor costs.
Duke expects its Medicaid reimbursements to be cut by $25 million in fiscal 2003 because of the budget crunch in North Carolina, Donelan said. Moreover, the system is already struggling with a cumulative $200 million cut in Medicare reimbursements it has weathered since the Balanced Budget Act of 1997. There's also the pending 15% cut in Medicare payments for indirect medical education expenses that would cost the system $6 million in fiscal 2003, he added.
Duke's concern with the pending cut highlights a report released last week by teaching hospital advocates. The hospitals that train new physicians would lose $800 million in the first 12 months when the cut goes into effect Oct. 1, according to a study commissioned by the Association of American Medical Colleges and the Greater New York Hospital Association. Over five years, the cuts would total $4.2 billion, the study said.
-With Julie Piotrowski