Since last September when reports about layoffs began streaming out from healthcare providers in earnest, more often than not they have included obligatory references to direct patient care not being affected by the downsizing.
Take it from the top
Hospitals, systems see increases in management-level layoffs
Its a stock phrase that has come to refer to the jobs held by managers, directors and vice presidents, whose high salaries and indirect returns on investment make them easy starting points when layoffs become necessary.
While the cuts may flood the job market with management resumes, experts say its an open question whether hospitals will experience any real gap in functions after clearing out corner offices.
I think we are beginning to realize that, somewhere, value has to be created. Without value, we cant be spending money and getting nothing for it, said Sudha Xirasagar, director of the Master of Health Administration program at the University of South Carolina. We may actually be seeing the excess in the system being taken out.
She predicted that functions like long-range strategic planning, market-share positioning and marketing would either be redistributed to other employees or
in some cases left off an organizations priority list as patient care remains a providers top concern.
Several observers said healthcare providers may have let the idea that their industry is recession proof prevent them from trimming management ranks over the years. But as factors such as high-deductible insurance plans and rising uncompensated-care levels are aligning the industry closer with the wider economy, many chief executive officers are not waiting for a severe emergency before deciding to act.
I think everybody goes to nonpatient care. Thats where you start. Nobody wants to lay off nurses, said Martin Arrick, sector leader for the not-for-profit healthcare group at Standard & Poors. That cant go on forever. You do need some sort of infrastructure around your patients.
The list of hospitals laying off chunks of their management ranks just keeps getting longer. Sparrow Hospital, a 560-bed facility in Lansing, Mich., laid off 23 managers on Jan. 8 along with dozens of union buyouts and at 163-bed McAlester (Okla.) Regional Health Center, six employees were laid off this month: one secretary, two nurses and three managers.
Systems are continuing to cut from the management ranks, too. Nine-hospital Alegent Health, Omaha, Neb., on Jan. 20 laid off a total of 47 managers and vice presidents whose salaries totaled more than $6 million. Alegent President and Chief Executive Officer Wayne Sensor named several reasons for why he decided to excise a stratum of managers and executives from his system. It was easier to make a dent in payroll without disrupting patient experiences, and the top-level cuts sent a well-received symbolic message that executives were looking at every option when they sharpened their pencils, he said.
Sensor also said the cuts were consistent with contemporary thinking about healthcare leadership, which is to make it flatter and leaner.
If others share my thinking, we may end up with less executive leadership in hospitals across the nation, Sensor said. My sense is that a lot of hospitals and health systems are wishing there will be a quick turnaround in the economy, and theyre waiting to act. Our belief is that this will be a longer recession.
Memorial Hermann Healthcare System, an eight-hospital network based in Houston, recently began a strategic restructuring in response to accelerating environmental pressures that will refocus the system around four geographic areas and five service lines. After the reshuffling, 16 senior managers were left without jobs.
That included the heads of Memorial Hermanns clinical service lines and several managers who worked between the individual hospitals and the corporate offices in outer Houston.
Executives at Memorial Hermann declined to comment on the changes, but provided a copy of the internal memo that went out to staff Jan. 15. These changes are strategically driven and focused exclusively on the administrative and overhead structures of our system. I want to emphasize that none of the changes we are announcing today will impact direct patient caregivers, Memorial Hermann President and CEO Daniel Wolterman wrote.
But are so many hospitals in such bad shape that they must institute layoffs immediately?
Memorial Hermann, for example, hired several direct patient-care workers at a job fair for former employees of the University of Texas Medical Branch at Galveston in early December 2008just weeks before the executive cuts were announced. A Dec. 1 Houston Chronicle article said the system has hired more than 100 former UTMB employees.
The healthcare sector saw strong profitability between 2005 and 2007, and the continued growth of healthcare employment in 2008 could have been a product of the industrys own inertiaan effect S&Ps Arrick does not expect to hold out.
Things were going well, and people were adding (employees) left and right. There was a lot of momentum, and thats tough to slow, Arrick said.
John Self, chairman and co-founder of executive search firm JohnMarch Partners, said many of the management and executive layoffs are being made under the cover of a recession that, in his observation, has not yet created the level of emergency in healthcare that would prompt large job cuts.
Theyre making these first-round cuts under the cover of the general sort of concern that were in a significant and serious recession, and this is a good time; it gives us cover for something that we probably need to do anyway, Self said. Theres still a lot of hospitals that have someone in the executive suite because theyre a friend of someone. You just cant afford that now.
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