Scripps Health announced it will restructure its management and eliminate roughly 100 jobs in a bid to slash operating expenses.
The San Diego-based system, which has invested heavily in capital projects and saw its operating margin decline last year, will largely cut jobs from management and administration, said Scripps President and CEO Chris Van Gorder, in a memo to employees.
“The fact is that we're too expensive for many to come to us and we are not paid enough by Medicare and MediCal to cover our costs,” Van Gorder said. “This results in eroding revenues while our expenses such as pharmaceuticals, supplies and labor continue to rise.”
Scripps has enjoyed healthy operating margins and strong credit ratings in recent years. Van Gorder stressed the system's financial strength in the memo to Scripps' employees, but said operating costs have climbed and revenue remained flat “as a result of national changes from health care reform.”
Scripps' patient revenue was largely unchanged in fiscal 2015 compared with the prior year, though the system benefited from supplemental state Medicaid payments that helped to boost total operating revenue by 11.4%. Nonetheless, wages and supply costs climbed faster, and the 12.6% growth in operating expenses outpaced revenue for the year ended Sept. 30. The system ended the fiscal year with an operating margin of 5% compared with 6% the prior year.
It's too early to say how many employees will be laid off, said Scripps spokeswoman Janice Collins.
Workers will be referred to Scripps' job placement service, which has found new jobs within the system for 90% of workers whose jobs were eliminated in the last decade, she said. “Scripps has a no layoff philosophy,” she said, but the system cannot make guarantees.
Management changes will start in human resources and marketing communications, Van Gorder told employees.
"You will see a lot of movement and change in this area as some take on new and expanded roles and we work to align similar departments," he said of the management makeover. "The result will bring a new perspective to the work we do and make us more cost effective."
Financial performance for the first quarter, which ended Dec. 31, was weaker than expected, said Collins.
The job cuts are an effort to reduce operating expenses as the system cares for a growing number of patients with Medicare and more commercially insured patients are covered under health plans with narrow networks or full-risk managed care. Both trends have eroded Scripps reimbursement, she said.
Other cost-cutting efforts include encouraging physicians to reduce supply costs and a switch to owning buildings, rather than leasing them, Van Gorder said.
The system is nearing the end of a multi-year capital spending plan, which has added a new patient tower, critical care center and an electronic medical record system since 2012, according to Moody's Investors Service.