Advocate Health Care plans $200 million in cuts
Advocate Health Care, the largest hospital network in Illinois, plans to cut $200 million in expenses as financial pressures mount.
Jim Skogsbergh, CEO of the Downers Grove-based health system, insists the big spending reduction isn't related to Advocate's lengthy battle trying to merge with Evanston-based NorthShore University HealthSystem. The systems lost their court fight against the Federal Trade Commission in March, then called off their proposed marriage. Advocate spent $15 million in legal fees and other expenses related to the merger, the system said.
"If we came together, we probably would have had a better opportunity to weather the storm, but the storm was coming," Skogsbergh said, referring to Advocate being squeezed financially.
Instead, the $200 million in cuts are fueled by many of the concerns his chief operating officer described in April when confirming a systemwide hiring freeze. Debt from patients who can't afford to pay their medical bills is soaring. Reimbursement rates from Medicaid and Medicare don't cover how much it costs to treat patients, while payments from private insurers aren't making up the difference, Skogsbergh said.
Meanwhile, Advocate is like every other vendor in Illinois—waiting to get paid in a state that hasn't had a budget in two years.
"We think these financial pressures are here to stay," Skogsbergh said. "It's irresponsible not to take some action."
The cuts will likely affect everything from jobs to programs and services for patients. Skogsbergh announced the news to Advocate's roughly 35,000 employees in a memo today. The 12-hospital system stretches from far north suburban Libertyville to downstate Normal.
"Our first-quarter financial performance has brought into sharp focus what we know to be true," the memo said. "Our existing cost structure is not sustainable."
"We believe the transformation required to solve this problem will take months, if not years," the memo said. "Failing to take steps now will turn a financial challenge into a financial crisis — something none of us wants."
Advocate is a nearly $6 billion system. In the first three months of 2017, it generated $1.56 billion in revenue—$70 million less than budgeted, though still far more than the $1.37 billion brought in during the same period in 2016.
Still, the system wants to grow. Skogsbergh said in his interview that the first-quarter results were a "wake-up call."
"It caused us to say, let's just examine this," he said.
He doesn't think public or private insurers are going to increase their reimbursement rates, or that patients saddled with high-deductible health plans will suddenly be able to afford them.
Advocate is creating a plan within the next 30 days for how to implement the cuts. It likely will involve not only leaving vacant positions unfilled, but also early retirements and layoffs. As at many hospitals, employees are a major expense for Advocate. About 56% of the system's expenses in 2016 were for salaries, wages and benefits, according to a financial statement.
It's not clear what programs or services would be affected yet either.
Advocate still plans to hire doctors and nurses and invest in areas like technology. For example, it's expanding an initiative that allows patients to schedule appointments on their cellphones.
The network might even still merge with a rival.
"We continue to be in conversations" with other hospitals and health systems, Skogsbergh said.
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