Edward-Elmhurst Health eyes $50 million in cuts

Edward-Elmhurst Health is cutting $50 million this year as the west suburban health system faces financial woes that are squeezing rivals, too.

Bad debt is climbing because patients with high-deductible health plans either can't afford or won't pay their medical bills. The cost of pharmaceuticals is soaring. Meanwhile, reimbursements from Medicare and Medicaid, the government health insurance programs for the elderly, poor and disabled, don't fully cover the price tag of patient care.

"Let's face it. Nobody's happy with the rising cost of healthcare," said Mary Lou Mastro, the new Edward-Elmhurst CEO. "It's incumbent on us to be more efficient without compromising quality."

The cuts will include layoffs, though the number has yet to be determined.

Naperville-based Edward-Elmhurst, a nonprofit three-hospital system, is the latest Chicago-area hospital network to make major cuts. Downers Grove-based Advocate Health Care, the biggest health system in Illinois, echoed financial frustrations similar to Edward-Elmhurst in May when that health system announced $200 million in cuts.

The spending reduction at Edward-Elmhurst comes amid a big transition. Longtime CEO Pam Davis, who led the system since 1988, officially retired on June 30. Now Mastro, former president and CEO of Elmhurst Memorial Hospital (one of three hospitals in the network), is at the helm.

Also gone is chief financial officer Vince Pryor, who resigned effective June 28. It's not clear if his resignation is connected to Edward's financial performance, or to having a new CEO. Mastro said Pryor made the decision to leave the organization. He could not immediately be reached for comment.

Edward-Elmhurst isn't operating in the red, but the system's profit is shrinking. The network finished its 2016 fiscal year (in June 2016) with $1.2 billion in total revenue. That's 4 % more than the previous year, despite shouldering $35.3 million in so-called bad debt from unpaid medical bills, according to an audited financial statement. Edward-Elmhurst generated a $17.7 million profit too, nearly three times more than the previous year.

But as of March 31, three quarters into the network's fiscal year, profits totaled $1.2 million, according to an unaudited financial statement. Revenue totaled $1.0 billion, and the system was owed $27.6 million in unpaid bills.

Edward-Elmhurst also is saddled with $694.1 million in long-term debt after merging in 2013 with Elmhurst Memorial Hospital, which took on significant debt to build a new hospital in 2011.

Mastro said the system fell short this year of its goal for operating income, or profit, by a little more than $8 million. Now, Edward-Elmhurst is being proactive by chipping away at rising expenses. Consider this: pharmaceutical costs climbed 35% from 2013-15.

"We had one year where our performance was below expectations, but I have no reason to believe it would be better in coming years without us taking some significant action," Mastro said.

A $50 million cut represents about 4% of the system's total expense budget. Besides layoffs, Edward-Elmhurst doesn't plan to fill 300 vacant positions. The system has just under 9,000 employees. The network also is renegotiating contracts, and having executives shoulder more responsibility.

Mastro added that Edward-Elmhurst is not in conversations to join another hospital or system, a move that other hospitals have made to get access to money and resources.

Despite its financial woes, Edward-Elmhurst is wooing more patients than community hospitals within the powerhouse networks of Advocate and Northwestern Medicine, Fitch Ratings agency noted in an October 2016 report. Hospital admissions at Edward-Elmhurst swelled 10% and outpatient admissions nearly 18% between fiscal years 2014-16.

"Edward-Elmhurst Health eyes $50 million in cuts" originally appeared in Crain's Chicago Business.