Baylor Scott & White Health is downsizing its back-office functions by about 1,700 jobs, even as pandemic-related federal aid has elevated the health system's finances well beyond its peers.
The Dallas-based not-for-profit health system said it will outsource and retrain those positions as part of its ongoing efforts to make its operations more efficient. That's on top of two rounds of layoffs in 2020. The health system posted a 13.6% operating margin and 18.3% cash flow margin as of Sept. 30, 2020, placing it leagues above most of its peers.
The health system declined an interview, but explained in a statement that it identified five back-office functions that can be done cheaper by third parties: revenue cycle, health information management, information systems, finance and analytics. About two-thirds of the 1,700 affected employees will transition to doing similar work for the outsourcing companies. Baylor Scott & White would not identify which companies it is outsourcing jobs to.
The remaining one-third will either be retrained to fill "much-needed patient-facing roles" within the health system or receive support finding comparable jobs either outside or within the health system. That includes career coaching and resume workshops.
"Our goal is that every employee involved with this transition will be offered a comparable employment option, inside or outside the health system, and no one will miss a paycheck because of this transition," the statement said.
Last month, Baylor Scott & White announced it was laying off 100 accounting and finance employees amid the COVID-19 pandemic. The system said it would offshore some of the jobs to India. In May 2020, the health system announced a much larger round of layoffs affecting 1,200 employees in response to financial losses from care deferred during the pandemic.
Offshoring jobs is still much more common in the health insurance, pharmaceutical and device sectors, but a Modern Healthcare analysis found healthcare providers are increasingly warming up to the practice as the pressure to cut costs intensifies. IT services, billing and insurance processing are the most commonly outsourced jobs.
Early on in the pandemic, Baylor Scott & White's leaders recognized they had to deal with the health system's cost structure and "right-size" to a new revenue and volume environment, Pete McCanna, Baylor Scott & White's president, told a virtual audience at this year's J.P. Morgan Healthcare Conference on Jan. 12.
"We've taken aggressive steps to lighten our cost structure and make some very permanent adjustments to that cost structure," he said.
The changes have shown results. Carrol Aulbaugh, the system's interim chief financial officer, explained during the same presentation that salaries and wages as a percent of operating revenue had declined 4% year-over-year to about 43% in the quarter ended Sept. 30, 2020.
"A very, very significant improvement," he said. "That's done through a lot of hard work."
Jim Hinton, Baylor Scott & White's CEO, told Modern Healthcare in October that the health system's layoffs during the pandemic represent a fraction of its 42,000 employees. He said it was done in an effort to "make sure that we're not carrying people that we don't absolutely have to carry because we can't afford it."
Baylor Scott & White generated $388 million in operating income on $2.8 billion in operating revenue in the quarter ended Sept. 30, 2020, a 13.6% operating margin. That's compared with a 7.4% margin in the prior-year period, or $198 million in operating income on $2.7 billion in revenue. The system said it recognized $53 million in federal relief grants in the 2020 quarter.
The pandemic has underscored the divide between large, wealthy health systems and smaller, financially vulnerable ones. Through October 2020, Kaufman Hall estimated hospitals' median operating margins were 2.4% with federal coronavirus grants.