University Hospitals is cutting 443 administrative jobs–326 of which were open positions.
The Cleveland-based not-for-profit health system said the labor changes, plus other unspecified non-labor reductions, will decrease expenses by more than $100 million annually. The 117 employees losing their jobs will receive severance packages. None of the 443 positions are involved in direct patient care.
The health system did not say what kind of administrative positions were affected or when those roles would be eliminated, but employees were given at least a 30-day notice.
The job cuts come during a tough year for the system–and the whole industry. University Hospitals reported a net operating loss of $184.6 million in the first eight months of 2022. One factor behind its losses is a growing percentage of patients in northeast Ohio on Medicare and Medicaid. Reimbursements from those programs have not kept pace with rising care costs. And many health systems have reported steep financial losses this year that are driven by high labor expenses and elevated prices on supplies.
“While by many measures UH is financially strong, it is imperative that we take actions now to reverse this downward trend and preserve our ability to make future investments in our mission,” a spokesperson said in a statement. “This involves reimagining how we deliver care at a lower cost while also working to ensure UH delivers high-quality care with compassion and remains a great place to work. In the near term, we have a responsibility to reduce expenses by curtailing certain administrative costs and services in order to safeguard our investments in direct patient care.”
University Hospitals’ decision is part of a trend industrywide, as health systems already short-staffed on the clinical side look to overhead expenses for cost savings, said Jeff Goldsmith, president of healthcare consultancy Health Futures.
Health systems are testing where they can cut middle layers of a workforce and still perform well. Some institutions have as many as seven layers between the patients and the CEO, Goldsmith said. Higher corporate overhead costs are not uncommon at systems that have grown via mergers, as University Hospitals has.
“Is there more pain in other forms of expense reduction than in expanding the span of control of some of those folks and eliminating some of the layers? … I think that’s what’s going on now,” Goldsmith said. “I think you’re unfortunately at the beginning rather than the middle or end of this cycle.”
One danger in cutting the middle layers of a workforce is eliminating the organization’s next potential leaders, which could create future problems, he said.
In July, Washington-based not-for-profit Providence Health announced it was cutting its leadership team, condensing seven regional divisions into three. In addition, Providence is looking at non-labor options to reduce costs, such as reviewing real estate holdings, reducing discretionary spending and diversifying revenue streams to cut more costs.
Credit rating agency Fitch Ratings recently downgraded the not-for-profit hospital sector to “deteriorating,” with inflation, high expenses and investment losses dragging on bottom lines industrywide.