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April 03, 2020 02:02 PM

Why healthcare providers are sidelining employees amid coronavirus pandemic

Shelby Livingston
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    Modern Healthcare Illustration / Getty Images

    An industry that for the past couple of years has been one of the nation's dominant job creators now finds itself at the other end of the spectrum.

    Hospitals and other healthcare providers across the country say the worsening coronavirus pandemic, which has so far killed about 6,700 Americans, is threatening to drain them of cash. Heeding state orders, they are cutting back on lucrative and reliable, non-urgent procedures, like knee replacements and cataract surgery, to free up resources for COVID-19 patients. Other patients are canceling doctor's appointments out of fear and state shelter-in-place orders, leaving some clinicians with no work.

    "I don't think anyone can point to a circumstance where this level of systemic volume and revenue challenge has faced virtually every provider in the country," said David McMillan, chief financial officer and a managing principal at consultancy PYA.

    To stay afloat, an increasing number of hospitals and physician practices are sending staff home without pay, whittling down workers' hours, or slashing compensation and benefits, particularly in parts of the country that have not yet seen an overwhelming number of coronavirus-stricken patients.

    Boston Medical Center last week furloughed 700 employees. Erlanger Health in Chattanooga, Tenn., froze retirement contributions and temporarily laid off administrative workers. Atrius Health, a physician's practice in Massachusetts, is furloughing 1,100 nonclinical employees for a month and temporarily witholding a portion of pay for nearly 3,000 workers.

    "It's not a decision we wanted to make nor do we take it lightly, but we have to take immediate action to ensure that we can sustain our clinical operations during and after the COVID-19 crisis ends," Donald Lloyd, CEO of St. Claire HealthCare, explained in the Kentucky hospital system's announcement that it would furlough 300 workers not directly involved in care delivery or the COVID-19 response. The system experienced a 40% drop in gross revenue in March and expects at least a 65% drop in April, a spokeswoman said.

    Job losses in the healthcare industry totaled 42,500 in March, according to the latest data from the U.S. Bureau of Labor Statistics. Ambulatory providers, including physician practices and dentists, comprised 96% of the losses.

    Providers' cost-cutting moves are at odds with the circumstances of hospitals in hard-hit areas like New York or Michigan, where governors have called for out-of-state doctors and nurses to help fill staffing shortages. Meanwhile, providers outside of these so-called coronavirus "hot spots" are sitting idle and bracing for the moment the pandemic picks up in their communities.

    "The economics of hospitals are upside down because a lot of stuff they used to do that was profitable, they are no longer doing," said Dan Mendelson, founder of healthcare consultancy Avalere Health. "It's now become an existential issue for a lot of not-for-profit hospitals that are struggling to balance costs and expenses."

    Some clinicians furloughed for COVID-19 exposure

    Some hospitals are furloughing employees not due to financial reasons, but because they have been exposed to COVID-19. That problem is being exacerbated by the lack of personal protective gear, including masks.

    Dennise Colson, a surgical and emergency department nurse at Baystate Noble Hospital in Westfield, Mass., was furloughed for two weeks at the end of March after she treated an elderly ED patient without any coronavirus symptoms who later tested positive for COVID-19. She treated the patient without a mask in the part of the ED reserved for non-coronavirus patients. A doctor later said the patient may have the disease, and a test confirmed his suspicion two days later. By then, Colson had already triaged other asymptomatic patients and exposed her husband.

    "I'm angry," Colson said. "If I had had the proper (personal protective equipment) my husband wouldn't be at risk. Now he's out of work for two weeks, maybe without pay."

    Previously, Colson said she brought to work homemade masks to use, but a manager would not allow her to use them. Since her exposure, Baystate nurses represented by the Massachusetts Nurses Association have demanded that all frontline staff be supplied with N95 masks and other protection. A Baystate official said furloughed workers would continue to receive full pay and benefits.

    Meanwhile, physicians in other hospitals have been fired for speaking out about the lack of protective gear. In one case, Dr. Ming Lin, an ED physician at PeaceHealth St. Joseph Medical Center in Washington state, said he was fired for publicly criticizing his hospital's coronavirus preparations. His employer, ED staffing company TeamHealth, denied Lin had been terminated and that they would find him work elsewhere, according to an Associated Press report.

    Ohio-based Bon Secours Mercy Health said it projects operating losses of $100 million per month, forcing it to freeze wages and furlough employees. The Connecticut Children's Medical Center, which furloughed 400 workers for 60 days, said declining patient volumes have cost the provider $7.5 million to $9 million per month.

    While it didn't disclose the effects on its revenue, Prisma Health, the largest not-for-profit health system in South Carolina, said its patient volume decreased 77% while outpatient visits decreased 40% in just two weeks. That, and staggering price increases for personal protective equipment prompted it to furlough some administrative employees.

    For-profit chains are not immune either. Tenet Healthcare Corp. announced it was scrapping its 2020 guidance, furloughing about 500 full-time positions and issuing another $500 million in debt to boost liquidity.

    Rational hospital operators would first reduce the hours of part-time and as-needed employees, then look to cut pay or workdays for the full-time and salaried workers, said Dr. Mike Schatzlein, former CEO of Ascension's St. Thomas Health. Furloughs would be used as a last resort, and ideally, executives would share in the pain by taking a pay cut, he said.

    At HCA Healthcare, which ended 2019 with revenue totaling $51.3 billion, members of the senior leadership team each will take a 30% cut in pay until the pandemic is over.

    "The last thing they want to do is lose good associates," Schatzlein said, but ultimately, "you can't let the whole institution die because of consideration for associates."

    Employee benefits lawyers are inundated with calls from healthcare companies trying to figure out how to manage their workforces through the pandemic. Mimi Moore, a partner at law firm Bryan Cave Leighton Paisner, said providers are generally attempting to reassign clinicians to different areas with greater need.

    While some are furloughing employees with an eye toward bringing them back, very few are laying off their workers because most believe they will soon be needed again, she said. That differs from other industries, where Moore said she's seeing lots of layoffs. By and large employers are preserving workers' health benefits while they are on furlough, but there are cases where their health insurers won't permit it.

    Mark Peters, a partner at law firm Waller Lansden Dortch & Davis, said most of the furloughs he's seeing are on the ancillary side of the industry—dental offices, dermatology, and physical therapy, for example. "They simply don't have the cash reserves to continue to pay people to come to work when there literally is no work to do," Peters said.

    Long term, providers who furlough staff risk losing them to competitors and having to spend more money later on recruiting or temporary staffing, McMillan said. Furloughs and pay cuts could deter students from taking a career in healthcare, creating future workforce issues. But drawing on cash reserves to continue paying non-essential employees could also increase providers' borrowing costs, making it harder for them to get needed capital for technology or other investments.

    Some hospitals recognize the risks and are easing anxiety by providing stability and certainty for employees. Pittsburgh-based health system UPMC ensured its staff they would continue to be paid at their current rate for normally scheduled hours through May 9, even if they are redeployed to different roles or asked not to work.

    "Our communities expect that we're going to be there for them and respond. We are asking our employees to be there for the community, so this is a way to be there for our employees," said John Galley, UPMC's chief human resources officer.

    It's not totally clear why UPMC is able to protect pay while other systems are resorting to furloughs. The system's culture may play into it. UPMC is also a very large integrated system with diversified revenue from its health plan and access to cash. It sought a line of credit and several bank loans totaling $2 billion in response to the pandemic, according to rating agency S&P Global. UPMC also had $5.1 billion in unrestricted cash and investments at the end of 2019. An S&P report shows the median for unrestricted reserves among not-for-profit health systems was $1.5 billion in 2018.

    Even so, UPMC will be squeezed by COVID-19 just like the rest of the industry. S&P in late March revised the sector's outlook to negative from stable, noting the COVID-19 pandemic could lead to higher operating costs and declines in reserves.

    The Coronavirus Aid, Relief, and Economic Security, or CARES, Act, signed into law last month will funnel $100 billion to hospitals to help with costs and lost revenue from the pandemic. The American Hospital Association has asked the federal government to quickly distribute the funds directly to providers and allow it to be used for paid leave for quarantined or furloughed staff. Hospitals will need to track how they spend the funds so they aren't clawed back later for being improperly used, experts said.

    The AHA is also begging the largest private health insurers to provide advance payments to insurers because Congress and the federal administration's "actions alone cannot fill the gap resulting from reduced revenue from private insurance," it wrote in a letter to insurer CEOs. Medicare has allowed providers to receive advance payments, and at least one commercial insurer—Blue Cross of Idaho—is giving independent physicians the option.

    Schatzlein said resolving the shortage of masks and gloves along with implementing widespread diagnostic testing for COVID-19 should allow health systems to return to normal operations. Testing, which has so far been limited, would help providers predict when the pandemic will peak in their counties so they can plan around it instead of postponing elective procedures indefinitely. Ventilators would be moved to areas experiencing a surge in cases and local hospitals would flex up staffing, he said.

    "We've got to get good at doing this," Schatzlein said. "The issue is not: How do we live with no elective procedures for six months? We need to get to a county-by-county strategy."

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