U. Health System eliminates positions, cuts employees

In an attempt to balance its budget, the Penn Health System is eliminating 1,100 positions and laying off 450 employees. The University of Pennsylvania Health System laid off 450 employees and eliminated a total of 1,100 positions on Tuesday, marking the most aggressive effort to date made by Chief Executive Officer William Kelley to balance the troubled system's budget. The cuts -- which come almost entirely from the system's managerial infrastructure -- represent a nine percent reduction in the total health services workforce of 13,000. Among those affected are employees of the Finance, Information Systems, Human Resources, Facilities and Marketing programs. The move does not affect the system's 5,000 academic employees, nor are the jobs of those directly involved in patient care affected. The system employed a total of 18,000 people in Fiscal Year 1998. "Our intent is that the patients wouldn't know that there are 1,100 fewer people around here," Kelley said Tuesday morning. The cuts will save the Health System an estimated $50 million in the long run, but administrators acknowledge that there will be heavy short term costs associated with the layoffs. The Health System ran a deficit of $90 million in Fiscal Year 1998 and a similar deficit is projected for the current fiscal year, which closes June 30. Kelley attributed the losses to a combination of payments below the actual cost of treatment and delays in reimbursements, both from the federal government and from private insurers. "This fiscal year will look worse than we had originally expected," Kelley said, though he declined to say exactly how bad the deficit would be. UPHS's financial problems are typical of those affecting hospitals -- particularly academic medical centers -- nationwide as insurers continue to squeeze payments in an effort to reduce their own costs. Indeed, every major health system in the Philadelphia area posted a loss for the last fiscal year, including UPHS's main competitor, Jefferson Health System, which lost $30 million on revenues of $1.7 billion. Kelley told the University's Trustees in 1997 that he planned to have a balanced budget in Fiscal Year 2000 -- which begins July 1 of that year -- and these cuts undoubtedly represent the most dramatic measures taken thus far to reach the goal. Administrators have "identified" several possible methods to cut costs, including re-negotiating vendor contracts and delaying some previously planned space renovation. The workforce reduction will only account for less than one-third of the total amount needed to break even. Kelley explained that hospitals, under the current health care system, are generally not as profitable as they once were. For example, while Penn's own outpatient visits have increased exponentially to 2.54 million in 1999 -- up 10 percent this year -- its revenue has been largely flat. Professor of Health Care Systems Mark Pauly called UPHS's cuts "inevitable" and said the decision seemed logical given the Health System's current financial crisis. "The costs were running way ahead of their revenues. You can't lose money forever," Pauly said, adding that such personnel restructuring is "pretty much happening across the board." Although administrators expressed their sympathy for the hundreds of laid-off employees, they still maintained that their decision was ultimately for the best. "Any layoff is regrettable. However, in this challenging climate, the Health System has had to take this difficult but necessary course of action," University President Judith Rodin said. And Gavin Kerr, the Health System's vice president of Human Resources and Strategic Planning, said. UPHS officials are "doing everything [they]can to help people make the transition," citing a 30-day notification period, strong severance programs and access to job opportunities as some of the benefits available to employees. In a letter sent Tuesday to other UPHS administrators, Kelley told his colleagues that, in an effort to accommodate those employees who lost their jobs, the Health System will "redesign work or improve processes so that our organization can continue to operate effectively." Tuesday's announcement is the latest in a series of misfortunes to befall Philadelphia's hospitals and health systems. Last July, for example, the Allegheny Health, Education and Research Foundation of Pittsburgh sought U.S. Bankruptcy Court protection for its Philadelphia-area facilities after incurring $1.3 billion in debt over a decade of expansion. Kelley said that senior managers will lose incentive pay when the Health System's financial crisis is leveled, but they are not expected to take pay cuts. Included among the 450 laid off workers are staff members from each of the Health System's four hospitals -- the Hospital of the University of Pennsylvania, Pennsylvania Hospital, Presbyterian Medical Center and Phoenixville Hospital. Eighty-five of those laid off have already been relocated within the system.