Vanderbilt University Medical Center filed notification Tuesday that it will reduce the size of its workforce by approximately 1,000 employees before the year’s end, according to John Howser, assistant vice chancellor for medical center news and communications. The notification was filed with the Tennessee Department of Labor and the Office of the Mayor of Nashville and follows a summer of cost-cutting forecasts from VUMC.
This budgetary downsizing—“a response to ongoing financial pressures”—is encapsulated in a program called Evolve 2 Excel (E2E), unveiled in a June 20 message from Vice Chancellor for Health Affairs and Dean of the School of Medicine Jeff Balser.
The E2E program is designed to help VUMC accomplish their goals of reducing their $3.3 billion annual budget by $100 million during the current fiscal year and achieving a total of $250 million in reductions by the end of FY 2015.
Howser said the program is designed to “sharpen operational practices throughout the institution to better meet economic realities facing the future of health care delivery and research.”
In a July 18 press release, Balser outlined a three-pronged strategy for the E2E program. The first part of this strategy involves areas outside of human resources.
“Savings from non-labor cost areas, such as supplies, facilities and contract improvements, will be our highest and first priority,” Balser said.
An example is the work of the Medical Economic Outcome Committee (MEOC), a team of physicians, nurses and other supply and equipment specialists. MEOC was created in 2008, but is now charged with saving VUMC money through vendor standardization and consolidation of supplies.
The second part of the E2E approach involves headcount reduction. This reduction will take three forms.
The first was an early retirement program, which had an enrollment period from July 23 to Sept. 16. Approximately 250 employees have enrolled in the program, Howser said. The program was open to VUMC staff with 10 or more years of service, who are at least 62 years of age and who met a number of other criteria. It was elective and designed for staff already considering early retirement, but excluded temporary staff, faculty members and staff covered by union contracts.
The second form of headcount reduction will be through a process of attrition, according to Balser.
“Each year, significant numbers of employees leave our workforce due to retirements and moves to other jobs. We will be taking advantage of as many of these departures as possible, while reengineering workflow to reduce the need to replace these positions,” he wrote in a press release.
The third way of reducing the workforce outlined in the E2E program is terminating positions, such as those announced on Tuesday. Balser previously had said that most terminated positions “will be in support and overhead functions, as opposed to direct patient care positions.”
The third prong of E2E is a new paid time off plan that will become effective on Jan. 1, 2014.
Regarding the effect of this economic downsizing on the quality of patient care, both Howser and Balser have emphasized that VUMC will continue to provide quality health services.
“The E2E process has been carefully designed and is being closely controlled to ensure that all systems, programs and services within clinical settings continue to provide the highest-quality health care services for which Vanderbilt is known,” Howser wrote in an email to The Hustler. “Our patients deserve nothing less.”
A health care bubble
Announcing the E2E program, Balser cited the magnitude of the issues facing academic medicine across the nation. Larry Van Horn, professor of health economics and management at the Owen School of Management, elaborated on the nature of these issues.
“Academic medical centers are facing cuts not only from clinical service revenue, but cutbacks in support for education and research,” Van Horn said. “They have a three-fold hit.”
In conjunction with the expansion of Medicaid under the Affordable Care Act, governments are reducing reimbursements for hospitals like Vanderbilt that disproportionately provide care to the uninsured.
To the further detriment of hospitals’ bottom lines across the nation, Van Horn said it’s not clear if the expansion of Medicaid is going to live up to policy makers’ expectations. Revenues from the greater coverage of the uninsured due to the ACA will not likely match the cuts in public spending.
Consumer behavior is also changing in the face of more expensive and more minimalist coverage. “There’s going to be an aggregate demand effect,” Van Horn said.
While hospitals nationwide are facing decreased consumer demand, VUMC said it is experiencing increasing strain on its clinical resources.
“If you look across the United States, the hospital occupancy rate is 80 percent,” Van Horn said. Vanderbilt, however, is unique in that it serves as both a regional trauma center and Nashville’s primary emergency resource — functions usually distributed across multiple hospitals in other cities.
Another area where VUMC is experiencing economic constraint is research funding. A quarter of VUMC’s workforce is involved with research, the majority of which is funded by the National Institutes of Health. Since 2003, NIH research spending has decreased 22 percent, adjusted for inflation. Balser has said that VUMC “cannot foresee passage of legislation that would substantially improve the conditions for research funding in the coming fiscal year.” Given House Republicans’ opposition to increased research funding, further cuts to the NIH loom large.
From Van Horn’s perspective, the pressures on medical centers across the nation are symptomatic of the unsustainable nature of the nation’s health care system.
“Everyone would agree that the amount of care we’ve been delivering and the way we’ve been paying for it is a bubble,” Van Horn said. “The question is when that bubble’s going to burst. Is it going to burst next year or 20 years from now?”
The E2E cuts are part of a larger trend of health care cost cutting across the nation and may not be the last for the Medical Center. According to Van Horn, “This is the new normal.”