The following was issued Monday, September 27, as the third in a series of messages from Dr. William N. Kelley as CEO of the Penn Health System to the system's Administrative Forum, made up of 650 leaders in the Medical School, four hospitals and primary care network. Dr. Kelley asked that the memo be shared with all their staffs, and gives a hotline number, below, for comment.

PennHealth: Facing a Second Round of Cutbacks

As I informed you in July, UPHS retained the Hunter Group this summer to give us expert advice on how to reverse our recent operating losses. Working with a UPHS Steering Committee and two advisory groups, the Hunter team has spent the last several weeks gathering data about all aspects of our organization. They have used this information to compare us to similar institutions nationwide.

The reputation of our Health System is unsurpassed in patient care, in education, and in research. Our fundamental purpose is to maintain and protect that high quality, and we will do so. As you know, however, the environment in which we operate has been substantially affected by changes in federal funding for health care, as well as issues specific to Philadelphia. The Hunter Group's initial findings make clear that we must further reduce our costs significantly in order for UPHS to remain financially viable in today's volatile health care market.

In FY 1998, as you will recall, UPHS lost more than $90 million. In FY 1999, the fiscal year that ended three months ago, we lost substantially more, despite substantial cost reductions and major volume growth. The full loss will become clear before the end of October when our auditors issue their formal report on FY 1999.

UPHS is using the Hunter Group's findings and a great deal of our own work and analysis to develop a comprehensive financial-recovery plan, which is now nearly complete. Our goal is straightforward and twofold: to protect our mission and to return UPHS to financial viability.

We will present the first set of our financial remediation recommendations to the Executive Committee of the University Trustees later this week. These recommendations will be finalized over the next several weeks. Because of the magnitude of our financial challenges, our recovery strategy must include some very painful but necessary actions.

Among other things, we will likely need to undertake another significant system-wide workforce reduction. Please be assured that we will do all we can to ease the burden on those people affected. Our situation is not unique. As you know, many of our peers have had to do the same this year: Among others, UCSF/Stanford announced a reduction in force of some 2,000 positions, and Detroit Medical Center has eliminated 2,000 positions since the first of the year.

Patients in our hospitals and physician practices will still receive the world-class quality of care for which we are so rightly proud. It seems unavoidable, however, that we will be forced to scale back or eliminate certain services we now provide. We will announce further details as soon as decisions are made.

These actions are part of a comprehensive remediation plan designed to preserve our mission of excellence, while returning us to a firm financial foundation. Examples of other important components of the strategy include executive pay cuts and the continued streamlining of management. We will also aggressively pursue savings in the purchase of supplies, equipment and services.

It is ironic that UPHS is experiencing these financial difficulties at a time of unprecedented success in other aspects of our operation. The increased demand for our services and our continued national recognition underscore the excellence of the work we do every day. The harsh reality, however, is that health care has changed dramatically in the last few years. Payments from virtually all sources are being reduced. In order to provide quality care, we must adapt to a new environment.

We will continue to keep you informed of all developments, and, in turn, ask you to continue to stay focused on the good work of this institution. We recognize that these measures are unsettling, yet their implementation is necessary for long-term stability. Suggestions or comments regarding these issues can be called in to our toll-free, 24-hour confidential hotline at 1-877-MYINPUT, code UPHS.


Almanac, Vol. 46, No. 6, October 5, 1999

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