In several settings last week, including a public press conference, Dr. William N. Kelley outlined the condition of the Health System and the cutbacks expected by June 30, 2000.
Following is the body of a statement delivered to the Trustees Budget and Finance Committee Thursday, and substantially repeated at the Stated Meeting Friday. A similar statement addressed specifically to faculty and staff within the system is on-line here.
Dr. Kelley to Trustees: The Losses to Date and the Cuts in View
Today, I would like to share with you an overview of the Health System's financial recovery plan, designed to restore our System to a firm financial footing.
Like many other academic health centers nationwide, we have experienced large financial losses in the past two years. In Fiscal Year 1999, the University of Pennsylvania Health System's operating loss was $166 million, despite treating record numbers of patients--both on an inpatient basis and through outpatient visits where our growth for the year was 8 percent and 11 percent respectively. After adjusting for reportable interest and dividend income, the total operating loss in FY1999 is $198 million. A major portion of the loss resulted from the need to write down tens of millions in patient charges that we were not able to collect from insurers. We also incurred millions more in one-time restructuring charges, including severance-related expenses from a workforce reduction in May.
The main reasons for the losses are significant government cutbacks in Medicare reimbursement; reduced and delayed payments from insurers; and increasing numbers of un-insured and under-insured patients. The Balanced Budget Act of 1997, for example, will cumulatively reduce Medicare payments to our Health System by $175 million by the year 2002. In addition, the Commonwealth provides only minimal payments to hospitals for indigent care, and does not operate a public hospital system. In FY99, the Penn Health System provided $66 million in uncompensated care and $40 million in undercompensated care.
Although we are working aggressively at the national and local levels to try and encourage some form of legislative relief for these problems, we must focus on those things that we can control. To that end, we have developed a comprehensive Financial Recovery Plan to reduce or eliminate expenses across the entire organization without compromising our recognized excellence in patient care. Implementation of this plan is expected to improve our financial results by approximately $250 million over the next three years.
The Plan includes some very difficult decisions, including the reduction or elimination of certain programs and services, as well as a significant workforce reduction. The first phase of the workforce reduction occurred in May--five months ago--when we eliminated 1100 positions, or 9 percent of the health services workforce.
The second phase will take place in ten days. On November first, we will eliminate another 975 positions from the Health System's corporate staff and four hospitals. The third phase will take place before June 30 and will include another 725 positions from other areas including our physician- practice plans, multispecialty facilities, and home-care groups. Thus, by the end of this fiscal year, we will have eliminated close to 2,800 positions, or 20 percent of the health services workforce over a 14-month period.
These cuts do not represent an across-the-board percentage reduction; rather, they are the result of major program reductions and an area-by-area analysis that compared our staffing levels to national benchmarks. Where jobs are being eliminated, we will redesign work or improve processes so that our organization can continue to function effectively.
This is, truly, a very difficult time for all of us, but especially for those whose jobs will be affected. As is our practice, we will treat everyone with dignity, compassion, and respect. In determining which positions will be eliminated, we will consistently employ a fair and responsible decision-making process--one that is directly aligned with our mission and core values.
We are committed to helping affected employees through the transition process; and we will provide pay and benefits continuation, as well as outplacement assistance, to all eligible staff.
We are also committed to continuing to provide outstanding patient care, even as we forcefully tackle the pressing financial concerns that challenge us. The Financial Recovery Plan we are outlining this morning is an extremely aggressive response to the external financial pressures facing all academic health centers, and it should effectively return our Health System to a sound financial base while maintaining the integrity of our threefold mission to provide quality patient care, educate the next generation of physician leaders, and advance the world's body of knowledge about health and human disease through cutting-edge research.
Almanac, Vol. 46, No. 9, October 26, 1999