Cutting With Care

In our October Intelligence Report, 19% of leaders said that they still need to pull 11% or more out of their operating budget. When making budget cuts, especially deep cuts, what can the C-suite do to avoid harm to quality care and staff morale?

This article first appeared in the January/February 2013 issue of HealthLeaders magazine.

Chris D. Van Gorder
President and CEO
Scripps Health
San Diego

On budget cuts in a changing landscape: It's hard to know how much needs to be pulled out of operating budgets yet, and it will be an issue dictated by federal, state, and local reimbursement cuts and competitive issues. I think many organizations will need to reduce their operating budgets between 10% and 20%—some maybe even.

On the need for transparency: It's important to be open and transparent with employees about these issues and to engage them in the process of reducing costs. It's also critical that physicians be engaged in the process with management. Everyone wants a successful organization and wants to continue the mission so it's critical to engage everyone in the process. We have to do everything we can to protect jobs right now.

Why would any employee help to reduce costs or engage in the process if that means they will lose their own job?

On morale and displaced employees: We place any employee impacted by a position elimination into a career resource center. While we can't always promise the same job or the same work location, we can help an impacted employee find another position in the organization. The key to maintaining employee morale is to do everything we can to retain jobs while we design new work processes that will be more efficient, eliminate waste in operations, and restrain hiring so we have positions in which to place loyal Scripps employees who have their jobs impacted by these changes.

Michael D. Williams
President and CEO
Community Hospital Corporation
Plano, Texas

So many folks say if one hospital has x number of FTEs per adjusted occupied bed, then another hospital can have the same. That is really not true. It needs to be hospital specific relative to what areas have the opportunities for improvement in process, maintenance, or improvement of clinical outcomes and a reduction in costs.

Secondly, any time there is any level of reduction in an organization it is so important—maybe the most important factor—to be transparent with the medical staff and the community and the hospital employee population about why this reduction is necessary.

Along the way, celebrate success. When those goals are met, in some fashion it is important to acknowledge the role that the staff has had in achieving the results. To have some type of low-key celebration or whatever is appropriate that says, "We are in this together, we recognize the contributions you have made, now let's celebrate this success."

Also, you have to take the time and not just say "We had a bad month and so consequently we are going to have to cut something," but what are the trends in that particular institution that say we have to do something differently? Is it reaction to something happening in the industry? Or is it specific to the strategic financial plan of the organization that is being looked at?

John R. Sigsbury
President and CEO
Emanuel Medical Center
Turlock, Calif.

We are going through some of this right now. The sentiment is that you have to really pull out of the management staff before or during any other cuts you make in the rank-and-file. A lot of the mistakes that organizations make and the misread they have with culture in their organizations is you have to put everybody on the same plane.

For the cuts, 5% is a great target. The pain you go through in the organization isn't worth anything less than that. In terms of quality care, you have to rely on the people at the bedside. If you haven't engaged them in a conversation and you haven't explained the realities, you are in big trouble. You have to look at the patient types, the complexity of care, and you have to understand what the needs of the caregivers are in providing that bedside support.

You have to make sure that every day on every shift those issues are being covered. Then management that remains has to be very visible with patients. They have to engage patients.  And you have to make adjustments as you get feedback from patients.  

The magnitude of the cost cutting that we need to do requires us to look at all the relationships in the organization and our medical staff is a key player in maintaining the standard of care. No cost cutting would be effective without the support of the medical staff.

Terrie P. Sterling
Executive vice president and COO
Our Lady of the Lake Regional Medical Center
Baton Rouge, La.

The first thing you already should have in place is a good communication channel. We have two strategies that we use a lot. One is town hall forums, face to face with an executive. We developed a script in those town hall meetings to ensure that specific topics are discussed. Every year, as we have seen it coming, we have talked about everything from value-based purchasing to changing reimbursements to the impact of the current climate. It sets the tone and informing your staff in real time about what is going on through true communication and sharing.

Secondly, we have a controlled blog that has an online Q&A with me. For example, as we manage labor productivity and overtime, we talked about Medicaid cuts and the reasons why we have to review labor productivity to get to better, lower benchmarks. And as we are managing overtime, we talked about every department being a target.

Establishing trust and communication long before you need it in difficult times is what you have to do; be transparent and honest. I expect to be able to explain to our 5,000 team members what we are doing in simple terms and our rationale and how it fits our values and how we are going to do it. Thus far we have been able to hold to those principles.