An HFMA Healthcare Financial Pulse Resource
At Boston-based Beth Israel Deaconess Medical Center, the financial challenges are familiar: reduced payments, decreases in research funding, falling patient volumes, and shorter lengths of stay.
What’s unfamiliar: how the 600-bed academic medical center responded.
Facing the adversity head on, president and CEO Paul Levy saw a chance to respond in creative and compelling ways that actually strengthened his institution. For Levy, a $20 million shortfall in the 2009 budget was truly an opportunity.
He started by crafting a remarkably candid and detailed e-mail to the entire hospital community, explaining the scope of the problem and seeking input and ideas for reducing personnel-related costs. This was no pro forma courtesy or cosmetic public relations flourish. It was backed by a series of meetings with different employee groups and departments. Levy even used online forums—including his blog Running a Hospital—to encourage staff to respond and contribute ideas for solving the budget shortfall.
"Once the scope of the problem became apparent to me, I couldn’t imagine not fully disclosing the challenges we were facing and asking the staff for their help,” says Levy. “If an organization is having budget problems and you need everyone’s help, I think it is incumbent on you to fully explain the problem. I guess some senior managers feel they need to be decisive and make hard, fast decisions independently. But I think that people throughout an organization have good ideas to help solve problems like this. And, let’s face it—these employees are on the front lines and in the trenches. They are already aware of the issues at some level. Now, this might have been more difficult to accomplish in a for-profit or publicly traded organization. But, fortunately, our company culture made this possible.”
Shared Priorities
Levy laid down some goals to bring context to the input he was seeking. He recognized that, with 6,200 employees and a personnel budget of $545 million per year, layoffs were a distinct possibility. To save $20 million in the remaining six months of the fiscal year, a layoff of 600 people (about 10 percent of the staff) was one option—an option Levy was eager to avoid.
“I told our people that I really wanted to avoid layoffs, if at all possible—which was certainly a shared goal,” he said. “First, with an 8 percent unemployment rate in Massachusetts, it won’t be easy for anyone to find a new job. And second, that rate means there’s a one-in-12 chance that an employee’s spouse is already unemployed. We didn’t want to put folks through that if we could possibly avoid it.”
According to Levy, there was also another important consideration in whatever plan evolved. “I asked our team if they agreed with me that we should do what we could to protect our lower-wage earners—that is, the transport people, the housekeepers, our food-service workers—the people who face a particularly hard time just because of their income level.”
The response from staff for this particular goal was overwhelmingly positive. In meeting after meeting, attendees broke out in spontaneous and vigorous applause when Levy brought up that objective. “In an era of sometimes cynical and sometimes selfish behavior, I was heartened by the response of our people. They are kind people who view themselves as a family and who are approaching our hospital’s financial problems with a true generosity of spirit.” In his blog, Levy posted dozens of high-spirited e-mails from staffers, showing how deeply felt the support was for this goal.
Sacrifices at the Top
Substantial pay sacrifices from Levy and other executives were a necessary first step to establishing credibility. The senior vice presidents, vice presidents, and chief operating officer took voluntary 5 percent pay reductions. Levy eliminated all of their bonuses for 2009, a total potential pay reduction of 15 percent to 25 percent.
The various chiefs of medicine also came up with $350,000 as a donation by taking a cut in salary to put back into the hospital to try to save jobs.
Levy himself took a 10 percent salary reduction and waived his bonus opportunity for this year, a total potential pay reduction of 30 percent.
“You have to walk the walk, otherwise, people discount the urgency of what you’re asking of them,” says Levy. “They also fear that they are being taken advantage of if the top management does not set an example.”
A Tremendous Response—and Pay Off
Over the course of several months, Levy received hundreds and hundreds of employee e-mails suggesting possible ways to reduce costs. Levy relied on his CFO, COO, and senior vice president of human resources to evaluate the ideas as they arrived.
They range from a halt to 401(k) matching contributions and an end to free BlackBerry PDAs to less compensatory time and more furloughs. Job openings now require executive approval before posting. Similarly, overtime requests receive closer scrutiny, based on declining patient volumes.
The changes made have collectively resulted in a savings of more than $16 million so far. As a result of these measures, a potential layoff of 600 people ended up being only 150.
A Stronger Culture
“What’s really important in all of this is that our people feel like they’re participating in this difficult process,” says Levy. “No, it doesn’t mean we’ve been able to avoid all of the painful situations. But we have been able to confront the challenges in a true spirit of partnership and open collaboration.”
According to Levy, the BIDMC approach is also paying off in unexpected ways—with recruitment and retention. “Even with our tight cost control, we still have some open positions,” he said. “We’ve found that our approach to cost cutting has become an unintentional recruitment tool. Candidates are telling us that they’re seeking us out, saying that they want to work for an organization that values all of its people. That’s certainly been an unexpected—but heartening—result.”
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