Workforce Reduction: Hillside County Medical Center Glenn A. Fosdick HILLSIDE C 0UNTY MEDICAL CENTER is a 475-bed public teaching hospital located in an urban setting in the Midwest. It serves a city of approximately 250,000 people in a county whose total population is 500,000. Its primary local competition consists of two regional hospital systems, both not-for-profits. Because of its urban location and its historical status as the county hospital, Hillside provides a significant portion (approximately 70 percent) of the uncompensated care for the community. Nevertheless, it receives no financial subsidies from the city or the county. For many years, Hillside has been the primary tertiary center providing specialized care in high-risk obstetrics, a Level Ill neonatal intensive care program, and pediatric intensive and specialized care including pediatric oncology. In addition, Hillside is the regional provider for kidney transplants, burn services, and emergency medicine, experiencing close to 80,000 emergency department (ED) visits per year. Hillside’s services have been augmented over the last four years by the development of the region’s first American College of Surgeons-verified trauma program. Hillside is affiliated with a major university medical school, with residencies in internal medicine, pediatrics, med/peds, and obstetrics, and has a shared program with other hospitals in radiology and orthopedics. In addition, it has recently added an emergency medicine residency program. Because Hillside is a public hospital, its board is strongly committed to the community and the hospital’s mission. A number of programs have been developed that have increased patient access and the hospital’s ability to meet its community health needs, including a large clinic providing primary and urgent care services in the community’s most underserved area. Unfortunately, because of the low reimbursement from outpatient Medicaid and the high percentage of uninsured that are served, the clinic experiences significant financial losses. Like most hospitals, Hillside prospered until the mid-1990s when changes in reimbursement and increasing competition began to affect it. Hillside is also heavily unionized; nine unions represent 86 percent of its employees. This situation has resulted in higher-than-average benefit and pension costs. After multiple strikes and work actions during the late 1990s, Hillside lost market share to its competitors. As its competitors grew stronger, Hillside started to face significant financial challenges, which culminated in 2000 in a financial loss of close to $7 million. Through the recruitment of new leadership, enhanced strategic planning, and marketing, the organization was able to correct itself and make significant progress. However, in the past several years, it has again faced increasing financial concerns. The dilemma Hillside now faces reflects the variety of problems that are common to most hospitals. These problems result from a number of specific issues, such as decreasing reimbursement, uncompensated care, increasing competition, rising personnel costs, and a depressed economy. The largest unknown facing Hillside is the exact impact the Patient Protection and Affordable Care Act (ACA) will have on the hospital. Although many ACA provisions are still unclear, all healthcare providers will obviously experience decreased reimbursement and increased vulnerability to financial penalties for quality, satisfaction, and performance issues. In addition, the replacement of inpatient care with ambulatory services will doubtless continue to escalate. The ACA could also affect Hillside’s reimbursement from Medicaid, which represents approximately 25 percent of the hospital’s business. Because Hillside serves a high percentage of uninsured and Medicaid patients, it is eligible for Disproportionate Share Hospital (DSH) payments. The ACA could clearly place an increasingly high percentage of Medicaid care into competitive regional and statewide Medicaid contracts if the state decides to participate in this program, which would significantly expand Medicaid eligibility. DSH payments to Hillside could accordingly decrease. Healthcare providers face unique challenges, unknown in any other industry, that may be further complicated by insurance exchanges and other adaptations associated with the ACA. Although the ACA will decrease the number of uninsured, it is unclear which states will participate and when the impact of this change will be felt. Paralleling national indicators, the amount of uncompensated care that Hillside provides has increased over the past three years. Strategic analysis by the hospital suggests that, at least locally, this is partly the result of the US economy: The instability of the job market has resulted in a higher percentage of jobs that do not provide health insurance benefits. Hillside also faces the difficulty, common to all healthcare providers, of actually collecting the payment due for services provided. The financial pressures that insurers face appear to encourage them to find ways to make billing more difficult, to find justification for disqualifying bills, and in many circumstances to engineer significant delays in providing reimbursement for services that are properly billed. Furthermore, Hillside faces increasing challenges from non-hospital competitors in diagnostic and treatment areas that historically have been financially advantageous to the hospital. These areas include ambulatory, surgical, and diagnostic centers, such as MRI facilities and dialysis centers owned and operated on a proprietary basis. Like most hospitals, Hillside faces the challenge of keeping its patient census as high as it has been in the past. Reductions in reimbursement for patients who stay longer than the appropriate time, expanded competition both regionally and nationally, and increasing use of ambulatory services to treat patients in such areas as chemotherapy, surgery, and diagnostic scenarios all complicate Hillside’s ability to maintain its average daily census. At the same time, hospitals and other healthcare providers are experiencing dramatic increases in the costs associated with providing care. Drug expenditures continue to rise, and medical, surgical, and other supplies continue to experience inflationary increases that exceed annual reimbursement adjustments. Additional concerns are government mandates and accreditation standards, which require staff for non-patient care requirements. For example, the implementation of the federal APC (ambulatory patient classification) outpatient billing system has necessitated the hiring of additional coders to comply with increased mandates for medical record requirements. Hospitals also face an intensely competitive environment for the recruitment and retention of healthcare personnel. Perhaps the most significant concern is the future availability of registered professional nurses. The average age of nurses nationally is 45 years. Although the American Association of Colleges of Nursing reported a 5.1 percent increase in enrollment in entry-level baccalaureate programs in 2011 (AACN 2012), this increase may not be sufficient to meet the projected demand for nursing services. This nursing crisis has been neutralized somewhat by the lethargic economy, which has temporarily discouraged employees from retiring. However, when the economy improves, the turnover rate will be higher than average and nursing resources will be depleted. As pressure for financial control and clinical improvement mounts, fewer qualified personnel are interested in addressing these issues. Other shortages can include, but are not limited to, ultrasound technicians, pharmacists, and radiation therapy personnel. These shortages require that Hillside reexamine its pay and benefit package on a consistent basis to ensure that, while not excessive, it is competitive and capable of attracting the right kind of personnel. Another concern is the increasing number of professional nursing staff who works for nurse staffing agencies. These agencies allow nurses more control and independence concerning when and how many hours they work, including on weekends and holidays, usually at the expense of benefits and pension plans. This situation contributes to a shortage of staff available to work these unattractive hours, and the higher hourly rates result in additional costs to hospitals that use agency nurses. These difficulties in recruiting nurses and the financial requirements of tight staffing have increased the need for overtime and mandatory overtime. Not only does overtime mean higher costs, but concerns about the strain on staff and the effect of excessive overtime on the quality of clinical care have also prompted state legislatures to develop controls regarding the use of overtime. Increased overtime also stimulates reaction from unions, which can result in strikes and other work actions. These combined pressures have resulted in the difficulties that Hillside currently faces. The CEO and management staff have examined their situation and realized that unless significant changes are made quickly, Hillside’s financial viability will be compromised. The CEO also recognizes that these issues are more important today than previously. His board, like many, has increasingly identified the hospital’s operating margin and financial performance as the primary indicator of the management team’s effectiveness. In addition, the size and complexity of healthcare capital expenses today result in an increasing dependence on the bond market, which puts great significance on bond ratings from recognized financial assessment organizations. A credit rating has a direct, measurable influence on the interest rate required by investors and hence on the firm’s cost of debt capital (Gapenski and Pink 2011, 180). Hillside’s CFO has noted that whereas 31 not-for-profit hospital bond issues were down graded in 2007 and 40 were upgraded, 53 issues were downgraded and only 27 were upgraded in 2008 (Gapenski and Pink 2011, 182). Recognizing the critical importance of swiftly and properly addressing these financial concerns, the CEO has called his senior management team together. He has decided that, to ensure the best results, this issue needs to be addressed from a corporate-wide standpoint and all senior management personnel must be involved. Because of the matter’s financial significance, the CFO takes the initiative. She notes that, as in most healthcare organizations, the highest portion of expense is associated with staff. For example, under the present salary and benefits package, the average employee costs Hillside approximately $61,000 per year. Even with the costs of unemployment liabilities and potential severance programs, she argues, reductions in the workforce are the safest and best-known method of reducing financial deficiencies. The vice president for human resources reminds the group that in most union contracts and many state labor codes, seniority is a key determinant in workforce reductions. At Hillside, for example, the present contracts with key unions, such as nursing, stipulate that seniority is determined on a hospital-wide basis. She notes that the least senior nursing staff may be located in critical areas, such as the ED and operating rooms, where their services are essential for continuing financial productivity. She also points out that many unions closely monitor the comparative numbers affected from each union and the ratios of reduction to management personnel, which could have implications for labor stability. The vice president for nursing and the vice president for medical affairs collectively announce that patient care cannot be compromised and that inappropriate reductions in these areas could have a critical effect on the organization’s clinical capability and reputation. The vice president for operations questions the effect on community projects, such as the clinic, and asks whether other approaches might be taken. The CEO ponders these questions as he contemplates the right approach to address Hillside’s situation successfully. The CEO tries to identify the dynamics of the health care industry that distinguish it from other industries. While other industries have faced the need for employee reductions, these environments do not incorporate the multifaceted responsibilities of the healthcare institution. Certainly, financial performance, while important, is not the only criterion that must be measured. The CEO knows that Hillside must ensure that proper care is provided and available to those who seek it. In no other business does a person receive a service before identifying how payment for that service will be provided. In fact, mandates from the federal government prohibit assessment of financial status prior to providing emergency medical care. Hillside’s mission clearly defines its responsibilities to improve the health of the community. Because the vast majority of hospitals in the United States, like Hillside, have either not-for-profit or public tax status, they are required to provide services in some cases that do not conform to the usual business standards. Unfortunately, too often the public perception is that this requirement is not being met. The CEO reminds himself that most people do not believe that the quality of care has improved. A recent study found that 40 percent of Americans said the quality of care has declined over the past five years (Bleich 2005, 9). The CEO feels strongly that Hillside must live up to its mission, and he knows that as a public hospital Hillside would be under close scrutiny to see that it did.
Question: In the above case study, a health care executive is faced with an ethical problem. a). Explain the executive’s ethical issues faced. b) Proposed a solution to the issue.
