By Jeffrey Krasner
Globe Staff / March 6, 2009
Beth Israel Deaconess Medical Center, facing a $20 million loss this year, says it is cutting expenses by freezing salaries for some employees and reducing top executives’ pay, and also considering layoffs.
In an e-mail to employees, chief executive Paul F. Levy said the expense cuts are necessary because of state cutbacks on Medicaid payments, a disappointing contract with Blue Cross and Blue Shield of Massachusetts, and an unexpected drop in patient volume.
"Right now, at best, we can break even for the year if patient volumes return to budgeted levels," Levy said in the e-mail. "However, if they stay at current levels, we will face an operating loss of up to $20 million. This is the contingency for which we must prepare, or else we will have insufficient funds to invest in the buildings, plant, and equipment needed."
The cutbacks at Beth Israel Deaconess come as hospitals across the nation face severe budget shortfalls. Many are seeing fewer patients as more people become unemployed and lose employer-paid health insurance or can’t afford copayments for treatment. Others have put off elective surgery and other optional treatment to save money.
In addition, many hospitals de pend on charitable donations from wealthy philanthropists, as well as income from investments. Between the Bernard Madoff scandal and the plunge in the stock market, much of that income has evaporated for many institutions. Many Boston hospitals also hold annual fund-raising activities in Palm Beach, Fla., where numerous residents have been affected by the Madoff scandal.
Other hospitals in Boston’s Longwood Medical Area are facing financial difficulties similar to those at Beth Israel Deaconess.
Last month, Dr. Edward J. Benz Jr., president of Dana-Farber Cancer Institute, spelled out cost reductions, including eliminating 100 of 3,575 full-time jobs, slowing the growth of capital spending in 2009 and beyond, and postponing plans to lease 100,000 square feet in a new research tower on Longwood Avenue.
Benz said that while patient volumes continued to grow, the institute had lost about 30 percent of its endowment and it is anticipating much lower donation levels. Of all the Boston hospitals, Dana-Farber has the most extensive fund-raising operation in Palm Beach.
A spokeswoman for Children’s Hospital Boston said the hospital has been trimming expenses for several years, but has stepped up cost cutting in light of the poor economy.
"We’re in the process of preparing for what we think will be a tough 2010," said Michelle Davis. "We want to avoid layoffs at all costs, so we’re looking at attrition, vacancies, transfers among departments, and avoiding hiring temporary help."
Beth Israel Deaconess, one of the city’s renowned teaching hospitals, had predicted an operating surplus of about $18 million for the current fiscal year, which ends Sept. 30.
Levy said cost cutting would focus on personnel expenses. In the memo to staff, he said he doesn’t know how many jobs may have to be eliminated, but suggests that layoffs could be minimized if employees voluntarily gave up some vacation or sick days, accepted voluntary pay cuts or furloughs within units, or gave up a 3 percent pay raise scheduled for April 1.
He said he would reduce his own pay by 10 percent, and that vice presidents and senior vice presidents have been asked to take voluntary pay cuts of 5 percent. Bonuses for senior managers are being eliminated for 2009, he said, so top executives’ total pay cuts could amount to 25 percent.
Levy said he will hold staff meetings to explore ways to save $20 million with as few layoffs as possible. Beth Israel Deaconess’s patient volume increased 4 percent in fiscal 2007 and 4.6 percent in 2008. So far in this fiscal year, it is down 1 percent, a hospital spokeswoman said.
Jeffrey Krasner can be reached at firstname.lastname@example.org.