Amid record profits, MultiCare plans cuts

Pierce County’s largest private employer, MultiCare Health Systems, has offered buyouts and is planning for layoffs as it starts cutting $300 million from its operating expenses during the next three years.

Of the system’s 11,000 employees, some 2,000 of them were offered buyouts this fall in the first round of cuts. Managers will decide by mid-November how many buyouts to accept and how many layoffs might still be necessary. Those whose buyouts are accepted will leave their jobs by mid-December.

The expense reduction plan is designed to help MultiCare stay ahead of the rapidly changing health care market, every part of which is demanding that health care be less expensive. To remain a healthy nonprofit organization, new CEO Bill Robertson said in late October, providers must adjust to lower payment rates from Medicare, Medicaid, private insurers and patients themselves.

A half-dozen employees interviewed by The News Tribune expressed disappointment in the cost-cutting plan, and worry about the quality of their jobs and of the care they provide if staff numbers shrink.

By the end of 2015, MultiCare will have reduced its expenses by the first $100 million, he said. That’s about 6 percent of the system’s operating expenses, which ran about $1.6 billion in 2013.

“We want to work on things instead of people. If you can reduce costs of buying supplies or be more energy efficient, that’s good,” Robertson said, emphasizing that the savings won’t be found solely through eliminating jobs. But job loss is inevitable as MultiCare becomes more efficient, he said.

“Things that aren’t direct patient care is where we’re starting first,” Robertson said. The first year will be focused on trimming “overhead type activity.” But in future years, doctors, nurses and other medical professionals also will be affected.

Discussions about reducing expenses began in early 2014, before Robertson was hired. Neither he nor any other MultiCare employee will take a pay cut, he said.

Some of the departments that received the first 2,000 buyout offers include accounting, facilities, finance, information technology, human resources, marketing and philanthropy. Also included are housekeeping, janitorial and nutrition services, which many employees contend are directly related to patient care.

“You can’t separate the person who empties the garbage to the person who takes out your appendix,” said Karla Rudy, a medical technologist at Tacoma General who has worked for MultiCare for 26 years. “Does a housekeeper take out an appendix? No. But does a surgeon having a clean room and appropriate supplies matter to patients? Absolutely.”

Another longtime MultiCare employee was philosophical about how to face change in the organization.

“It used to be every five to 10 years there was something new on the horizon,” said Patricia Brown, a licensed practical nurse for women and newborns at Tacoma General. She’s worked for MultiCare for 31 years. “A lot of us got used to buying new seat belts and holding on for the ride.”

MultiCare Health Systems operates five hospitals, 26 primary care clinics and 10 urgent care centers. It operates primarily in Pierce County and South King County, and has facilities in Kitsap and Thurston counties. It has had cost-reduction plans in place for the past several years, which is on track to save $42 million in 2014, spokeswoman Marce Edwards said.

The last time cost cuts resulted in layoffs was 2011, she said.

In the past few years, other health systems in Western Washington have cut costs on the order of hundreds of millions of dollars: Seattle-based Group Health striving for $250 million in cuts in 18 months, and Vancouver-based PeaceHealth cutting $130 million in a year. Renton-based Providence Health & Services has reorganized and laid people off. Particularly in the case of Group Health, those cuts were driven by the prospect of a financial loss.

MultiCare is not in that situation. It is has not recorded a loss in 10 years, Edwards said, and does not anticipate one. It is profitable — in fact, 2012 was its most profitable year, when it recorded an operating margin of $207 million. That’s more than three times the system’s profit from the year before, which was $63.5 million.

A big part of that swing can be attributed to the fact that in 2011, tax forms show, the system lost about $24 million in investment income. In 2012, however, it showed a gain of about $41 million in investment income. Plus, the health system had made layoffs in 2011 whose cost savings were felt in 2012.

The organization also has spent more than $750 million on construction and improvement projects since 2010. It has built a new tower at Good Samaritan, a new emergency department at Covington, two new floors on Mary Bridge, and a new birth center and NICU as well as significant upgrades at Auburn, Edwards said.

“These all either replaced old and outdated facilities or responded to growth and demand for services from the community,” she said.

Health care delivery in the United States is changing rapidly, in large part due to the 2010 passage of the Affordable Care Act. The law, also known as Obamacare, increased the number of people with health insurance by overhauling the insurance market and funding the states’ expansion of Medicaid, a public program for low-income people. It also is changing the way the federal government pays for care — a dramatic change, since through Medicare and Medicaid, the federal government is the largest single payer of health care costs.

Medicare and Medicaid reimbursements are moving from a fee-for-service model, where treatments are reimbursed for a set amount, no matter if it works or not, toward one that ties payments to whether a patient is healthier or not.

Reimbursements from those programs have always been less than what hospitals say it costs to provide the care, and private insurers had helped to close that gap. Now private insurers also are demanding lower costs, as they work to provide affordable insurance plans to more people and employers. Employers also have been pushing a larger share of their insurance costs onto their employees, causing employees to have higher premiums and higher deductibles. Understandably those employees want maximum bang for their buck.

All of this leads to the conclusion health system executives can’t escape: Health care costs too much. They must close the gap between what they are spending to provide care and what employees, businesses and taxpayers will actually pay.

“There’s no doubt the providers can influence the cost of care,” said Mary Kay Clunies-Ross, spokeswoman for the Washington State Hospital Association. Hospitals “have to do this. There’s a real awareness on the part of hospitals that on one hand, we hire a lot of people and employ a lot of people at good wage jobs, and that’s good.

“On the other hand we know the effects of expensive health insurance on small business,” she said. “That’s where the pressure comes in on creating value.”

Tacoma-based CHI Franciscan Health has no broad cost-cutting plans in place, spokesman Scott Thompson said, though it continually looks for ways to reduce expenses. To deal with coming changes in federal reimbursements, Franciscan and the Northwest Physician Network formed an Accountable Care Organization in early 2013. ACOs were created by the Affordable Care Act with this idea: Doctors work together in treating a defined group of patients and share with Medicare any savings generated from lowering the growth of health care costs while meeting standards for quality of care.

MultiCare announced the formation of its own ACO in August.

Meanwhile, labor unions representing nurses and other medical workers undoubtedly will face the issue of cost-cutting as contracts are negotiated.

“There is a grand negotiation taking place right now which involves many many different contracts,” said Tom Geiger, communications director for United Food and Commercial Workers Local 21, which represents more than 2,000 employees of MultiCare. “It’s been going on for a little over a month. So it’s in the early stages.”

Employees not directly affected by the first year’s cuts are watching closely.

Even if nurses’ jobs aren’t the focus now, eliminating positions that support them increases the demands on nurses and reduces the amount of time they spend with patients, said Christine Himmelsbach, assistant executive director of labor relations for the Washington State Nurses Association. The WSNA represents about 1,500 registered nurses at Good Samaritan and Tacoma General.

Other MultiCare employees have been expressing their frustration for months.

“We went to an open forum with management (recently) and said, your mission statement says one thing and it’s really difficult when you’re cutting. And you’re still building at Covington. And last year you had record profits,” said Grace Land, a sterile processing technician who has worked at Good Samaritan Hospital for 31 years.

Land is a union delegate for Service Employees International Union Local 1199NW, which represents more than 1,200 service and technical employees at Good Samaritan. Their contract isn’t up again until 2016. She and her colleagues particularly are worried about cuts in janitorial and housekeeping staff. The hospital already is having trouble removing trash and waste in a timely manner, she said.

As an example, she said, she and her colleagues often have a difficult time retrieving instruments that need to be sterilized from a trash room on the labor and delivery floor. The room is too small to hold all the waste, and sometimes it’s difficult to even open the door.

“It’s really sad,” Land said. “It used to be about patient care. Now the tone of conversation is all about money and cuts and cost-savings.”

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