The following statement was released by Genesis Health System on Friday, May 2, 2014:
DAVENPORT, Iowa – May 2, 2014 – Genesis Health System today announced a new wave of cost-cutting initiatives in response to the changing economic circumstances.
Among the actions announced today, Genesis will eliminate about 30 management positions, including its Chief Operating Officer and Senior Vice President. This reduction represents a cut of about 17% of all management positions. Furthermore, the Genesis CEO and remaining executive team have agreed to a voluntary pay cut. In making the announcement, Ken Croken, Genesis V.P. of Corporate Communications commented: “When times are most challenging, leaders must step forward and be the first to make the hard decisions for themselves as well as others.”
Genesis also has redesigned and reduced its overall employee benefits package in order to preserve an additional 160 staff positions. These benefit changes include revisions to its health insurance plan that will provide even more financial incentive to employees to participate in the Genesis wellness plan that has dramatically reduced the organization’s health care costs over the past six years. Other changes include a temporary reduction on employer “matching” contributions to Genesis employee individual retirement accounts. Croken said: “The decision to undertake these reductions in benefits is regrettable. But, on balance, it is greatly preferable to a deeper reduction in jobs.”
Genesis also announced it will eliminate about 50 staff-level jobs, a number that represents less than 1% of the total Genesis workforce of more than 5,200. “In order to preserve the patient care staffing standards that have made Genesis a national leader in quality and patient safety, Genesis will focus its position elimination action on fixed and support service expense staff and away from direct patient care areas,” Croken explained. “No doubt, this will cause a great deal of distress for those who will lose their jobs. For this, I am deeply sorry. However, severance payments and other assistance will be provided to these workers in order to minimize the financial impact,” Croken added. All affected Genesis employees will be notified on or before May 16.
According to Croken, Genesis is not alone in facing the financial challenges of the new health care economy. The transition from the traditional fee-for-service health care model to a population health and wellness approach has created a significant gap between expenses and revenues for health care systems across the nation. “These are national issues, not local ones,” Croken said. “Today, more than 60% of American hospitals are running ‘red ink’ and other world-class health providers are taking similar actions.” Croken noted that both Cleveland Clinic and Vanderbilt University recently announced major workforce reductions.
Declining Medicare payments and more restrictive rules regarding those reduced payments have created a significant financial shortfall, according to Croken. “Remember, Medicare insures more than half of all Genesis patients. So, even a small rate reduction has a significant impact on overall revenues. This is exacerbated by the underlying geographic disparity in the Medicare program that pays providers in different states different amounts for the identical service. Iowa providers are among the lowest paid in the nation.”
Today’s announcement comes on the heels of aggressive actions taken by Genesis over the past few years to respond to the changing health care environment. To date, Genesis has reduced its cost structure and improved financial performance by $25 million annually. “Since then, our patients have benefited from improved quality and patient safety as Genesis has become a more affordable health care provider for the community,” Croken added.
The next wave of cost-savings is expected to result from a multi-million-dollar building project at Genesis Medical Center, Davenport. Announced last year, the new state-of-the-art facilities will allow Genesis to centralize and modernize surgery, short-term acute care and medical services on the East Rusholme Street campus and better control costs. “Consolidating these in-patient services will increase operational efficiency, reduce transportation costs, improve customer service and enable revenue growth as Genesis emerges as a regional health care destination center,” Croken said. Increasing operational efficiencies and customer services is also the goal behind the new Genesis HealthPlex developments in Moline and Bettendorf.
“As we have for nearly 150 years, Genesis will overcome this latest financial challenge and emerge a stronger, more patient-centered organization that is better positioned not only to survive but to thrive going forward,” Croken concluded. “As the Quad Cities only locally owned health care system, we owe this community no less.”