Red ink leads to pink slips

HOMER -- Five of South Peninsula Hospital's upper-level managers lost their jobs recently as the administration worked to stop the flow of red ink, which has plagued the hospital in recent years.

"For the last two fiscal years, South Peninsula Hospital's financial performance has not met our goal of breaking even from operations," CEO Charlie Franz said last week. "The hospital's management team examined many alternatives and implemented cost-saving measures wherever possible. However, by mid-December of 2000, the hospital's financial performance for this fiscal year was much worse than projected."

Franz estimated the shortfall halfway through the July-June Fiscal Year 2001 at $622,000.

The hospital also eliminated two union jobs -- emergency room/in-tensive care coordinator and food services coordinator -- but those positions were vacant already and no one lost a job.

The two main reasons for the layoffs, Franz said, were reductions in reimbursements from the federal Medicare and state Medicaid programs and a significant rise in the cost of health care for the hospital's own employees.

The five managers laid off were Patient Care Services Director Dotty Breeding, Plant Operations Director Tony Parker, Materials Manager Joe Hannigan, Executive Assistant Debbie Hannigan and Personal Care Attendant Program Manager Sue Shover.

Franz said he was not happy having to let longtime employees go.

"It was awful. It was the worst thing I've had to do since I've been here," he said.

Franz called the action "drastic" but "necessary for the long-term financial viability of the hospital."

Essential functions performed by the five managers will be shifted to other departments and spread among the remaining administrative staff.

"Our intention was to make cuts in management and administration and keep the direct-care employees," Franz said. "We'll just have to do more with less at the management level."

There are no plans at this time to refill any of the positions. At least one of the five managers, Shover, would be eligible to apply for a future nursing position if she wishes, Franz said.

The employees were given severance packages, but Franz provided no details.

Bruce Turkington, president of the hospital's board of directors, said the firings were necessary not because of any failure of the hospital, but because of policy changes regarding reimbursement schedules for Medicare, Medicaid and the like.

The hospital administration is following the board's policy of trying to operate on a break-even basis, and even though that goal has not been reached, the effort continues.

Hospitals across the nation are all facing the same kinds of changes. The board, Turkington said, wants South Peninsula to be able to continue as a full-service facility but avoid requiring subsidies.

"That's not an easy task," he said. "It will take a lot of team effort to streamline."

He said South Peninsula Hospital has no intention of getting into a position that might force it to go under, but it will have to make readjustments. The trick will be to make those adjustments without hurting the quality of service, he said.

South Peninsula Hospital has a self-insurance program under which hospital employees can make use of hospital services, which are paid for by the hospital. This includes the cost of transportation and hospital stays at other facilities if necessary.

Franz said that the aging of employees probably has contributed to the rise in self-insurance expenses. Those health-insurance costs doubled in the 2000 fiscal year.

"We thought it was an anomaly and that it would go back to the level of the previous four years," he said. "If it continues at this rate we will exceed last year's expenses."

Charlie Button, chief finance officer for the hospital, said the $622,000 is the shortfall below the break-even budget, adopted last year, and represents higher expenses and lower revenues through half the budget year. The hospital adopted a budget expense projection of about $15 million overall and is running at an annual rate of about $16 million now.

None of the five laid-off employees would comment.

Hal Spence is a reporter for the Homer News.