Legacy Health System Tightens its Belt

December 21, 2010 -- The down economy and lower-than-expected patient volumes have forced Legacy Health System to ask all employees, including those in the front office, to make a concerted effort to reduce costs.

 

However, there haven’t been any layoffs or pay freezes at any of Legacy’s five hospitals, said Brian Terrett, director of public relations. But they have asked administrative staff to adopt flexible work schedules where they take advantage of their time off.

 

Legacy also has taken a close look at hiring for any vacant positions.

 

“We were very careful,” Terrett said. “We set up a review committee that looked at all the hiring and considered if we needed to fill certain positions and whether it was critical.”

 

In the first six months of Legacy’s fiscal year ending September 30, discharges at all Legacy hospitals declined 8.5 percent compared to the previous year. Total net revenues were down 2.2 percent, and operating income was $22.2 million with a 3.4 percent margin compared to $29.4 million with a 4.6 percent margin in 2009. Overall, its  hospitals budgeted for an operating margin of 5.1 percent. 

 

Those figures were revealed in an email by Pam Vukovich, senior vice president and CFO, to Legacy employees on October 28, according to documents obtained by The Lund Report.

 

“The fact that we are already well below our budget targets during what is traditionally our most profitable time of year is not encouraging,” according to Vukovich. “Now, especially with declining patient volumes and reimbursements, we need to be as lean as possible and continue to examine the costs that support the delivery of patient care.”

 

She also added, “Accordingly we must try to ensure that Legacy stays financially healthy as we move through the second half of the year and take actions as appropriate.”

 

Since October, patient volumes have increased somewhat, Terrett told The Lund Report today. The dire circumstances also come in the midst of building a $242 million new children’s hospital across from Legacy Emanuel Medical Center.  

 

Typically, financial data about hospital performance is delayed about a year. Earlier this month, hospitals reported above average levels of uncompensated care in 2009, which resulted in lower-than-expected operating income. 

 

The recent disclosure by Legacy reveals that the downward trend among Oregon hospitals likely continued through most of 2010.

 

Legacy’s President and CEO, Dr. George Brown, sent a similar message to employees on November 9. While in-patient care has declined, he wrote, ambulatory care has increased, which is also reflective of a national trend. As a result, Legacy would be shifting resources accordingly. “We are planning for flat inpatient volumes next year,” he said.  

 

Brown also wrote about preparing for medical homes and Accountable Care Organization models under healthcare reform while at the same time reducing costs.

 

“These are fundamentally different business models with different payment methodologies, and we must be prepared to do both at once while healthcare is transforming. Healthcare is changing in many dimensions and the rate of that change is increasing. It is clear that we need to continue to respond to these external forces and transform Legacy.”