Health systems are shaving off dozens of non-clinical employees in an effort to mitigate rising expenses—and the cuts are reaching the top rungs.
Headcount reductions are affecting employees at all levels, from back-office billing to the executive ranks. In some cases, systems are eliminating entire organizational layers and restructuring the remaining positions.
While the COVID-19 public health emergency ends Thursday, health systems of all sizes still struggle with clinical staffing shortages, lower patient volumes and rising expenses, and federal relief funds are no longer a crutch. As a result, systems are refocusing on core operations and leaving the mundane daily tasks to automated programs.
What’s unclear is whether the changes are temporary reactions to a financially challenging environment or part of a longer-term shift toward leaner operations.
“[Health systems] got some cushion from federal relief, but now that that’s gone, they have to rely on their operations to earn money,” said Ge Bai, an accounting and health policy professor at Johns Hopkins University. “It’s a good thing now they are trying to identify the portion, the component, of their cost structure that might not be efficient and try to cut it.”
Streamlining operations
Rapid City, South Dakota-based Monument Health laid off 80 employees last week, or about 1.5% of its workforce, most of whom were in corporate service roles such as billing, marketing and human resources. The nonprofit system, which operates five hospitals, more than 40 clinics and several specialty centers, cited rising costs of medical supplies and staffing, plus low reimbursement rates from payers. Monument declined an interview request.
“Our goal is to always be good stewards of resources. This is why we continue to take thoughtful actions to ensure we are providing quality care, achieving our budget goals and positioning ourselves for future growth and success,” a Monument spokesperson said in a statement.
For Providence, changes to non-clinical positions were the result of a larger restructuring that eliminated management layers and back-office positions for a more efficient–and potentially more profitable–operation.
The Renton, Washington-based nonprofit system shrunk its seven regional divisions to three last year, cutting some executive leadership positions and revising its shared services model to support consolidated operations. The system, which did not specify how many positions were affected, said the shift was meant to reduce overhead costs and funnel more resources to frontline workers.
“It’s essential that we look at every opportunity to create streamlined systems, so that we can have speed to execution. And, in our case, some of these decisions resulted in not only efficiencies, but allowed us to keep caregivers at the bedside,” said Erik Wexler, chief operating officer at Providence.
As part of the consolidation, Providence trimmed duplicate operations and eliminated some of employees’ day-to-day tasks, Wexler said. For example, some employees are required to attend monthly operational review meetings for each division, but the number of meetings went from seven to three, freeing up hours in the workday.
“Just believing we can continue to do everything that we were doing before and do it effectively with less people is not realistic,” he said.
In some cases, Providence had to slow the consolidation process to ensure the right resources were in place as operations shifted, he said.
The result has been less siloed care delivery operations, Wexler said. Providence’s footprint spans 52 hospitals and more than 1,000 clinics across seven states.
Jefferson Health, a Philadelphia-based nonprofit system, announced earlier this year it is consolidating five divisions into three—with a president overseeing each one. When the consolidation was announced, a spokesperson said the change would “streamline processes and optimize our health system,” but declined to comment on layoffs resulting from the reorganization. The 18-hospital system declined an interview request.
Reducing expenses
A March study in the Journal of General Internal Medicine, co-authored by Bai, found hospitals’ administrative costs grew at a faster rate than clinical costs after the pandemic hit in 2020. The study, which assessed more than 1,400 Medicare-certified acute care hospitals, found median administrative expenses increased 6.2% from 2019 to 2020, compared with a 0.6% increase in clinical expenses during that period. The higher rate in administrative expenses may reflect pandemic-era operational efforts or inefficient cost management, according to the study.
Health systems are seeing rebounds in patient volume in 2023, but that revenue is often not enough to cover rising costs.
“Hospital margins are near zero,” said Lori Kalic, healthcare senior analyst at professional services firm RSM US. “They’re dipping into their reserves to pay their bills. … I think many hospitals needed to do some quick layoffs in the administrative levels—because there’s still clearly clinical need—in order to keep their doors open.”
Systems want employees to focus on the work core to operations, including patient care, rather than mundane tasks that could be automated, said Dr. Rupal Malani, senior partner and leader of provider work in the healthcare practice at consulting firm McKinsey & Co.
To achieve that goal, many health systems are investing in digital capabilities, including data analytics-driven programs and artificial intelligence that remove employees from administrative tasks and allow them to use higher-level skills. Electronic medical record platform Epic, for example, can help organize physicians’ messages, prioritize cases and evaluate whether another staff member could handle them, RSM’s Kalic noted.
Within core operations, healthcare executives are taking a closer look at what their organizations do best and focusing resources on those services. Doing so will be important as disruptive mega-retailers such as Walmart, Walgreens and CVS Health push for market share in care delivery, Kalic said.
“The more and more success [retailers] have, I think it’s going to resonate, and I think folks are going to respond,” she said. “I do think that the way that we have been traditionally served will change.”
“If the right decisions are made, the right strategic decisions, I think that the strong hospitals will make it through,” she added.
