GRAND RAPIDS — Spectrum Health plans to aggressively cut costs, starting with executive pay cuts, to shore up finances that have been hit by the COVID-19 pandemic.
As with hospitals and health systems across Michigan, Spectrum Health’s revenues are down after having to postpone or cancel non-urgent and non-emergency surgeries, procedures and clinical appointments to prepare for an expected surge in COVID-19 patients. That resulted in “a multimillion dollar reduction in revenue in just one month,” Spectrum Health said today.
At the same time, hospitals have had to increase spending for personal protection equipment for staff. Spectrum Health said it spent “more in one month than it would typically spend in one year on these supplies.”
As a result, Spectrum is “aggressively reducing expenses and prioritizing what must be done in 2020.”
“With the accelerated rate of change in the organization’s operations, there will be some positions that will not be needed in the future. These are not roles that care for patients,” the Grand Rapids health system said today in a statement.
“While West and Southwest Michigan have yet to experience a patient surge comparable to other parts of the state and country, the impact on Spectrum Health’s finances and operations are dramatic,” according to a statement. “The health system expects that unemployment and economic pressures will continue to impact people’s ability to pay for health services in the future. The financial impact is far-reaching and will suppress the health system’s revenues for the remainder of the year, making a course correction imperative.”
President and CEO Tina Freese Decker will take a 40-percent pay cut and her direct leadership team will see a 30-percent reduction. Executives also will donate surplus paid time off to a fund for employees in need of extra paid time.
Additionally, Spectrum Health intends to halt contributions to employee retirement accounts from July through December.
“Our team members have done an outstanding job of rising to the challenges presented by COVID-19, and to help take care of the community we serve. I could not be more proud of our team,” Freese Decker said. “None of us would have chosen to be in this COVID-19 storm and experiencing this level of disruption, but we must adapt. We are making very difficult decisions that will reshape our organization going forward. We will maintain our unwavering commitment to high-quality patient care and innovative health insurance products — offering value in ways that matter most to people, such as affordability, convenience and personalization.”
Many health systems have been taking similar actions, including temporarily furloughing staff.
The Michigan Health and Hospital Association estimates that in the last two weeks of March, after a state executive order was put in place to postpone or cancel non-elective surgeries and procedures, member hospitals across the state lost more than $600 million in patient revenue from the pandemic.
The loss in revenue is on top of losses in their investments and the minimum $150 million that hospitals in Michigan have spent on unbudgeted expenditures “in a very short time,” MHA CEO Brian Peters told MiBiz. That “conservative estimate” is based on information from about three-quarters of the MHA’s member hospitals, according to Peters.
Hospitals have been hit not just by the loss of revenue but the unplanned and unbudgeted costs related to responding to the pandemic and preparing for a possible patient surge.
“It has already impacted our hospitals and health systems very significantly in Michigan and that impact is going to be felt more severely in the months ahead, there’s no question about it,” Peters said. “And every day that goes by, those numbers get worse.”
Further relief for hospitals from the federal government — beyond what’s already been appropriated under the CARES Act — “is going to be desperately needed,” Peters said.
Trinity Health, the parent corporation of Mercy Health, earlier this month said it would furlough about 2,500 mostly non-clinical employees over the next few weeks, as MiBiz previously reported.
The furloughs will affect about 10 percent in Trinity Health’s workforce in Michigan who work at Mercy Health and Saint Joseph Mercy Health System. The move will “enable the health systems to focus resources on the functions directly related to essential COVID-19 patient care needs, while protecting people and helping to prevent the spread of the virus.”