UNC Health Care officials say the recent layoffs at Atrium Health in Charlotte are not warning signs of changes that await UNC if the two organizations combine operations.
Atrium, then called Carolinas HealthCare, launched a four-year cost-cutting initiative in November, just a few months after the proposed deal with UNC was announced. The news of Atrium’s cost-cutting strategy was reported last week by The Charlotte Observer after the paper obtained documents that showed the health care giant planned to cut $300 million from operating expenses and eliminate 90 jobs.
Since announcing its intention to join forces with UNC Health Care in August and launching its cost-containment strategy, the Charlotte hospital system rebranded itself as Atrium and entered talks to combine operations with Navicent Health, a five-hospital network in Georgia.
Last week UNC Health Care CEO William Roper said negotiations between Atrium and UNC are snagged on the question of who will have ultimate control of the joint operating company. Roper said one of the most sensitive issues is protecting the independence and integrity of UNC’s medical school, of which Roper is the dean.
Atrium’s move to cut costs has refocused attention on questions of corporate control that will have to be faced if Atrium and UNC form their joint operating company, which will be controlled by an independent board.
“This is part of the issue,” said Leo Daughtry, a member of the Board of Governors of the 17-campus UNC System. “Who’s going to make these kinds of decisions? How much sway will UNC have in making decisions about cost-cutting?”
“We haven’t resolved that issue,” added Daughtry, who’s a member of a six-person special committee the Board of Governors has delegated to review the potential risks and payoffs of a UNC Health Care partnership with Atrium.
As part of its Destination 2020 strategic plan, Atrium is seeking to bring its labor costs and operating costs in line with comparable hospital networks across the United States. One of the metrics Atrium is assessing is the amount of money it pays to employ its 60,000-person workforce compared to the amount of its net operating revenue. Atrium’s labor costs represent about 59 percent of its net operating revenue, while UNC Health Care’s performance in fiscal 2017 was slightly better, at 54.7 percent.
UNC spokesman Alan Wolf said that imposing a labor-to-revenue formula on UNC Health Care’s 30,000-person workforce is not part of the discussions between the two companies.
“UNC Health Care’s financials (and debt) would remain separate and would not be subject to Atrium’s 2020 targets/goals,” Wolf said by email.
Wolf said UNC Health Care started its own strategic plan three years ago, dubbed Carolina Value, to boost revenue and squeeze efficiencies from operations. UNC achieved $300 million in annual savings without layoffs, he said. UNC doesn’t attempt to meet a specific labor-to-revenue ratio, like many other hospitals do, Wolf added.
The hospital industry is in the midst of a major consolidation wave as hospital administrators contend with shrinking Medicaid reimbursements and federal penalties for excessive hospital readmissions and failures to meet other federal performance targets.
Daughtry said the question of corporate control covers much more than staffing. He said it will determine how the organizations spend a potential $50 million on rural health care, among many other decisions.
Atrium told Beckers Hospital Review, a trade publication, that its goal is to eliminate jobs through attrition and not filling vacancies. Of the 90 employees laid off, eight were in clinical roles and 82 in non-clinical roles, including the cabling department that handled low-voltage cabling installations. Some employees had their hours reduced and others may be limited on overtime.
Atrium continues to hire new workers as it streamlines other operations and expects its total workforce to be larger in 2020 than it is today.
A combination between Atrium and UNC Health Care would create one of the nation’s largest hospital networks, numbering some 90,000 employees and about 60 hospitals. Integrating the two workforces and combining corporate cultures remains a significant challenge.
“It’s one of the many things, when you look at integrating two companies,” said Atrium spokesman Chris Berger. “This is how you run a business, whether you’re in banking or in health care or wherever.”
Berger said strategic planning is essential “so we can continue to survive in today’s world.”