Midtown Raleigh News

WakeMed faces first financial loss in years

WakeMed Health & Hospitals, one of the Triangle’s largest employers, is facing its first potential financial loss in years at a time that hospitals statewide are scrambling to rein in costs, reduce new hires and in some cases lay off workers.

The CEO of the sprawling health care system, Bill Atkinson, warned employees this month of difficult decisions ahead in cost reductions and workforce “alignment.” Atkinson also notified a Raleigh community care organization not to count on a significant WakeMed donation in its coming year’s budget.

The health care sector has historically been one of the bright spots of the Triangle’s economy, producing high-paying jobs and investing millions in new facilities in a never-ending competition for new customers. Hospitals were not immune to the recent recession as thousands lost jobs and health insurance and put off elective surgery. Now hospitals are facing changes in federal and state policies that will result in stingier payments for health services in an attempt to staunch runaway health care costs.

Local hospitals have been affected to varying degrees by the changes, and experts predict that the industry will adjust with leaner workforces and survival through mergers and consolidation.

WakeMed, which employs about 8,500 people, has lost about $15 million in the fiscal year that ends in September. At the same time, the hospital is transitioning to a software system that will cost it $100 million. Policy changes at the federal and state level will cost WakeMed about $23 million in the coming year, hospital officials estimate, and the hospital is juggling several regional multimillion-dollar expansions.

“We’re working on solutions,” Atkinson said Tuesday. “We’re not going to stop doing the mission. We’re just not.”

Those policy changes will cost about 130 North Carolina hospitals as much as $1.3 billion in the coming year, according to the N.C. Hospital Association.

Up to $800 million of that loss will come from reduced Medicare reimbursements; an additional $414 million represents lost revenue from the state’s decision not to expand Medicaid coverage, which will likely mean that some who would have benefited will seek hospital care without insurance.

“Reduction of costs is going to be a way of life,” said Victor Dzau, CEO of Duke University Health System. “Everyone thinks that health care costs are too high.”

The N.C. Hospital Association estimates that hundreds of hospital jobs will be eliminated in the coming year. In his letter to employees, Atkinson wrote: “You will see some tough choices are going to have to be made, which are likely to impact certain services we provide and some of the talented workforce we employ.”

The changes are already rippling through the Triangle, where Duke Raleigh Hospital recently laid off 27 people in the expectation of lower patient volumes, and WakeMed cut 31 jobs several months ago. Wake Forest Baptist Medical Center in Winston-Salem has announced it will eliminate 950 positions, many of them unfilled or temporary, while Cone Health in Greensboro plans to lay off 150 and erase 150 vacant slots.

“We face downward pressure on our finances from every direction, including private insurers, federal government and state government,” said William Roper, CEO of UNC Health Care, which includes Rex Healthcare in Raleigh. “We are being asked to do more with less, and we will.”

Rex expects $20 million less in revenue in the coming year as a result of federal and state policy changes, said Steve Burriss, the hospital system’s chief operating officer. Rex, which employs about 5,300, remains healthy overall, expecting a $38 million operating profit for the fiscal year that ended June 30.

Rex able to cut some costs

Rex was able to trim $4 million from annual expenses in the past year by switching vendors for medical supplies. The hospital has also slashed its marketing budget by 40 percent, said Rex’s chief financial officer, Bernadette Spong.

Duke University Health System, which employs about 15,000 people, started taking costs out of the system in 2008, Dzau said. The organization has taken several hundred million dollars out of its operating costs, he said.

“We’ll be even more aggressive in the coming two years,” Dzau said. “You’re more likely to see maybe zero growth.”

Atkinson said WakeMed’s system is vulnerable because it devotes substantial resources to indigent care and to those covered by Medicare and Medicaid. Increasingly, Atkinson said, WakeMed is the last resort for people with mental illness. Some such patients can languish for days at a time in the hospital.

“We are serving as a safety net,” Atkinson said. “There are many people who run away from their responsibility, and the buck stops here.”

WakeMed will see some relief as UNC is adding 28 psychiatric beds in Wake County to resolve a public spat between the two after WakeMed launched a hostile takeover bid for Rex Healthcare, which UNC owns.

Despite the worrying message of Atkinson’s letter, WakeMed is adding positions to staff expansion projects. It also plans to open a $17 million emergency department in Garner in several weeks that will employ about 150 people, and a $62 million North Women’s Hospital in Raleigh that is projected to employ 442 people.

But there isn’t enough money to go around. Atkinson notified CapitalCare Collaborative in Raleigh not to expect a significant donation this year. The organization refers uninsured people to free medical care and provides other services.

“You should not consider WakeMed as a significant part of your FY14 budget plans,” Atkinson’s email said. “Hopefully we can do something, but it will certainly not be near the $90,000 you have mentioned.”