Overbuilt, overstaffed, top heavy, hospitals ripe for cuts

October 3, 2013
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The anger has been palpable among IBJ readers commenting on our recent stories about Indiana University Health's layoffs, which have affected a whopping 935 jobs.

Many commenters blamed hospital executives for overbuilding and overstaffing in recent years, and for paying themselves massive sums in the process. The numbers make it hard to argue with those sentiments.

I've covered the aggressive building by Indianapolis-area hospitals many times, including here.

But it's worth taking a look at hospitals' hiring and executive pay.

From July 2007, before the recession hit, until July 2013, Indiana hospitals added 12,000 employees, to bring their total payrolls to 117,100 workers, according to data from the Bureau of Labor Statistics. That marked growth of 11.4 percent. Physician offices and nursing organizations, many of which are also owned by hospital systems, saw slightly slower but still significant employment growth.

During that same time, all private employers in Indiana cut their workforces sharply and as of July 2013, were still about 30,000 jobs short of their employment levels in July 2007.

"Have they been THAT overstaffed all these years," wrote a reader about Indiana University Health and St. Vincent Health, which cut about 865 jobs at the end of June. "If so ... that partially explains why our medical bills are so high. How was this overstaffing allowed to happen?"

Good question. I don't know the precise answer, but I do know hospitals have been slow to find ways to treat patients with fewer people—mainly because there was no financial reward for doing so. I'll have a story in Saturday's IBJ explaining how this is beginning to change.

And what about executive pay? It's been going up and up. Part of that is due to the fact that all the Indianapolis-area hospitals have become much larger and more complex organizations, as they have acquired physician practices and smaller hospials.

The Indianapolis Star did an interesting analysis last year showing that the pay of the CEOs of Indianapolis-area hospital systems rose as much as 53 percent from 2008 to 2010. 

From 2008 to 2011, compensation for IU Health CEO Dan Evans rose from $1.8 million to $2.3 million, according to the most recent IU Health reports to the Internal Revenue Service.

"How much of a cut is Dan Evans taking?" asked another IBJ reader. "Or, for that matter, are any other IU Health execs giving up something? I'd bet a billion bed pans they're not giving up a dime."

I'm sympathetic to this position. It would endgeneder lots of good will if execs took a pay cut to share the pain and spare a few people their jobs.

But no one should get the idea that cutting executive pay could have offset all these job cuts. Consider that even if Dan Evans took a 20-percent cut in his compensation—or $460,000 a year—that still would have preserved only about six to eight jobs at IU Health. If you're looking for mistakes by the hospitals, overbuilding and overstaffing are better candidates than excessive executive pay.

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  • Overstaffed???
    While many may think the hospital is overstaffed let me ask you this...if your wife,sister, mother, husband, child or any loved one is in the hospital in the ICU do you want exceptional care or do you just want care. Exceptional care means the staff ratio it 1nurse to 1 patient or 1 nurse to 2 patients. Just care is 3 pts or more to 1 nurse. We not only have to take care of SICKER patients we must also take care of the family that comes with the patient. IU Health is a premier system that takes the caring of patients seriously . Our patients are much sicker and more obese than they were 26 years ago. With obesity comes more health problems AND everyone wants EVERYTHING done. People don't care about the cost of what their lifestyle and bad health could cost them. They think that their insurance or the government should pay. People are noncompliant in their medications and in general taking care of themselves. These are the things that take a toll on health care and on the people that take care of them. Yes the CEO salaries are outrageous and when we see an executive get a big bonus for "expanded duties" while we get less than a 2% raise or none at all plus pay outrageous amounts for health care then WE ARE NOT HAPPY! The grunt work is done by the day to day employees but once again the rich get richer and the poor get fired.
    • Perspective
      12,000 jobs added in the last five years, this week 900 cut. Appears to be a net of 11,100 jobs...seems to me that being angry over recent cuts is a matter of perspective.
    • overstaffed? more to the story...
      JK, Teri has valid points about general population's expectations of the health care system, which in many ways are reinforced by state and federal regulations. Afterall, less than the best is ok for everyone else but me and my family members... Oh, and don't be so quick to forget about what our entire nation has been fretting about for 20+ years - the baby boomers impact on the economy and health care as they have moved into their golden years and the available work force to take care of them shrinks. There is a basic market forces at work here, that we all embrace in our country, which is competition. I work in a local hospital and am very familiar with the issues and challenges with changing the entire system. I would encourage you to be cautious in your judgements about how hospitals collectively got to this point. From my experience hospitals are focused on making sure their organizations stay healthy enough to give top quality care to their patients. Seems to be in line with free market concepts that most US businesses fight to operate under. Looking forward to reading your solution on how to start paying for keeping the population healthy and happy about it. To one of Teri's point, hopefully there's something in that solution that put's some responsibility on individuals for their own health, and how hospitals can prevent unhealthy outcomes for crime or accident victims.
      • Nurse Staffing
        Teri, is the nurse/patient ratio in ICU really one-to-one or even two-to-one? Has it ever been? Having had my family members in ICU, it seems the ratio was more like ten-to-one.
        • Personal Responsibility
          I agree with many points that Teri and Mike make. Market forces have finally hit the healthcare industry. Medical providers were shielded from market forces for decades because patients and their families demanded the best of everything and employer insurance delivered it - until the expense became unsustainable. I saw this coming about 10 years ago. Hospitals (and physicians) were constantly looking for new equipment and new services that they could "sell" to patients for greater profit. Having worked in the financial area of healthcare I saw this trend increasing rapidly and was disgusted on a daily basis by the push to provide services that the patients did not need. It has been all about selling more and more services to increase the bottom line. Then, if you are non-profit, you have to find somewhere to put all of the extra money that was siphoned out of patients', employers' and insurers' pockets. For those of you who are against the ACA I would suggest that our country needed this decades ago. It is time that patients are forced to take some responsibility for their own health. I've seen friends suddenly decide that they no longer need the outrageously priced newest pharmaceuticals they were getting "free" once their employer switched to a HSA insurance plan that had a higher deductible. All of a sudden the generic substitute was just fine. Our population has to stop thinking that "someone else" should be responsible for our health and also pay for it. These changes are necessary and I believe they are putting us on the path to be a healthier population.
          • Cuts were necessary
            These cuts were necessary in part due to the Indiana governor refusing to accept the extensions to the ACA that would have covered uninsured indigent care. Because these folks won't be covered in Indiana, IU Health had to decide whether to turn sick people away because of no health insurance OR to cut 900+ jobs. Because of their values and dedication to helping the sick, the cuts had to come. Why is no one reporting this aspect? I guess because the truth is hard to admit.
          • Overstaffing and/or Keeping Abreast of Aging Population
            The author may be correct by the "overgrowth hypothesis", but before coming to a relevant conclusion, I think it would be important to look at the total number of Patient Hospital and Doctor Practice Visits during the 2000's. While the article notes the healthcare headcount numbers increased dramatically from 2007 to 2013, it is not inconsequential that the Baby Boomer population (born in 1945) first turned 62 in 2007. So, I suspect that at least a portion of the significant hospital/physician practice headcount had to be accounted for by the increase in the declining health and infirmities of the aging population, and their respective need to seek medical help.
          • Cuts Are Part of Bigger Picture
            I think what is happening is part of a much broader picture/context. Demographics, geographic location of facilities, indirect impacts of the Affordable Care Act to reduce costs and make prices more transparent, and efficiency initiatives all play a role. If the Governor would accept the expanded Medicaid provisions of the ACA then, perhaps, more order and predictability, in terms of both patient work load and costs, could come to the health care providers throughout Indiana.
          • Transparency
            Nurses do an awesome job. They do most of the heavy lifting in my opinion. My problem is with the transparency in medical billing. I have no idea what a procedure will cost and the hospitals want it that way. There is no other business that could get away with not telling thier customers up front what something will cost. The insurance companies share in the blame here as well. I have excellent insurance coverage and have never asked, or been told, what something will cost. This needs to end and I think it is clearly headed in that direction. True competition needs to find its way into the health system. And, we do not need a hospital on every corner, so yes, overbuilding was a major mistake.
          • ACA
            From everything I have seen and heard about the ACA (Obamacare), it is definitely not the answer. It should have been presented in a better fashion and people allowed to ask questions before it was jammed down our throats and then told "you have to vote for it to read it". This entire debacle has left a bad taste in the mouths of many Americans and has left our country terribly divided. We have one last chance to overturn it and perhaps see what can allowed to stay in and what we can toss out.
          • Teri is correct
            In addition to Teri's valid points, add to that the continual demands placed on caregivers by our government. With all of the mandated paperwork, and continual governmental updates, healthcare workers barely have time to care for patients. Therefore, in order to provide care that patients and their families demand, hospitals are forced to hire additional staff to meet those expectations.
          • Questionable Spending
            Wonder how many cuts were made in non-patient care and "non-essential" areas such marketing for the hospitals? How does marketing contribute to patient care? At IU Health, how many tens (and hundreds) of thousands of dollars were spent to re-brand Clarian into IU Health? By gosh, the marketing people worked very hard to justify their existence at Clarian-IU Health by reminding us as we drive past the I-65 Southbound corner just past the MLK exit. And as Pete stated, there is way too much over-building by the hospital systems.
          • The Math
            The article states that 20% of Dan Evans salary is $460,000 and that just giving up that amount, even in good faith, would have only saved 6-8 jobs. In doing the math, I don't believe the people who have lost their jobs were earning $76,666 - $57,500. Trimming top pay would still be recommended.
            • Unwise spending
              I have a hard time believe hospitals are suffering while viewing the nonstop ads that run, particularily in the early evening. How many times to we need to hear the arrogant boasting that goes on in these commercials? Spend the money on care instead. Or stop building down the street from your competitor.
            • To Teri and Mike
              You are both right that staffing at hospitals have been driven higher by regulations and also by consumer expectations. The latter dynamic is bound to happen when consumers pay only 10 percent of their health care bills, on average. However, by the admission of these hospitals' own executives, they have been inefficient as they have responded to the overall health system's financial incentives, which rewarded more facilities (most Indy-area hospitals run at about 60% capacity most of the time), and each facility requires an entirely new staff to run it. Also, hospitals have been slow to embrace lean techniques and labor-saving IT solutions or, to the extent they have used them, they have only compared their success in doing so against other hospitals, which has been a low standard of efficiency. These are not merely my opinions; these are statements from hospital executives, which I have reported on the record before.
            • On the Medicaid factor
              Jim F., every time I have asked a hospital executive, both on the record and off, about whether an expansion of Medicaid in Indiana would have spared even some of these jobs, I have been told no. They say they lose money on Medicaid patients and while replacing some self-pay patients with Medicaid would narrow those losses somewhat, everyone has told me that it would not have made enough of a difference to matter. I'm not sure that's true. But that's the reason I haven't reported much on it, because no one will confirm your thesis.
            • To Laura
              My math is dealing with compensation, not salaries. Dan Evans earns $2.3 million in total compensation, which includes salary, bonus, perks, health insurance, retirement plan, etc. If you add up the wages, plus the value of health insurance, plus retirement benefits for most IU Health workers, I'm pretty sure it would top $57,000. Tell me, however, if you still think I'm wrong on this point.
              • $650,000 to Center Grove Hugh School
                I wonder how many jobs could have been saved if IU Health in their infinite wisdom, would have used the $650,000 they gave to Center Grove to re-turf their football field, ~$375,000, and ~$68,000 for directional signs. Of course, it's easier to lay off people than to spend on frivolous junk. Dan Evans should be ashamed, but we know he's not.
              • Overstaffing/exec pay
                Noting that 20 percent cut ($460,000) in Evan's pay "would only" is irrespnsible. If a reduction of any amount results in savings or a staff increase--the use of the word "only" is completely irresponsible in a news story or editorial. "Only" is a word oft used by those justifying current pay or increases--typically in the government. Chose your words more carefully; be objective, even in your editorial. The phrase "excessive executive pay" speaks for itself.
              • Excellent Response Posts
                Always enjoyable reading well thought responses covering a variety of areas held within an article. Hospitalized maybe a dozen times I see Teri's point of increased demand upon nurses and agree...I see mine at the VA constantly making rounds and answering calls. Stroll the halls and they are at laptop stations filling out paperwork. Exec pay is a fact of life, you get what u pay for and salaries appearing high to a layman may possibly in fact be low as far as they go for similarly sized facilities or markets. The point remains...Obamacare will give us all an increased cost of living hike that nothing until now comes close in hitting we middle class types. For example, my best friend's friend, single man working at Lowe's, our age, inquired via internet for his rate. $396 monthly!!! And this neighborhood activist we refer to as President thinks that the employer cutbacks to 29 hours to avoid his egotistical attempt at legacy is going to abate his skyrocketed unemployment figures which don't include another estimated 10% of unemployed who have totally given up seeking employment in their fields is going to reestablish fiscal responsibility and a decent economy? The people bought his story of "change" and look what we got...a chief executive with a total lack of executive experience. Thus I will not complain about hospital administrator's pay packages.
              • ain't just Dan's salary
                Over building too much, and too fast, during the boom years, and over advertising to fill all that over building space and rooms to beat the competition for the patients and reputation, over-buying private practices to strengthen the hospital group during the fat times, and over competition among the big 4 local hospitals, ALL contributed to the problems of today. Over the last two-plus years I was there at IU Simon Center and IU Hospital with my dying wife fighting ovarian cancer. We never once experienced too much staff at the care level. Never was there too many nurses, tech's or doctors. It was always what was needed and all could get by with. Competitive overbuilding caused the basic financial downfall, and now future mergers will simplify and maybe help the industry. The very idea of advertising on TV that a certain hospital will show cancer 'who's the boss' and to 'watch out' is the most misleading, disheartening, and disgusting advertisement I have ever seen. Hopefully all the hospital systems will wake up and quit wasting the monies on the trivial and get real with their care.
              • Need Complete Info on ACA
                Duke - I think you might have incomplete information about your friend that works at Lowe's and his potential health care costs. I worked at Lowes this summer and I can tell you that the majority of employees are part timers and will continue to be part timers with our without the Affordable Care Act. Lowe's makes its profits by hiring part timers with low pay and no benefits. The Affordable Care Act does provide an option to those without insurance. Your friend needs to check out the various plans at the 4 levels of coverage to get a good price comparison. And, then, he needs to see how much of a subsidy he would get to help with the premiums. If he works at Lowes I am guessing he would qualify for a generous subsidy. Unfortunately, the health care environment--costs and coverage--is not a simple issue but we all need to understand what is available to us.
              • Health Care Reform
                JK Wall. You are wrong. I was a 50% (part time) employee working 40 hours a week at $17.00/hr from 2009-2012 then my paid time off and health insurance(valued by IU Health HR at $15K a year) were eliminated on 1/1/13. I am agrant administrator that develops budgets for grants for federal grant. I have been working without benefits since them. Employees since 1/1/13 now have to work 48 hours /wk to be eligible for benefits-health insurance and paid time off.In the latest round of 900 employee cuts I was further reduced from 40 hours a week to 24 hours a week. Isn't this a violation of of labor laws? I am a40 hour a week employee and they say I am not entitled to benefits.
              • Overstaffed is inaccurate
                I agree with the commenter. My mother works for IU Health and she says she needs roller skates. She runs constantly for 12 hour shifts. My thoughts are with htose that lost their jobs, but some perspective seems in order for the rest of us who get to work desk jobs and act overwhelmed. Nurses and doctors and hospital administrators should have all the help they can get when a person's life hangs in the balance.
              • Staff ratio
                Yes Joyce in my unit it is 2 pt to 1 nurse or 1/1 if really bad. We are a trauma ICU. So we get the sickest of the sick... The ones other hospitals can't handle.
              • Wanda and no debate on ACA?
                Wanda, You are serious about the lack of "conversation" over the ACA, but you are factually incorrect. From the time the bill was introduced, through its passage, through the 40 times the House tried to repeal it, through today, it has been vigorously debated. You kid yourself into believing it has not been debated. It has been debated. You are not happy with how the debate has gone. But it has been debated.
              • Misleading ads
                Kent, I agree on your comments regarding hospitals cancer advertising. They give the false impression that you will be able to beat cancer with their resources. This is misleading and insulting to those who have lost close ones to cancer.
              • JK's correction is correct
                I can understand Laura's contention that the salary of the employees let go wasn't $57K +...however, as you noted, FICA, Insurance and Retirement easily drives the cost into that range, even if they are only making $30 K...as for the contention that the CEO should take a good faith pay cut, maybe he should, but it is silly to expect it...I worked for General Motors for 25 years...Roger Smith closed 11 GM plants on one day in 1982, and collected a record bonus for a GM executive the very next day. It is not in the DNA of someone that driven and committed to do something for good will...it happens, but not often...people like Lee Iacoccoa, who worked for $1.00 a year until Chrysler got back on their feet are few and far between. And someone please tell Wanda the ship sailed without her...
              • according to whom
                Overstaffed according to whom? You that wrote this article? Where is your evidence that hospitals have been overstaffed? You make a statement like this with nothing to back it up...?
                • To John
                  A hospital system that cuts 935 workers and says it won't affect patient care is giving pretty strong evidence that it was overstaffed. On top of that, the CEO of IU Health told me in April that hospitals, including his own, have been inefficient, which is why he is cutting $1 billion in expenses out over the next four years. Since about 60% of a hospital's expenses are in personnel, that necessarily means job cuts. And, indeed, all hospitals nationwide are moving to cut their expenses by 15 percent to 25 percent. If there were no excess in their staffing, such cuts would be impossible. So I would say there is fairly strong evidence that hospitals have been overstaffed. Do you have evidence to the contrary?
                • Why not?
                  I still don't understand why Community Health Network gets off the hook with these hospital layoff articles. They have been laying staff off since 2010, including myself. They just laid off all of their LPNs last month, July 2013. Is somebody protecting their reputation? If St. Vincent and IU has articles written about them clearly stating how and when their layoff will occur then why absolutely no mention of Community Health Network?

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