Worried about future, IU Health cuts 800 jobs despite profit rise

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After strong growth for years, admissions at Indiana University Health hospitals in the first half of the year suddenly dipped 4.3 percent.

So IU Health executives, who were already looking for ways to cut $1 billion in expenses, decided to give pink slips to 800 employees, according to an announcement Thursday morning.

Meanwhile, however, IU Health's business is stronger than ever, with income from operations shooting up nearly 20 percent in the first half.

“With more than 50 percent of our costs related to labor, and in the face of declining reimbursements and fewer people being admitted to the hospital, we have regrettably concluded that a work force reduction is necessary,” said Jim Terwilliger, CEO of IU Health’s flagship hospital, Methodist. “This is not a decision that we have reached easily or taken lightly, and comes after great consideration.”

IU Health currently had 36,000 employees, although many of those work part-time schedules. It’s full-time equivalent workforce totals 27,000. For all of 2012, IU Health had revenue of $5.6 billion.

IU Health’s decision comes less than three months after Indianapolis-based St. Vincent Health laid off 865 workers in late June, which was part of a 5,000-worker layoff by its parent organization, St. Louis-based Ascension Health Alliance.

Hospitals around the country have been doing the same, as they worry that fewer patients and lower payments will no longer support the expensive operations they built up during a long boom.

“I believe that, as an industry, we have been inefficient,” IU Health CEO Dan Evans said during an April interview in which he announced the $1 billion cost-cutting goal.

IU Health has been able to offset its decline in hospital admissions with an 8-percent price increase and by receiving more patient visits to its outpatient facilities.

Excluding one-time items, IU Health income from operations rose 19 percent in the first half of 2013 compared to the same period in 2012. IU Health pulled in $186.3 million during those six months, compared with $156.6 million the year before.

Inpatient admissions—those that involve an overnight stay—had been climbing consistently throughout 2012. But then, in January, they started to fall.

Total inpatient admissions in the first six months totaled 68,952, down from 72,057 during the same period last year, according to data IU Health released to bond investors last month.

The steepest declines came at IU Health’s downtown hospitals—Methodist, University and Riley Hospital for Children—where inpatient visits fell 6.3 percent.

Even though IU Health saw fewer patients staying overnight in its hospitals, the total days those patients stayed did not fall until the second quarter. And IU Health posted a slight increase in total patient days for the first six months this year.

IU Health outpatient visits—anything that does not require an overnight stay—rose 1.9 percent during the first six months of 2013. At IU Health’s suburban Indianapolis hospitals in Avon, Carmel, Fishers and Tipton, outpatient visits soared 13.4 percent during the first half.

“We think that the future is going to be around population health. How do you keep people healthy?” Terwilliger said. And that means keeping more patients out of the hospital.

Indeed, the federal Medicare program and private insurers are pushing hospitals like IU Health to enter new kinds of contracts in which they can earn bonuses for keeping patients out of the hospital but could suffer penalties if they spend too much to take care of patients.

That’s one factor pushing down hospitalizations nationwide. In addition, persistently high unemployment and the increasing prevalence of high-deductible health insurance plans have left more patients exposed to the high cost of a hospital visit.

What really has IU Health scared, however, is that the federal Medicare program has been reducing payments to hospitals—and private insurers are likely to follow suit. Whereas hospitals for years have claimed that Medicare payments ran about 20 percent below their costs, hospitals now are desperately trying to cut costs to make money on Medicare.

IU Health’s cost-cutting goal of $1 billion would reduce its annual expenses about 20 percent.

“Our foresight is that reimbursement rates will approximate Medicare,” Terwilliger said.

In addition to cutting jobs, IU Health also has been trying to reduce expenses by closing and consolidating programs. For example, it closed pediatric and cardiac rehabilitation programs at Methodist hospital, and now sends patients to similar programs at Riley and at its suburban hospitals.

IU Health also consolidated multiple lab facilities into a downtown facility.

“We continue to root out expenses that do not add value to our patients,” Terwilliger said.

The job cuts will be focused on IU Health's three downtown hospitals as well as its hospitals in Carmel, Fishers, Muncie and Tipton. The 800 cuts will occur in all areas of those hospitals' operations, including clinical and administrative staff.

The cuts will come from layoffs and possibly from some early retirement buyouts—something IU Health has never done before. Laid-off workers will be notified by Oct. 1 and will have their last day with IU Health near Dec. 1.

IU Health officials said they would provide outplacement services, spiritual support and severance. They declined to detail the severance packages.


  • Gods not dead
    Hi my name is frances. i was a er patient on march 26 2014. I have had gastroparesis. i experienced something at i.u that day. it confirmed my wisdom that compasion is so farse these days. i have come across this article and realize....well lets just say...may God blesss everyone . we need a world run on commpasion. in these things i pray in jesus name AMEN! THANK YOU Lord for another day!
  • Administrative Assistant/Radiology
    I was employed at IUHealth in Bedford and I lost my job. Wait till this cut is all over and they make their goals and watch all the Presidents, CEO,CFO get a BIG BONUS for reaching their goal.
  • No operating cushion
    IU Health makes an operating profit, but since it is "non-profit" they use the funds to build facilities and increase executive pay. When the operating profit declines they fire mid-level employees. Keep in mind that the most profitable department/services were leased to group practices, so the doctors benefit, and the hospital receives rent. Now that the hospitals have purchased practices, they now have ALL the risk.
    My husband got the axe yesterday. He has been a loyal employee for over 20 years, he is only 51 yrs old. Since he has been there so long of course he has better pto benefits, and has maxed his marketband. Looks like they are targeting the ones that have higher pay and benefits. They need to cut the overhead like mr CEO. So much for loyality. He was told there is no seniority, no bumping rights. Job will end no later than December 11th. My husband is devastated. Thansk IU...:( OH and MERRY CHRISTMAS!
  • help me I'm falling
    For years the United States of America had the best health care in the world. If a sick person from almost anywhere in the world could afford it they came here for the best chance of getting well. Now thanks to corporate greed andwe mmust not forget Obama care we are quickly goingddown the drain. Before you know it we might need to travel to Israel for quality health care, or maybe to Mexico for affordable yet dark age treatment. Oh well it will help the S.S. payouts by deducing the life expectancy back to 19 century levels.
  • Top Docs = Top Pay
    Well they are constantly reminding us that they have '80% of the states top doctors'. It costs a lot of money to run those ads every 4 minutes.
  • Double talk
    I hear no suggestions that the Presidents or CEO's take a hit to their bloated salaries. How can it be justified that they waltz away with the big bucks while laying off 800 other people. Community Hospital who hardly ever gets mentioned in these articles started laying people off back in 2010. I was one of them. This week, in fact today Sept 15 all of the LPNs at East are getting the axe. And their campaign of quality and putting patients first is nothing but a big joke because they are so short-staffed now. How come Community Hospital gets to keep it's lilly white image of no layoffs when the rest of the Indianapolis hospitals all have been written up regarding their layoffs and informing the public of what is happening?
  • Cutting the fat
    It seems that healthcare workers...That is the people that do the physical and mental labor of caring for ill and injured patients will be the obvious choice for the 800 job cuts. Hey IU health, maybe it is time to cut the fat at the top. If you had managed and been true leaders then you would be growing not laying off workers. I call for truly accountable care. I know my doctors, nurses, and environmental service workers are compassionate servants trying to help others and make a living wage. Others in the healthcare industry are playing politics. Lets call a spade a spade.
  • Re: The more telling comment
    Unfortunately, the United States doesn't have a healthcare system. We have an ailment management system. We focus far too little on preventative care, early detection and incentivizing healthy lifestyle choices. Our medical providers have no incentive to cure you, but they do have an incentive to make sure that they see you (and your wallet) again. Fortunately, this seems to be changing for the better.
  • Fat in Healthcare
    Suddenly we see the need to cut a little fat out of healthcare delivery, a move that might just add years to the patient's life.
  • The more telling comment...
    “We think that the future is going to be around population health. How do you keep people healthy?” Terwilliger said. This was not part of the process up til now?
    • Cutting Costs
      “We continue to root out expenses that do not add value to our patients,” Terwilliger said. One wonders if this include any part of executive compensation.

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