Erlanger Medical Center officials said Wednesday they have outlined a number of steps to deal with a deteriorating financial picture.

Officials said Erlanger plans to renegotiate contracts with suppliers and vendors and implement a hiring freeze.

Erlanger will also eliminate vacancies, cut labor costs through attrition and "reduce non-patient care positions and reassign employees."

Erlanger issued this "State of Healthcare":

The economic downturn has affected all industries nationwide, including healthcare institutions.

Recent reports from healthcare industry leaders, such as the American Hospital Association, and financial rating agencies, warn that rising unemployment, cutbacks in state and federal funding, and economic uncertainties have resulted in declining admissions and increasing rates of uninsured and bad debt. Hospitals across the country are struggling.

Last week, Tennessee Hospital Association reported that Tennessee hospitals are attempting to address these economic challenges through a variety of mechanisms including cost reductions, hiring freezes and layoffs.

State of Erlanger Health System

Erlanger is not insulated from these issues. Our operating income has been negatively affected by growing unemployment rates, higher deductibles and co-pays, leading to an increase in uncompensated care and fewer admissions and elective surgeries.

Throughout 2008 we have responded to these changes by reducing our dependency on expensive contract labor and overtime, as well as tightening up on overhead expenses and fixed costs. These cost reductions enabled us to achieve better financial performance than last year. It is important to remember that Erlanger made significant strides in 2008. We earned nationwide recognition for our heart and stroke programs, and ensured future growth through our recent partnerships with UTC, Volkswagen Group of America, Alexian Brothers and Hamilton County. Unfortunately these gains have been offset by the worsening economy. To ensure that we maintain a stable organization, additional actions must be taken now.

Erlanger Operations Improvement Plan

The Operational Improvement Plan for 2009 is:

· Renegotiate contracts with suppliers and vendors
· Implement a hiring freeze except for critical positions
· Eliminate vacancies
· Reduce labor expenses through attrition
· Reduce non-patient care positions and reassign employees

More than 50% of the cost reductions will come from renegotiating contracts with suppliers, vendors, and other contracted services.

Although some employees will be impacted, we anticipate that less than 2% of our workforce will be directly affected.

We are confident that this plan for 2009 will stabilize our financial performance, ensure continued quality patient care, enable us to restore raises and implement appropriate market adjustments. We want to thank each of you for your contributions as we continue to work together through these challenging times.