Erlanger Says Cutting Paid Time Off Was Necessary Step To Try To Salvage Hospital Amid Financial Woes

Tuesday, March 04, 2014

Erlanger Health System officials said cutting paid time off benefits to employees was a necessary step among others to try to salvage the hospital from a number of financial difficulties.

President Kevin Spiegel said that if either state DSH or Public Hospital Supplemental Pool funding is approved – and Erlanger receives those funds prior to the end of this fiscal year – PTO accrual will be reinstated immediately.   

He said that temporarily suspending PTO accrual "was a far better alternative than implementing layoffs."

Erlanger employees were told, "In a continuing effort to preserve cash flow and strengthen our financial status, Erlanger is undertaking additional cost-saving initiatives between now and the end of our fiscal year, June 30, 2014.  We were hopeful this would not be necessary, but a number of issues led to these additional cost-reduction measures, including delays in obtaining State Disproportionate Share (DSH) funding, increases in charity care, the State not expanding Medicaid, as well as unanticipated $2.3 million losses in January, and a disappointing financial performance in February.  

"If we do not act quickly and decisively in improving our financial status, Erlanger stands the risk of a technical violation of the bond insurer’s covenants this fiscal year.

"Among the measures and tactics we are initiating to safeguard our financial future, in order to mitigate the possibility of layoffs, are:

                                        Employee Benefits

  • Paid Time Off (PTO) hours will no longer accrue, beginning with the March 2, 2014 pay period, through the end of our fiscal year, with the final pay period ending July 5, 2014.  Although associates will not be accumulating PTO hours for the next four months, they will continue to have access to their current bank of PTO hours, which can be used for vacation or sick days, as well as buy-back.

     Currently associates are not allowed to have a negative PTO balance. 

     However during this four-month period, associates who have already 

     planned vacations or face extenuating circumstances may be allowed to   

     have a negative PTO balance, not to exceed 40 hours. Associates are   

     asked to discuss their situation with their managers if either of these

     situations apply to them.

     This measure alone will save the Erlanger Health System more than

     $600,000 per pay period over the next four months, resulting in a savings

     of $5.4 million.

  • The previously announced reduction of our PTO balance from a maximum of 500 to 400 hours – scheduled to start in April – has been extended to June 30, 2014.  Therefore, those individuals whose PTO bank exceeds 400 hours will not have to sell their PTO hours.

                                              Other Initiatives

 "The Erlanger management team is actively renegotiating payment terms with vendors.  Not only are we requesting a reduction in payments from our vendors, but are also requesting vendors to delay payments from Erlanger for several months. This effort is also expected to result in significant savings this fiscal year.

  • Erlanger is selling several non-performing assets, including the Chattanooga Lifestyle Center downtown, and office buildings in Ooltewah and Soddy Daisy in an effort to generate additional cash reserves.
  • The majority of capital improvement expenditures have been frozen for the remainder of the fiscal year.  Emergent items will still be purchased via the appropriate Vice-President.
  • With the March 1 conversion of our food/nutrition and environmental staff and services to Aramark, Erlanger will recognize an annual savings of up to $3 million. 
  • Erlanger continues to make strategic decisions around the growth of our primary care network, as well as the recent acquisition of two widely-known and respected orthopedic practices. Within the upcoming month, we anticipate that these surgeons will be able to perform all their inpatient and outpatient surgeries at Erlanger.
  • Another strategic and tactical decision to boost growth - and meet a critical community need – is the upcoming opening of the region’s first Epilepsy Center which will further enhance Erlanger’s world-class neurosciences program and boost our patient volumes.
  • Erlanger officials and Development Office staff are actively seeking private contributions to help fund key programs and services.
  • To increase days of cash on hand, Erlanger is accelerating collections of our Accounts Receivables through a third party – without negatively impacting the expenses of the organization.
  • There is a high probability that Erlanger will receive $20 million from the  Public Hospital Supplemental Payment Pool, but likely not this fiscal year. Our President and CEO Kevin M. Spiegel FACHE has made repeated trips to Nashville and Washington, D.C. to advocate for Erlanger to receive these funds – which are rightfully ours as the 9th largest public health system in the United States.
  • Erlanger has acted boldly and decisively to seek repayment of loans to Hutcheson, up to and including filing a lawsuit against Hutcheson this week.
  • Erlanger is working closely with Med-Trans, which operates our air ambulance service, on obtaining a major infusion of capital this fiscal year, including the addition of two new helicopters to help protect our market position in the region – and grow volume.

"Reimbursements are dropping and hospital care is shifting to outpatient settings, which is having a dramatic impact on patient volumes at leading hospitals around the country – including Vanderbilt Medical Center and the Cleveland Clinic.  Erlanger is no exception. 

"We acknowledge we are asking a great deal of our workforce.  We know and appreciate what our dedicated employees have given to this organization, and recognize that the past two years have been difficult. 

"Financial losses in our industry are becoming more common and this next phase of healthcare reform has already taken its toll on Erlanger’s operating and financial status. Preserving cash right now is our top priority and it is imperative we reduce our expenses in the next four months.  Once we have achieved this, once we have obtained the $20 million in Public Hospital Supplemental Pool and State DSH funding, and once the Modernization Act has passed, we will definitely be in a much stronger position, both financially and from a marketplace perspective."



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