Penn State Hershey Medical Center institutes cost containment actions

HERSHEY, PA – Faced with a national economic downturn with no clear timeline for recovery, Penn State Milton S. Hershey Medical Center and Penn State College of Medicine today (Jan. 27) announced several cost containment actions. They include a selective hiring freeze with a focus on reducing total staff, a review of planned capital purchases and a mid-year budget reduction for the College of Medicine.

"Rather than play a game of wait and see, we've chosen to take specific action now to brace ourselves for potential long-term challenges brought on by the struggling economy," said Medical Center CEO Harold L. Paz, who also serves as Penn State's senior vice president for health affairs and dean of the College of Medicine. "We have a responsibility to the communities we serve, as well as to our own staff, to maintain the long term security and viability of our Medical Center and College of Medicine. The actions we take now better position us to weather the challenges of an uncertain economic climate."

The Medical Center's selective hiring freeze aims to gradually reduce total staff by 260 positions between now and Sept. 30, 2009. The 260 positions represent approximately 4 percent of the Medical Center's current total workforce. The Medical Center intends to achieve staff reductions through attrition, eliminating some open positions while not filling many job openings routinely created through retirement and other staff departures. The Medical Center will continue to recruit for certain critical need positions, such as nurses and pharmacists.
Medical Center and College of Medicine leadership also will review $30 million in planned capital purchases, with the intent of delaying those items not considered essential to patient safety, quality of care or carrying out core missions of research and education.

The College of Medicine, which is supported in part by the Medical Center's clinical revenues, will implement a mid-year budget reduction of 1.5 percent and it is anticipated that there will be no salary increases for College of Medicine employees on July 1, 2009.

Through six months, the Medical Center has a positive financial margin but is approximately $750,000 or three-tenths of 1 percent behind budget for the year. The organization is successfully managing expenses (1 percent better than budget) and has seen an increase in overall surgical volumes—up more than 9 percent over last year.

However, as a recent survey by the Hospital and Healthsystem Association of Pennsylvania (HAP) shows, as many as half of all acute care hospitals in the state have experienced a moderate to significant decrease in hospital admissions. Penn State Hershey Medical Center's hospital admissions have declined in recent months and are approximately 3 percent lower than last year at this time.

Meanwhile, the Medical Center's charity care costs are up $1.2 million over last year and bad debt — essentially the amount of patient bills that go unpaid — is more than $450,000 higher than through the first six months of the previous year. 

"With unemployment rates unfortunately going up, our concern is that both charity care and bad debt will continue to increase in the months ahead. These are expenses we can't control but they adversely affect our budget," said Alan Brechbill, the Medical Center's executive director. "It is these kinds of indicators that suggest to us it is important we take action now."