7.4 - [Activity Prep] Newtowne Hospital General Instructions
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School
University of California, Irvine *
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Course
202
Subject
Medicine
Date
Jan 9, 2024
Type
Pages
6
Uploaded by davidquach5
1 1 N
EGOTIATING B
UDGET C
UTS
T
HE S
ETTING
:
N
EWTOWNE H
OSPITAL
The rumor about Dr. Van Hagen, one of the country's leading open heart surgeons, was true. She was coming to Newtowne Hospital. This was quite an achievement for the 750 bed college-town teaching hospital. While Newtowne was viewed as a first rate institution in its own metropolitan area, Van Hagen's arrival and the addition of an open heart unit would move the hospital into the top rank nationally. Newtowne's substantial investment in the future was finally paying off. Hospital trustee Herman Savage; Jerome Stephenson, President of the hospital; and Terry Dixon, Chair of the Department of Surgery, made the deal with Van Hagen. Dixon and Van Hagen had been interns and residents together and their families were quite close. Dixon knew that Van Hagen was unhappy on the West Coast and that she wanted to return to her home state. Of course, the hospital had to promise Van Hagen the moon and the stars. The initial reaction of the rest of the Trustees was one of shock. Some of the Department chairs wondered out loud how the hospital was going to come up with the money needed to build and maintain a new open heart unit. On the other hand, no one pressed the money issue very hard. After all, it was not every day that someone of Van Hagen's reputation decided to come to Newtowne. Everyone was walking just a little bit taller since the rumors began. T
HE P
ROBLEM
J. Demars, Chief Operating Officer, knew that there would be trouble even before Stephenson (President of the Hospital) called. By Demars' estimate it was going to cost more than $7.5 million a year plus an additional $3 million in construction costs to build and maintain the new open heart unit. Van Hagen wasn't coming without her assistant or without a promise of several new pump technicians. In addition, she wanted to bring a senior Nurse Clinician and insisted on several other support personnel of her own choosing. This added up to about $1.5 million a year in salaries and benefits. Add the amortized costs of the heart-lung machines, the annual cost of additional surgical supplies, and the additional insurance, and the total easily topped $7.5 million annually. To complicate matters, cost of living salary increases at Newtowne had not kept pace with inflation the past three years, and Demars had been hoping this was going to be the catch-up year. In addition, every department in the hospital had been putting off equipment purchases. New hires, especially in nursing, had been kept to a minimum. All of this had been necessitated by the high interest rates that hit just at the time the hospital had initiated major building improvements. It would take another ten years to retire all the construction loans. In addition, the slight drop in the hospital census had not helped matters. Demars knew that Newtowne did not have the free cash to meet Van Hagen's needs. Stephenson looked at his chief operating officer across the table and said, "Well, Demars, the way I see it, the rest of the hospital is going to have to take a $10.5 million budget cut next year
2 2 to bring in Van Hagen. The Trustees have already indicated their unanimous support for the idea. So, your job is to figure out how to take the cut. I know it won't be easy, but Van Hagen says that in a matter of three or four years, the open heart unit will be paying for itself and maybe even making money." Given the annual budget deadlines and Van Hagen's insistence that all the necessary building changes be made before her arrival in about a year, Demars knew they had to move quickly. Demars made a decision to do something they had never done before. Demars decided to appoint an Advisory Committee to help identify the cuts that should be made. T
HE A
DVISORY C
OMMITTEE
Demars spoke privately to each of the five people he wanted on the Advisory Committee. Demars listened patiently as each reacted angrily to the Trustees' decision. In the end, Demars assured everyone that if the Advisory Committee could reach consensus, the recommendations would go directly to the trustees with Demars’ backing. Otherwise, Demars would let Carter, Chief Financial Officer, recommend how best to cut the $10.5 million and would pass those recommendations along to Stephenson and the Trustees. In the past, Stephenson and the Trustees had always rubber-stamped Demars' budget recommendations. It was not at all clear what they would do if left to their own devices. The first person Demars spoke to was H. Baxter, Chief of the Medical Staff. Baxter was miffed. Although there had been several meetings with Van Hagen, Baxter was never included in the discussions. Indeed, the whole deal was as much a surprise to Baxter as to anyone in the hospital. Under the Newtowne administrative structure, each of the sixteen separate medical departments comes under the direction of a Department Head. In addition, each department has a half-time Director of Educational Services and one Senior Secretary. (The other attending physicians are not salaried.) Baxter's house staff budget totals about $15 million. This covers all the Interns, Residents, and a portion of some other doctors' salaries (e.g. Medical Departmental Heads). Baxter was surprised to learn that Van Hagen would be under a different reporting structure. Stephenson had promised that the new open heart unit would be created as an independent center. As head of the unit, Van Hagen would report directly to Demars and Stephenson, rather than to Baxter -- as the other sixteen department heads did. This seemed like a direct slap at Baxter’s authority. The second person Demars talked to was D. Antry, Vice-President of Nursing. Antry was, along with Demars, one of seven vice-presidents reporting to Stephenson. Antry was extremely annoyed to learn that nursing might have to take cuts so that the new open heart unit could be created. While Antry was pleased about the addition of the open heart unit (which would upgrade Newtowne to a Level I trauma facility), there was no way to maintain nursing quality without an increase in the nursing budget. Also, Antry was concerned that Van Hagen was told that she would have final say over the selection of nurses for the open heart unit. That violated the common understanding of Antry’s prerogatives as the Vice-President of Nursing.
3 3 Then Demars talked to B. Carter, Chief Financial Officer. Carter was, as usual, quite calm, and showed little or no emotion. In fact, Demars thought Carter had a slight grin when they discussed that $10.5 million would have to be cut from next year's operating budget. Carter liked the idea of being free to recommend whatever cuts if the Advisory Committee could not reach agreement. Carter mulled over the idea and thought about cutting those units (like Psychiatry and Pediatrics) that had been "money losers" ever since the hospital started treating departments as profit centers four years ago. A cut of two complete departments would mean an equal distribution of cuts across all departments, since nursing, housekeeping, and the medical staff would all be affected in the same way. Next, Demars talked to V. Eaton, Head of the Nurses Union. Eaton was not prepared to say whether the union would agree to serve on the Advisory Committee. After all, they had a contract and this might be a violation of the existing collective bargaining agreement. Eaton did say that there was no chance the union would support any cuts in the nursing budget and the hospital might as well know that now. Finally, Demars met with F. Fulton, President of the Hospital Workers Association. This is the union representing all the technicians, housekeeping, and support staff. Fulton, too, indicated some concern about serving on an Advisory Committee that would be getting into budget matters. Fulton also made it quite clear that the Hospital Workers Association would rather not see the new open heart unit created if it meant any loss of jobs, salary reductions, or increased workload for union members. Demars decided to act as unofficial chair of the Advisory Committee, serving primarily to facilitate meetings and keep the group on track. All five, though, understood that Demars would not interfere in the substance of their deliberations. THE ISSUES Within two days, Carter had circulated a memo outlining the options as the financial office saw them (see copy attached). Privately, everyone on the Advisory Committee acknowledged the accuracy of what Carter had written. From Demars' standpoint, Carter's memo looked like an excellent starting point for the Advisory Committee. THE NEGOTIATIONS As the five Committee members walked into the first Advisory Committee meeting, they were all a bit nervous. Each had consulted with his or her "constituents" and had very explicit marching orders. On the other hand, each one knew that he or she would have more control over the outcome of these deliberations if a consensus could be achieved. Demars called the meeting to order.
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4 4 N
EGOTIATING B
UDGET C
UTS
AT N
EWTOWNE H
OSPITAL
MEMORANDUM TO: Members of the Advisory Committee FROM: B. Carter RE: Budget Cutting Strategies J. Demars has asked that we cut $10.5 million from next year's operating budget of $600 million. I have a high, medium, and low cut strategy for each of the three components of Newtowne's budget. Rest assured, I have based the estimated value of each of these cuts on a careful review of income and expenses over the past several years. I have attempted to make the best estimates for the committee, and to avoid being conservative by including savings from items such as depreciation and savings we would achieve in financial charges. In every case, the higher cuts include the lower cuts. The higher cuts cannot be separated from the lower cuts because they include savings (such as savings in our tax bill through tax breaks) that we only achieve if we have all the cuts that are outlined in each option. NURSING BUDGET Last year's nursing salary budget came to $180 million (including benefits). Low Cut: $4.5 million. Could be achieved by cutting the proposed cost of living adjustment increase for next year from 5% to 2.75%. Medium Cut: $7.5 million. Could be achieved by offering no cost of living increase for next year instead of the 5% increase we have been discussing. High Cut: $10.5 million. Could be achieved by eliminating cost of living adjustment increases, reducing the continuing education budget for nursing by $750,000 (a 50% cut), cutting the budget for Nurses Aides by $1,050000 (a 15% cut), eliminating three of the eight Nurse Administrator positions under the Vice-President for Nursing ($375,000), and not filling one LPN position in eight of the sixteen medical departments when they turn over ($750,000). B
UDGET F
OR S
UPPORT S
ERVICES A
ND H
OUSEKEEPING
Last year's budget for pharmacy, dietary, housekeeping and support services was about $141 million.
5 5 Low Cut: $3 million. Could be achieved by reducing the pharmacy and dietary budgets by $1,350,000 (a 1.5% cut), and Housekeeping and other support services by $1,650,000 (a little over a 6.1 % cut). These cuts would be possible if Registered Nurses took on just a few of the technical support functions and LP Nurses took on just a few of the chores currently handled by housekeeping. This probably wouldn't be possible if there are cuts in the nursing budget. Medium Cut: $7.5 million. Could be achieved by reducing the dietary and pharmacy budgets by $3 million (a cut of just over 3%); Housekeeping and other support services $1.8 million (approximately a 6.7% cut) and building maintenance by $2.7 million (a cut a little over 10%). For these cuts to work, the nursing staff would have to assume a substantial portion of the work currently handled by technical staff and support personnel. In addition, maintenance staff would have to be cut. The effect would be noticeable. High Cut: $10.5 million. Cut $3 million from dietary and pharmacy, $1.8 million from housekeeping and other support services, and $5.4million could be cut from the maintenance budget by "privatizing a substantial portion of the entire operation." This would mean, of course, laying off members of the maintenance staff and working out a contract with one of the private companies that provides a full range of hospital maintenance services. B
UDGET F
OR M
EDICAL S
TAFF
,
E
QUIPMENT AND S
UPPLIES
Last year's budget for House Staff was $15 million. Newtowne's budget for medical equipment and surgical supplies was $30 million. Low Cut: $3
million. This could be achieved by cutting the budget for interns by $1.5 million (a 10% cut). Presumably, the hiring of the new open heart unit staff would counterbalance some of these cuts. In addition, the medical staff would have to find $1.5 million in savings through a reduction in the use of supplies. Medium Cut: $7.5 million. This could be achieved by either finding savings of about 10% or $3,000,000 in the medical and surgical supply budget. This might be possible if a new, stricter system of inventory control were implemented. High Cut: $10.5 million. This could only be achieved by increasing the cuts in the medical and surgical supply budget by another $3 million. Since this would probably not be possible, an alternative would be to increase patient and clinic charges for medical and surgical supplies by about 10%.
6 6 Negotiating Budget Cuts RESULTS OF THE NEGOTIATION Group # Players real names (A) D. Antry (Vice-President of Nursing) (B) H. Baxter (Chief of the Medical Staff) (C) B. Carter (Chief Financial Officer) (D) J. Demars (Chief Operating Officer) (E) V. Eaton (Head of the Nurses’ Union) (F) F. Fulton (President of the Hospital Workers’ Union) Did you reach an agreement as a group? Yes No If Yes, Terms: 1. $ value 2. $ value 3. $ value 4. $ value
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